Why are these KFC moguls dishing out different profits?

Devyani International Limited (DIL) and Sapphire Foods India Limited (SFL) are two major players in the Indian QSR (quick service restaurant) market. Both operate Pizza Hut and KFC stores across the country. Yet, both companies trade at contrasting valuations, with Devyani being ahead of Sapphire. Let's explore why. A tale of varying valuations The first thing we checked was how much profit each company generates on its equity. On that front, Devyani International leads Sapphire Foods by quite a significant margin. Upon taking a closer look at their returns, we observe little difference between Devyani and Sapphire's performance till the EBITDA (earnings before interest, tax, depreciation and amortisation) level. However, the deviation started after that. Compared to Devyani, Sapphire boasts a larger equity base, the excess of which primarily lies in cash and fixed assets (particularly plant and machinery and leasehold improvements). Further, while Sapphire has a lower store count than Devyani's, the former's quantum of store-related assets is similar to the latter's. As a result, Sapphire's high fixed assets have led to increased depreciation costs, affecting its return ratios. A comparison of Devyani and Sapphire's financials (9M FY24) Sapphire's legacy problems are hurting its profitability Metric SFL DIL Total store count 850 1452 Revenue (Rs cr) 1963 2509 EBITDA margin (%) 18.3 18.9 Depreciation (Rs cr) 237 259 Interest cost (Rs cr) 73 130 Profit before tax (Rs cr) (1) 54 85 Shareholders' equity (Rs cr) (2) 1313 1023 (1) / (2) (%) 5.4 11.1