DEVYANI - Devyani International Limited Share Price

Devyani International Limited's management expressed optimism about the Indian QSR sector's recovery, driven by the Union Budget 2025's tax reforms, which are expected to boost middle-class purchasing power and consumer spending. Key highlights and outlook include:

Store Expansion & Milestones: The company achieved its target of 2,000+ stores (2,032 as of December 2024), with core brands (KFC, Pizza Hut, Costa) adding 107 stores in Q3. Small-format stores remain a focus for capital efficiency.

Financial Performance: Consolidated revenue grew 53.5% YoY to Rs.1,294 crore in Q3 FY25, aided by Thailand's acquisition. Indian business revenue rose 9.6% YoY (Rs.873 crore), while international revenue (Thailand, Nepal, Nigeria) contributed Rs.430 crore. Gross margins dipped slightly (68.7%) due to food inflation (oil, chicken, cheese), but cost optimization improved brand contribution margins to 14.3% (up 70 bps QoQ).

Brand Performance:

• KFC: 44 new stores (689 total in India), flat ADS (Rs.96k/day), margin improvement to 17.2% (up 60 bps QoQ). Focus on value menus (Rolls, Snackers) drove festive sales.
• Pizza Hut: 51 new stores (644 total), weak margins (2.1%) due to subdued demand; expansion to slow pending recovery.
• Costa Coffee: 209 stores, revenue up 30.2% YoY, margins at 16.9%.

Growth Initiatives:

• Food Courts: First JV outlet with PVR INOX launched in Kota; more planned.
• International: Thailand added 9 stores (305 total), Nigeria stabilized post-currency volatility.
• New Brands: Three QSR brands (e.g., Sanook Kitchen) to launch from FY26.

Outlook: Management expects SSSG and margins to improve with consumer sentiment recovery, cost measures, and targeted marketing. KFC aims for 19"“20% margins at 100k ADS. Pizza Hut's expansion will hinge on demand revival. Food courts and tier-2/3 expansions are key growth drivers. Challenges include inflationary pressures and geopolitical risks in select states (Kerala, West Bengal). Overall, DIL remains confident in its market leadership and long-term returns from aggressive, calibrated expansion.

Question 1: My first question is with regard to the store expansion that we have seen in Pizza Hut. You know, it's been a really strong expansion that we have seen here. And I think the same is the case with the other business segment also, wherein the network expansion has been strong. So, if you can highlight your guidance on the expansion in both of these formats going ahead.
Answer: Pizza Hut expansion was accelerated due to delayed commitments but will moderate going forward. KFC remains the growth focus, with 93 stores added in 9M FY25. JV food courts (e.g., Kota) are excluded from consolidated numbers but contribute to overall footprint.

Question 2: My first question is on the KFC performance. So, if I look at your ADS and margin numbers and compare that with your sister franchise, there seems to be some divergence. I just wanted to understand is this because of any region split or are you seeing any material difference in demand trend between different tiers of cities which could be driving this?
Answer: Divergence stems from regional factors: metro-heavy sister franchises saw stronger recovery, while DIL faced challenges in Kerala, Assam, and West Bengal due to geopolitical issues. Improved conditions in these regions are expected to boost future performance.

Question 3: How do you look at margins going ahead, especially for KFC? I mean, we are in negative territory right now, but supposing we go into a minor positive territory, a low single-digit kind of SSSG strategy for the next few quarters. In that kind of scenario, do we see KFC margins at around 17.5% to 18% or can it be better than that?
Answer: KFC targets 19-20% brand contribution margin at ~100,000 ADS, achievable through cost optimization (labor, utilities) and sales leverage. Margin recovery hinges on SSSG improvement and store maturity.

Question 4: My question is on the Pizza Hut. You said that any further growth in terms of store network or investments in marketing will be dependent on performance. So, can you guide us what performance markers you are looking for to get convinced of a turnaround?
Answer: Pizza Hut's expansion and marketing spend depend on SSSG and ADS recovery. SSSG improved from double-digit negatives to near-breakeven, with industry trends suggesting potential recovery.

Question 5: Last quarter we talked about experimenting with some marketing and pricing promotions in select markets, right? So, how has been the response to such initiatives and what is the margin impact of this in the current quarter?
Answer: Promotions drove KFC demand but had limited success in Pizza Hut. Marketing spends will be recalibrated from January to prioritize cost efficiency while balancing volume growth.

Question 6: Given the team's experience with power cycles, we have seen first time in the listed phase, so, just wanted to understand, does aggressive expansion typically pursue during downturns?
Answer: Expansion during downturns secures prime real estate for future growth. Smaller store formats ensure capital efficiency. Past success (e.g., COVID-era expansion) validates this strategy.

Question 7: My first question is regarding the depreciation of the rupee this quarter"”what would be the impact of that?
Answer: Minimal operational impact as imports are limited. Translation effects from international operations (Thailand, Nigeria) are non-transactional. Capex-related forex exposure is negligible.

Question 8: I wanted to check with you on your thoughts around this quicker 10-minute delivery platform, which was announced by the leading food aggregators.
Answer: KFC's ready-to-eat model suits quick delivery; Pizza Hut's preparation time limits participation. Experimentation with select menu items is underway, aligning with home-consumption trends.

Question 9: We've been in a prolonged period of a weak environment. Now that you are hinting at recovery, could you give clarity on SSSG and margin expectations?
Answer: Positive SSSG is anticipated with budget-driven consumer sentiment recovery. KFC margins (19-20%) require sustained SSSG improvement and ADS growth to ~100,000, likely over multiple quarters.