Emkay Global Financial has given Buy recommendation for Devyani International with a target price of Rs. 210 in its research report issued on May 03, 2022

Emkay Global Financial’s report on Devyani International

Q4 EBITDA was 6-10% higher than our/Street estimates, led by a ~200bps margin beat, while revenue was in line. RM forward contracts, margin gains in PH and lower HO costs led the beat. Topline grew ~40%, led by healthy store additions and 2-3% SSG in KFC/PH. SSG was impacted by localized restrictions in Jan’22, but the exit run-rate recovered fully. Store adds remained strong with 54/246 net additions in Q4/FY22. DIL expects to maintain 8%/5% normalized SSG for PH/KFC formats and 200-250 annual store additions. For KFC, DIL took an 8-9% price hike in Apr’22 (still behind inflation). For PH, it is relatively better placed. We raise our revenue estimates by 5-6%, factoring in the recent price hikes, but we cut margin estimates by 60-70bps, leading to 2-3% increase in EBITDA estimates.

Outlook

We expect DIL to deliver an industry-leading EBITDA CAGR (38% over FY22-25E) and strong RoIC improvement to ~40% in FY25E. Maintain Buy with TP of Rs210 (37x Jun’24E EBITDA vs. 42x Mar’24E). Multiple cut is due to 25bps higher CoE and 3M rollover.

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