Devyani International fixes IPO price band at ₹ 86-90
MUMBAI: Devyani International Ltd (DIL), the largest franchisee of Pizza Hut, KFC, and Costa Coffee, has fixed the price band of its initial public offering (IPO) at ₹86-90 a share. Earlier, the firm said its IPO will open for subscription on 4 August and close on 6 August.
The IPO consists of a fresh issue of ₹440 crore and an offer for sale of issuing upto 155.33 million shares by its existing shareholders and promoters.
At the upper band price of ₹90, the firm will raise ₹1,838 crore. An offer for sale or OFS comprising 65.34 million shares owned by Dunearn Investments Mauritius Pte, and upto 90 million shares by RJ Corp Ltd was also announced by Devyani International. The proceeds from the issue will be used for repayment of certain or full borrowings of the firm.
As of June 2021, the aggregate outstanding borrowings of the company (on a consolidated level) stood at ₹541.59 crore.
Devyani is the single largest QSR company in India to be listed on Swiggy, and was amongst the largest QSR companies in India be to listed on the Zomato platform in 2019 and 2020.
Despite the pandemic, the company has continued to expand its store network. It has opened 109 stores across its core brand business in the last 6 months. KFC and Pizza Hut were among the earliest to roll out contactless delivery in May 2020 and June 2020, respectively, according to the company.
The firm currently operates 297 Pizza Hut stores, 264 KFC stores and 44 Costa Coffee outlets as of 31 March in India. During March 2019-2021, the core brand stores saw a compounded annual growth rate (CAGR) of 13.58% from 469 stores to 605 stores.
Kotak Mahindra Capital Company Ltd, CLSA India Pvt Ltd, Edelweiss Financial Services Ltd, and Motilal Oswal Investment Advisors Ltd will serve as investment bankers for the IPO.
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Devyani International IPO price band fixed at Rs 86-90 per share; issue opens next week
Devyani International’s IPO consists of a fresh issue of equity shares and an offer for sale.
Devyani International, the single largest operator of marquee quick-service restaurants (QSR) such as KFC, Costa Coffee, and Pizza Hut has set the price band for its upcoming IPO at Rs 86-90 per share. At the upper end of the price band, the company will look to raise Rs 1,838 crore from the primary market. Devyani International’s IPO opens next week on August 4 and will remain open for subscription till August 6. This will make it the third restaurant chain to raise funds through an IPO in recent time, after the successful listing of Burger King India and Barbeque Nation Hospitality.
Devyani International’s IPO consists of a fresh issue of equity shares and an offer for sale. The company will raise Rs 440 crore through a fresh issue of equity shares while existing shareholders will sell 15.53 crore equity shares, which translates to Rs 1,398 crore at the upper end of the price band. The company plans to use the funds raise through the fresh issue for repayment or prepayment of all borrowings. Investors can bid for the issue in a bid lot of 165 equity shares and in multiples thereafter. At the higher end of the price band, the minimum investment for the IPO would be Rs 14,850 per investor.
75% of the entire issue will be reserved for Qualified Institutional Buyers (QIB), while 15% will be kept for Non-Institutional Investors (NII) and 10% for retail investors. Devyani International has also kept 5.50 lakh shares reserved for its employees. Upon successful completion of its IPO, Devyani International will join the likes of Jubilant FoodWorks Ltd, Westlife Development Ltd and Burger King India.
The offer for sale will see promoter RJ Corp Limited sell 80.48 lakh equity shares and another shareholder Dunearn sell 16.33 lakh equity shares. Devyani International is among the single largest QSR companies in India to be listed on Swiggy and Zomato in the calendar years 2019 and 2020. The company is a loss-making entity, reporting a net loss of Rs 62.99 crore in the previous financial year. Devyani International said that its revenue from core brands, along with the international business, represented 83%, 82.94% and 94.19% of their revenue from operations in the previous three financial years.
No competition for KFC in India, says chairman of IPO-bound franchisee Devyani International
IPO-bound Devyani International, the biggest franchisee of Yum! Brands in India, sees no competition for KFC in the country, given its unique chicken offering, the company’s Chairman Ravi Kant Jaipuria said.
The company, which runs 696 stores across 196 cities in India, including Yum! Brand-owned quick-service restaurants (QSRs) such as KFC and Pizza Hut, plans to raise about Rs 1,838 crore through the initial public offering next week.
“We offer fried chicken and 80 percent of our business is chicken only, whereas if you look at other QSRs in the segment, they are burger-based,” he added.
Jaipuria said adoption of the delivery model instead of the earlier focus on dine-in was working very well for Pizza Hut and there is huge scope for its expansion.
The company plans to use the funds raised through the IPO proceeds to pay most of its debt, while its expansion going ahead will be funded through internal accruals.
KFC: the crown jewel
Devyani International runs 284 KFC India stores across 107 cities in India and the brand contributes more than half of its revenues.
“KFC has been a star performer within DIL’s portfolio on all fronts — store expansion, revenue growth as well as profitability. DIL’s KFC store network has grown at 40 percent CAGR over the last three years (25 percent CAGR on an organic basis) and it now accounts for more than 50 percent of Yum’s India KFC store network vs. less than 30 percent three years ago,” said a recent note by brokerage firm Jefferies India.
According to Jefferies, the format generated 57 percent of Devyani International’s revenue in FY21 and 73 percent of its brand contribution profit.
The company has the right to open KFC stores in states in South India and East India, along with some states in North India (Rajasthan, J&K, Himachal Pradesh) and a few cities in Delhi NCR and Uttar Pradesh, and Bengaluru.
Pizza wars
Devyani International faces stiff competition from Jubilant FoodWorks which runs Domino’s in the pizza segment. Pizza Hut currently has 500 stores in India, of which 317 are run by Devyani International. Jubilant FoodWorks, on the other hand, already has 1,335 outlets in India.
Sapphire Foods India and Burman Hospitality are other franchisees of Yum! Brands in India.
“Pizza Hut (incl. delivery) has strong competition in Domino’s Pizza and will take a fair amount of investments on brand recall along with aggressive rollouts. Conversely, KFC enjoys a strong brand position and Jubilant FoodWorks' Popeyes will need to make similar investments and, hence, is not a serious threat, in our view,” said a note by Jefferies.
Both the companies have aggressive expansion plans for their brands Pizza Hut and Domino’s Pizza. Jubilant FoodWorks while reporting its first-quarter results for FY22 said that it plans to add 150-175 stores for Domino’s Pizza this year.
“DIL’s Pizza Hut network has expanded at a mere 7 percent CAGR vs. 39 percent CAGR for KFC (25 percent organic). While 107 stores were opened on a gross basis over FY18-21, 54 stores have also been shut down resulting in a much lower net addition,” said Jefferies.
The two companies, however, have a different approach to the delivery business. Domino’s Pizza focusses on deliveries through its platform, which is the major contributor to its delivery business, while Pizza Hut relies on food aggregators, a model it plans to continue deploying.
“We are one of the largest business partners for Swiggy and Zomato,” said Jaipuria.
“Though we have our delivery infrastructure, the sales are relatively low as compared to the food aggregators,” he added.
According to Jaipuria, the model is working out for them because it is a variable and in a fixed model, the company would have to develop its delivery infrastructure. Also, he added, this speeds up the rollout to new cities and towns.
The coffee challenge
Devyani International runs 44 Costa Coffee stores across 17 cities in India. According to the company, its Costa Coffee outlets reported a revenue of Rs 90 crore in the pre-pandemic period FY19 and Rs 21 crore in FY21.
Jaipuria also said Costa Coffee has had some international management changes and Devyani International is under negotiation with the company.
“We are currently going through the legalities of the agreement,” he added.
Costa Coffee, analysts said, is the weak link in Devyani International’s portfolio.
“Devyani International has closed several stores in FY21 and store count has reduced by ~30 percent. While format profitability is modest with double-digit Ebitda margin in FY20 (pre-Ind AS 116), revenue growth has been sub-par,” said Jefferies.
Costa Coffee contributed 5 percent of the company’s revenue in FY20 and 10 percent of brand contribution profit during the period.