A truly exciting week in the stock market! Four companies are launching their IPOs on a single day (August 4)! Out of the four, Devyani International has caught our attention. It is the largest franchisee of some of our favourite fast-food chains! In this article, we take a closer look into the company and learn more about its IPO.

Company Profile – Devyani International Limited

Devyani International Ltd (DIL) is one of the fastest-growing players in the quick-service restaurant (QSR) sector. It is the largest franchisee (or operator) of popular fast-food chains such as Pizza Hut, KFC, and Costa Coffee in India. The company also operates Vaango, a restaurant chain that offers South Indian food. In 2017, DIL acquired the retail and distribution rights in the Indian and UK markets for TWG Tea, one of the world’s largest luxury tea chains. They also operate a food courts, restaurants, and bars (FRB) segment, which can be found at airports and malls.

As of March 31, 2021, DIL operates 297 Pizza Hut stores, 264 KFC stores, and 44 Costa Coffee stores across India. The company’s core brands (Pizza Hut & KFC) saw a CAGR growth of 13.58% from 469 to 605 stores over the last three years. The revenue from these core brands contributes up to 92.28% of DIL’s total revenue. They are also the largest franchisee of US-based Yum! Brands Inc. in India. Yum! is the master franchisee of KFC, Pizza Hut. On a consolidated basis, DIL operates 696 stores across 166 cities in India (as of June 30, 2021).

Devyani International is an associate company of RJ Corp Group— the largest bottling partner of PepsiCo in India. The group has established a strong presence in the beverages, healthcare, real estate, and education sectors. DIL is backed by a strong management team, led by Virag Joshi (the former CEO of Jubilant Foodworks).

About the IPO

Devyani International aims to raise Rs 1,838 crore through its initial public offering (IPO). The public issue opens on August 4 and closes on August 6. The price band for the IPO has been fixed at Rs 86-90 per share. 

The fresh issue of shares (of the face value of Rs 1 each) aggregates to Rs 440 crore. It also consists of an offer for sale (OFS), which aggregates to Rs 1,398 crore. Individual investors can bid for a minimum of 165 equity shares (1 lot) and in multiples of 165 shares thereafter. You will need a minimum of Rs 14,190 to apply for this IPO. A retail investor can bid for a maximum of 2,145 equity shares (or 13 lots). 

Devyani International will utilise the net proceeds from the IPO for two main purposes:

  1. For repayment and/or prepayment of the company’s debt fully or partially. 
  2. The remaining amount will be used for general corporate purposes

The total promoter holding in the company will decline from 75.59% to 67.99% post the IPO. It will provide a partial exit to RJ Corp and Singapore-based investment company Temasek.

Financial Performance

Unfortunately, DIL has posted losses over the past three financial years. The losses reported over FY19-FY21 have been primarily due to the high operating costs incurred towards the expansion of their store network. Amidst the Covid-19 pandemic, the company continued to expand and opened 109 stores over six months. However, DIL has not been successful in recovering these costs. 

The strict lockdowns imposed during the first and second waves of the Covid-19 pandemic had caused major disruptions to all QSR companies. DIL’s FRB segment, which operates through malls and airports, took a severe hit. Revenues from its in-store dining also fell sharply. Interestingly, Devyani is the single largest QSR company in India that operates through food delivery apps such as Swiggy and Zomato. Also, KFC and Pizza Hut were amongst the earliest to roll out contactless delivery in May-June 2020. The company also cut costs by closing down 61 non-performing stores under its core brands. These factors have more or less helped them to post sufficient revenues and narrow their losses in FY21.

Cash flow is a key indicator of a company’s overall financial health. Devyani International has posted negative cash flows (cash outflow) of Rs 17.29 crore and 13.47 crore in FY19 and FY20, respectively. DIL had a cash inflow of Rs 26.73 crore in FY21. In the RHP, the company states that it may see negative cash flows in the future that could adversely affect its operations and implementation of its growth plans.

Risk Factors

  • The Covid-19 pandemic has severely impacted the company’s business and operations. If the situation prevails and further lockdowns are imposed, DIL’s business prospects, strategies, and future financial performance would be adversely affected. 
  • As mentioned earlier, Devyani International has incurred losses in the last three financial years.
  • Around 92.28% of the company’s overall revenue is derived from its KFC and Pizza Hut stores. They heavily depend on trademark license and technology license arrangements with Yum! Brands. The inability to maintain and renew these arrangements will have a negative impact on its financial results.
  • DIL relies on the global success and reputation of its core brands. The failure to protect intellectual property rights and proprietary information may harm the company’s overall performance.
  • The inability to identify suitable store locations could impact its growth strategies.
  • Any delay in the supply of quality ingredients, packaging materials, and other necessary equipment may impact DIL’s operations.
  • Real and perceived health concerns arising from food-borne illnesses and epidemics can impact its business and financial conditions.

IPO Details in a Nutshell

The book-running lead managers to the public issue are Kotak Mahindra Capital, CLSA India, Edelweiss Financial Services, and Motilal Oswal Investment Advisors. Devyani International Ltd had filed a Red Herring Prospectus (RHP) for its IPO in July 2021. You can read it here.


Devyani International has announced ambitious plans to open new stores every year, especially for its core brands. This strategy will lead to a further increase in operating costs and other expenses in the upcoming quarters. Thus, DIL may continue to report losses until these new stores mature. Moreover, another severe wave of the Covid-19 pandemic would affect its overall sales and expansion plans. If they are unable to open new stores and ensure store profitability, Yum! Brands could terminate their current arrangements with DIL. Since a significant portion of their revenues comes from KFC and Pizza Hut stores, DIL will have to focus on strategies to control the Covid-19 impact.

The company aims to use the net proceeds from the IPO to repay a large portion of its debt. This would help them to utilise their internal accruals (or operating income) specifically for investments in business growth and expansion. Let us look forward to seeing how they execute these plans. 

Once DIL gets listed, it will be directly competing with prominent listed QSR companies such as Burger King, Barbeque Nation, Jubilant Foodworks, and Westlife Development. It is a highly competitive space.

The Grey Market Premium (GMP) of Devyani International’s IPO shares stood at Rs 55-65 as of today morning. It means that shares are being traded in the unofficial market at Rs 65 more than the issue price. It seems that the company has received some interest in the grey market, although not very significant when compared to previous IPOs. What are your opinions on this public issue? Will you be applying for it? Let us know in the comments section of the marketfeed app.