Devyani International surges 57% on debut, what should investors do now?

3 months ago 135

The QSR business model has a huge potential in the country with a growing working population as well as changing tastes and preferences of consumers, says Gaurav Garg of CapitalVia Global Research

Sunil Shankar Matkar

August 16, 2021 / 01:17 PM IST

Devyani International, the KFC and Pizza Hut operator, rallied 56.7 percent intraday to Rs 141.05 on the BSE on its debut on August 16 against the issue price of Rs 90 per share.

After the initial euphoria, the stock came under selling pressure at higher levels due to profit-taking and at the time of writing this copy, it was trading at Rs 125.20, up 39.11 percent. It had opened at Rs 141.

Most experts favour holding the stock for medium to long- term, considering the growth potential with high returns once the quick service restaurants (QSR) start operating at full capacity but investors who applied only for listing gains can book profits.

"We would suggest allotted investors to hold on to the stock considering the long-term story in QSR as the market always rewards a player who has the growth potential with high returns," said Prashanth Tapse, VP Research at Mehta Equities.

Tapse likes QSR story on the back of solid Indian discretionary play for the long term and advises investors to add on listing day if they get a chance to accumulate around Rs 110-120.

He is optimistic about QSR growth story, considering the improving organised industry growth benefiting from reduced competition from unorganised restaurants due to Covid- related challenges, wherein Devyani brands are well- positioned to tap the growth story.

Gaurav Garg, Head of Reserach at CapitalVia Global Research, also said QSR business model had a huge potential, with a growing working population as changing tastes and preferences of the consumers.

"The company is valued at 9.54 times on price/sales front, which is quite reasonable when compared to its peers and the IPO is valued at around 62.8 times EV/EBITDA, which looks reasonable when looked together with its peers," Garg said.

It is expected to generate good returns as the growth potential of the industry is good once it operates at full capacity, he said. Therefore if allotted, investors can hold the stock for medium to long-term basis, however investors interested in listing gains can exit, Garg said.

According to Amarjeet Maurya, AVP-Mid Caps at Angel Broking, if the stock is listing above 40-50 percent price band, investors can book the profit.

The initial public offering of Devyani International got a good response and was subscribed 116.71 times during August 4-6.

Devyani International is the largest franchisee of Yum Brands in India and among the largest operators of quick-service restaurants chain in the country with 696 stores in 166 cities as of June 2021.

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Yum Brands Inc operates brands such as KFC, Pizza Hut and Taco Bell. In addition, Devyani International is also a franchisee for the Costa Coffee brand and stores in India.

Its core brands business—KFC, Pizza Hut and Costa Coffee—together with international business, contributed 94.19 percent to revenue from operations in FY21.

Devyani International posted a loss of Rs 62.98 crore in the financial year ended March 2021, narrowing it from a loss of Rs 121.42 crore in FY20. In the same period, revenue from operations fell to Rs 1,134.84 crore from Rs 1,516.4 crore.

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