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market | IST

Devyani International IPO: Should investors subscribe? Here's what brokerages say

The three-day initial public offering (IPO) of Devyani International, the largest franchisee of Pizza Hut, KFC, and Costa Coffee in India, opens for subscription today and will conclude on August 6. The price band for the IPO has been fixed at Rs 86-90 per share.

The three-day initial public offering (IPO) of Devyani International, the largest franchisee of Pizza Hut, KFC, and Costa Coffee in India, will open for subscription today and conclude on August 6. The Rs 1,838-crore public issue comprises a fresh issue of Rs 440 crore and an offer for sale of Rs 1,398 crore.

The price band for the IPO has been fixed at Rs 86-90 per share. At the higher end of the issue price, the company seeks post-listing MCAP at Rs 10,820 crore. The company has already raised Rs 825 crore from anchor investors and the anchor book has most of the prominent foreign and domestic names.

In FY21, Devyani’s business from the core brands (India & internationally) - KFC, Costa Coffee & Pizza Hut - accounted for 94.19 per cent of revenues from operations. Delivery sales represented 70.20 per cent of revenues in FY21. Overall stores at FY21 stood at 605, up from 469 in FY19.
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The company reduced its loss in FY21 to Rs 62.98 crore from Rs 121.42 crore in FY20. Revenue in the same period declined to Rs 1,134.84 crore from Rs 1,516.4 crore.
Here's what brokerages said about the Devyani International IPO:
Angel Broking
In terms of valuations, the post-issue FY2021 EV/Sales works out -9.9x to (at the upper end of the issue price band), which is low compared to peers (Jubilant Foodworks-15.4x, Burger King India -14.8x, Westlife Development – 10x). Further, Devyani International has a better operating margin compared to Westlife Development & Burger king. We believe this valuation is at reasonable levels.
The brokerage recommends a ‘subscribe’ rating on the issue.
Religare Broking
Devyani is well placed to benefit from growing industry trends as it has a strong portfolio of highly recognized global brands which cater to a range of customer preferences. The financial performance has been tepid for the company which has further got impacted in FY21 due to the pandemic. However, the company intends to improve its unit performance which would aid better margins. Considering the current market sentiments, investors may ‘subscribe’ for listing gains.

KR Choksey

Considering the performance of competition in a pandemic year, investors should look to invest in Devyani International's IPO for listing gains as well as for the long-term opportunity it presents, according to the brokerage.

It further added that recent initiatives taken by Devyani International would help in increasing revenue however the economic recovery post-Covid-19 is key for the QSR industry.

BP Wealth
Devyani International’s strong portfolio of globally recognised brands, business, and geographical diversification, strong presence across key consumption areas, and increasing digital adoption provides a strong growth runway for the company.
Although the company has been loss-making, it is on a footprint expansion mode with strong industry triggers. On the valuation front, based on upper price band and diluted equity shares the company is valued at 9.54x Price/Sales which is reasonably priced when compared to its listed industry peers (i.e, Jubilant Foodworks- 12.9x, Burger King- 14.4x and Westlife Development- 8.81x).
Considering the expected improvement in financial performance and future growth drivers, we give a ‘subscribe’ rating for the long term.
Anand Rathi
At the upper end of the IPO price band, Devyani International Ltd. is offered at 9.5x market capitalisation /sales as per FY21 financial statement, compared to peers like Jubilant Foodworks Ltd. (15x), Westlife Development Ltd. (8.8x), Burger King India Ltd. (14x).
We believe the company remains well placed for long-term growth considering the company’s portfolio of recognised global brands catering to a range of customer preferences, cross-brand synergies, expansion of store network, and EBITDA positive earnings; we give this IPO a ‘subscribe’ rating.
Apart from Devyani, three other companies open their IPOs for subscription today - Windlas Biotech, Exxaro Tiles and Krsnaa Diagnostics.