CLSA has initiated coverage on Devyani International with an ‘outperform’ rating and assigned a target price of Rs 207 per share. The brokerage is positive on the company's expansion spree and expects its operating leverage benefits to kick at some point. The stock has already rallied about 56-57 percent over the last three months.
According to CLSA, the EBITDA levels the company posted for FY21 could quadruple over the next three years, for three reasons:
On Tuesday, the Devyani stock rose as much as 5.7 percent to Rs 197.2 apiece on BSE, coming within one percent of a 52-week high of Rs 198.9 apiece, hit in mid-December. It has more than doubled from its IPO price of Rs 90.
CLSA values the company at 26 times its FY24 EV-to-EBITDA ratio. Assuming that the EBITDA has quadrupled from FY21 levels, it is at a discount of around 10 percent to Jubilant FoodWorks, according to the brokerage.
It values the company at 77 times FY24 earnings. The brokerage is optimistic giving the extremely large opportunity in India's QSR space.