The Devyani International’s IPO has opened today (Aug 4) and the price band is Rs 86 to 90 share. The company's brands are household names such as KFC, Pizza Hut and even Costa Coffee. The total size of the issue is Rs 1840 crores out of that the fresh issue is Rs 440 crores.
To discuss about the business outlook going forward, CNBC-TV8 spoke with Ravi Kant Jaipuria, Chairman of Devyani International and to know if one should subscribe to the IPO, the channel spoke with Gurmeet Chadha, Co-Founder & CEO, Complete Circle Consultants.
Talking about where the funds raised via the IPO would be utilised, Jaipuria said it is basically going to be used for repaying the debt, and we have enough cash flows to expand our business and we would not be looking for any borrowing or diluting further.
The company has been loss-making for the last three years but the losses have narrowed in FY21 compared to the previous year. When asked when they would turn profitable, he said, “Even this year, once we have a normal year, we are looking to get back to profits. We are already profitable at brand levels and all our brands and I think this year if we don't have another third attack of pandemic we should be profitable this year itself.” So, we would be profitable in FY 22 on the net level, he added.
The company has franchise rights for young brands. When asked about royalty arrangement and if there could be royalty escalation whenever the contract is renewed, he said, “So we have specific areas, for Pizza Hut we have most of India for delivery and for KFC we have specific areas which is mostly south, east and certain geographies in the north. But royalties reasonably fixed. It has been fixed for the last 25 years and we don't see any changes coming in it.
The Costa Coffee brand has been struggling for the company, so would they continue to invest in that brand or are there any changes in the plans, Jaipuria said, “No, there's no change. We're just waiting to finalise our agreement, which we hope to happen very soon. It is a great brand, and as soon as the agreement is signed, which as I said would be in the next couple of weeks, we will expand this brand quite aggressively.”
On blended margin profile, he said, “I think blended margins if you look at, you are looking at about 15% EBITDA, which is very healthy in the fast-food business and this is consolidated with all the brands included.”
“We are looking at about 200 stores average to be opened over the next five years -- so every year about 200 stores at least which would be KFC and Pizza Hut mainly and then Costa and Vaango our own grown brand.
For the entire discussion, including the analysts' analysis, watch the accompanying video