Devyani International Ltd

Summary

Devyani International is the largest Franchisee of Yum! Brands and operates the highest outlets of KFC, Pizza Hut, Costa Cofee in India, and the company is the largest operators of quick-service restaurants chain in India. It operates 655 stores across 155 cities in India, as of March 31, 2021.

About the company

Devyani International is the largest Franchisee of Yum! Brands and operates the highest outlets of KFC, Pizza Hut, Costa Cofee in India, and the company is the largest operators of quick-service restaurants chain in India. It operates 655 stores across 155 cities in India, as of March 31, 2021.

About Yum brands

Yum Brands is an American fast food corporation and is one of the world's largest fast-food companies in terms of system units. It owns several iconic brands such as KFC, Pizza Hut, Taco Bell, The Habit Burger Grill, and many more. The company operates in 135 nations and territories worldwide.

Devyani started its first association with Yum brands in 1997 when it opened the Pizza hut store in Jaipur. Since then the company has expanded to 696 locations in 166 cities across India and is the largest franchisee of Yum brands on a Non-exclusive basis.

Segment Highlights

The company has three major business segments namely:

Core Brands (73% of the revenue)

International Business (10% of the revenue)

Own Brands (17% of the revenue as of FY 20)

Core Brands

Core brands are KFC, Pizza Hut, and Costa Coffee. They currently operate 284 KFC stores, 317 Pizza Hut, and 44 Costa Coffee stores as of June 21. Among the Core Brands, KFC contributed 61% of the revenue, followed by Pizza hut which contributed 27% of the revenue, and the remaining by the Costa Coffee brand.

International Business

The company operates KFC and Pizza Hut stores in Nigeria and Nepal, it has 34 KFC stores and 3 Pizza hut stores in Nepal and Nigeria put together.

Own Brands

The company also runs south India QSR chain Vangoo and Food Court Restaurants and Bars vertical at Airports, Hospitals, Malls and Highways with brands like Vangoo, Food street, Masala Twist, Amreli, Chrussh, Juice bar, Ile bar, etc. The company has 51 stores as of June 21 as against 64 in FY19. The company intends to create a leaner and profitable business due to which they have moved out of most concession agreements at Airports.

Business Model

New store opening model

Store expansion focus

Brand wise performance

KFC

Pizza Hut

Costa Coffee

Management of the company

Rani Kant Jaipuria - Chairman of DIL

Viraj Joshi - President & CEO of DIL

Manish Dawar - CFO of DIL

Rajat Luthra - CEO of KFC

Amitabh Negi - CEO of PH

Financial Snapshot

Profit and Loss

Balance Sheet

Investment Thesis

High growth in Online Distribution: Online distribution accounted for 70% of the sales of its Core brands in FY21 which is a 19% increase from FY20, The online Delivery channels include Pizza Hut & KFC mobile apps, web ordering services, telephone ordering services and other delivery providers like Zomato and Swiggy.

Concentration of stores in North and South India: North and south India accounted for 74% of its total stores of Core brands and 50% of its stores are located in its top 5 cities.

Shifting organised from unorganised: Private consumption is shifting towards organised led by working population, increasing per capita income, growing working woman population, adopting hygiene food etc.

Business Restructuring and Rapid expansion: The company is moving towards a leaner business model with a shift toward delivery model and smaller store formats for KFC and Pizza Hut. In line with its leaner business model strategy, the company has shut down airport concession stores and 61 non-performing stores to improve efficiencies in the business. The company has adopted an aggressive store expansion strategy with the addition of 100+ stores in FY21, 40 stores in Q1FY22 and believes this will continue for the next 2-3 years. DIL also acquired 73 equity KFC stores in south India from its parent Yum group during the period FY19-21.

Healthy Franchise Agreement: Each new store under the Core brands requires an Initial payment to the Franchisor, As per the Agreement, Devyani will pay 53,400 USD for opening a new KFC store and 26,700 USD for opening a Pizza Hut store and the company will pay 6.5% of its gross revenue as a royalty to YUM BRANDS and a flat 6% of its gross revenue as royalty to Costa coffee International. DIL collaborates with Yum for store selection, product innovation, and development, brand strategy and technology initiatives, etc. DIL pays a royalty of 6.3% to YUM for KFC and Pizza Hut while it has a 6% spend obligation on advertising, brand building, and marketing.

Risk

• High royalty payment to the parent
• Huge competition
• Higher capital intensive business which can affect the company's profitability and retur