Devyani International Q1 growth gains from KFC recovery, dine-in and international business

Investment View and Target Price

Anand Rathi Research retained its BUY rating on Devyani International after Q1 FY27 delivered broad-based growth, supported by positive same-store sales growth (SSSG) across most brands, disciplined store expansion and resilient international operations. The broker believes the turnaround strategy focused on innovation, value, higher dine-in sales and efficiency measures is beginning to yield results.

The target price was reduced to Rs 160 from Rs 172, reflecting soft operating performance in FY25 and FY26 and the resulting sectoral derating.

Q1 FY27 Financial Performance

Consolidated Q1 FY27 revenue rose 16.5 per cent year-on-year to Rs 15,805 million. Consolidated EBITDA increased 24.4 per cent year-on-year to Rs 2,548 million, while EBITDA margin expanded 100 basis points year-on-year to 16.1 per cent.

Gross margin improved 90 basis points year-on-year to 69.1 per cent, aided by procurement efficiencies, a better channel mix and disciplined pricing. These actions partly offset higher LPG, food commodity and packaging costs. Higher summer utility costs, minimum-wage increases and annual salary increments remained cost pressures, but were largely mitigated through tighter cost control and operating leverage.

India Business: KFC Drives the Recovery

India business revenue increased 15 per cent year-on-year to Rs 10,700 million. KFC was the principal growth driver, with revenue rising about 12 per cent year-on-year to Rs 6,842 million. KFC SSSG turned positive at 3.3 per cent, compared with negative 0.7 per cent in Q1 FY26, while the network added 12 stores sequentially to reach 794 stores.

KFC dine-in mix improved by more than 300 basis points year-on-year to 57 per cent. Gross margin expanded 230 basis points to 69.4 per cent, and brand contribution increased 22 per cent to Rs 1,150 million. Brand contribution margin rose 140 basis points.

Management is targeting KFC average daily sales of Rs 105,000 to Rs 110,000, which it believes could support brand contribution margin above 20 per cent under the prevailing cost environment. Medium-term KFC SSSG is expected to be about 5-6 per cent, supported by better-quality store additions, a higher dine-in mix, operating leverage and technology-led productivity. Planned innovations include phased launches of the global Quench beverage platform, sauces and boneless offerings following localisation and capex optimisation.

Pizza Hut Remains the Key Weak Spot

Pizza Hut revenue declined 2 per cent year-on-year to Rs 1,843 million. SSSG was negative 2.2 per cent, although this improved from negative 4.2 per cent in Q1 FY26. Average daily sales improved sequentially to about Rs 32,000.

Devyani International ended the quarter with 626 Pizza Hut stores after closing underperforming locations, resulting in a net reduction of 13 stores. Gross margin improved to 76.3 per cent, but lower sales productivity and higher operating costs led to a Rs 36 million brand contribution loss.

Management is focusing on product quality, innovation, menu architecture and pricing across price points. A broader turnaround is expected after the Sapphire Foods merger streamlines decision-making.

Own Brands and International Operations

Own brands Biryani by Kilo and Vaango generated about Rs 980 million in revenue, with SSSG of 7.2 per cent and 7.1 per cent respectively. Revenue benefited from the Biryani by Kilo acquisition, while net store count increased by 17. Gross margin improved sequentially to 65.9 per cent and brand contribution margin was 10.2 per cent.

Management is testing Biryani by Kilo dine-in formats, airport outlets and a vegetarian portfolio. It aims to build the brand into a Rs 10,000 million business over the next few years.

International revenue rose 20 per cent year-on-year to Rs 5,230 million, led by Thailand. International brand margin reached 18.1 per cent.

Sapphire Foods Merger and Growth Outlook

Management said the Sapphire Foods merger remains on track for completion by FY27-end. Technology integration, leadership hiring and organisational restructuring are progressing. Management expects the transaction to improve execution, create operational synergies and build a more efficient combined platform.

Anand Rathi expects Devyani International revenue to grow at about 13 per cent CAGR over FY26-FY28E, led by KFC improvement, own brands and international operations. EBITDA margin is expected to expand 190 basis points to 16.9 per cent over FY26-FY28E as SSSG recovery and operating leverage build.

Revised Estimates and Valuation

At the report CMP, the stock traded at 14.0 times FY27E and 11.6 times FY28E EV/EBITDA. The Rs 160 target price applies 16 times FY28E EV/E, reduced from 18 times previously.

Key Risks

• Weaker SSSG amid lower discretionary demand.
• Adverse changes to or termination of Yum! Brands franchise agreements.
• Higher competition and sharp input-cost inflation.
• Sourcing and cold-chain complexity.
• Limited differentiation or overlapping QSR offerings.