Shares of Devyani International rose nearly 4% in intraday trade on BSE on November 4. The stock closed 2.67% higher at ₹188.20 on BSE.
The stock suffered a loss of more than 2% on November 3 after the company released its September quarter earnings.
In a BSE filing, the company said its revenue from operations grew 45% year-on-year (YoY) in Q2FY23 to ₹747.4 crore from ₹516.1 crore in Q2FY22. Profit for the quarter under review stood at ₹58.76 crore, up 28.6% from 45.70 crore in the same quarter last year.
It said that consolidated EBITDA (Post-IndAS) in Q2FY23 stood at ₹165.5 crore, up 34% YoY, with margins at 22.1%.
It further said it achieved the highest-ever net new store opening in a quarter – opened 88 net new stores in Q2FY23, taking the total count to 1,096 as of September 30, 2022.
Brokerage firms remained largely positive on the stock after its Q2 numbers, however, some of them are cautious as they believe the stock's valuation is rich and has a limited upside in the near term.
Brokerage Emkay Global Financial Services has maintained a buy call on the stock with a target price of ₹225, citing Devyani’s Q2 EBITDA was largely in line with its estimates.
Among brands, KFC SSG (same-store sales growth) at 13% was better than expected, while PH (Pizza Hut) SSG at 3% was weaker, said Emkay.
The brokerage firm highlighted that the near-term commentary was cautious, as PH softness was attributed to weak consumer sentiment amid elevated retail inflation. However, Devyani retained its outlook of 7-8% SSG for PH, underpinned by its entry into the value-pizza segment [Flavor-Fun Pizzas].
“We uphold EBITDA for FY24/25E, led by retained medium-term outlook. We expect Devyani to deliver strong EBITDA CAGR of about 41% in FY22-25E, led by 24% store-count CAGR, 10% SSG and gradual margin gains,” said Emkay.
Motilal Oswal Financial Services maintained a buy call on the stock with a target price of ₹220, citing the company's Q2FY23 sales and gross profit was broadly in line, while higher staff costs led to an EBITDA miss.
Motilal Oswal further said that Q2 is seasonally the weakest quarter and a healthy festive season sales outlook in Q3 (seasonally the strongest quarter) remains positive, adding that the material cost pressures (chicken, edible oil, and gas) are gradually receding and with a healthy sales growth outlook, EBITDA growth in the second half of FY23 is likely to be strong.
"With an increasing focus on hygiene, convenience, and innovation, QSRs, with their strong brands, present a great investment case, given their low penetration levels in India. Its strong pricing power helps combat input cost inflation. Devyani continues to remain one of our top picks in this space," said Motilal Oswal.
Kotak Institutional Equities (Kotak Securities), on the other hand, has a ‘reduce’ call but raised the target price to ₹195 from ₹179 earlier.
"Devyani’s margin delivery was decent in the context of peak inflationary pressure. There is a lot to like, but rich valuations offer limited upside in the near term. We raise FY2023-25 revenue estimates by 2% and broadly maintain adjusted EBITDA forecasts," said Kotak.
Kotak highlighted the fact that Devyani added 88 net new stores in Q2 and is well on track to surpass the guidance of 250 net additions in FY23.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.
