Devyani International's December quarter earnings have garnered mixed reviews from top brokerage firms.
As per its BSE filing, the company's consolidated revenue from operations rose 26.6 percent year-on-year (YoY) to ₹790.6 crore in Q3FY23 against ₹624.4 crore in the same quarter last year.
Profit for the December quarter stood at ₹71 crore, up 7.6 percent YoY, against ₹66 crore for the same period last year.
The company's reported EBITDA on a post-IND-AS basis grew 18 percent YoY to ₹173.9 crore, resulting in an EBITDA margin of 22 percent.
It said its store network continued expanding across metro and non-metro cities. In Q3 FY23, it opened 81 net new stores, taking the total operational stores to 1,177 as of December 31, 2022.
The stock has been under pressure for the last one year, falling about 14 percent.
There were hits and missed in Devyani's December quarter numbers which were highlighted by brokerage firms. There appears a divide among brokerage firms about the prospects of Devyani International stock.
While some recommend buying the stock as they see healthy upside potential, some are of the view that the stock is at a rich valuation at a time when the demand outlook is hazy and raw material inflation is high.
However, most of them have trimmed their EBITDA estimates.
The optimistic ones
Brokerage firm Motilal Oswal Financial Services has maintained a 'buy' call on Devyani International stock with a target price of ₹190, implying a 19 percent potential upside.
The brokerage firm highlighted that the weak demand environment dents the company's SSSG (same-store sales growth) and earnings.
Motilal Oswal has cut FY23 EBITDA forecasts by nearly 10 percent due to the miss on Q3FY23 estimates and the prevailing uncertain demand environment. It reduced FY24/FY25 EBITDA forecasts in the range of 4-5 percent.
Nevertheless, the brokerage firm is positive about the stock. It is hopeful that moderating raw material inflation and overall CPI inflation levels could lead to a demand revival.
"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. The company’s strong pricing power helps combat input cost inflation," Motilal said.
"We remain bullish on Devyani's prospects led by (a) KFC's strong brand equity and its growth opportunity, (b) a gradual turnaround in Pizza Hut, driven by the management's focus on delivery and improved store metrics, (c) the network expansion across the portfolio, and (d) healthy operating profitability in the midteens (on a pre-Ind AS basis)," said the brokerage firm.
Brokerage firm Emkay Global Financial Services has also maintained a 'buy' call on the stock with a target price of ₹215, implying a 35 percent upside.
Emkay appears optimistic about the company due to its growth plan.
Emkay said Devyani's store additions remained robust with net additions of 81 in Q3 and 197 stores in nine months of the year while the company retained the annual guidance of 250-300 additions.
The brokerage firm, however, has cut its EBITDA estimates, factoring in higher marketing costs and elevated raw material inflation.
"Retention of store targets and peaking of consumer-level inflation suggest anticipation of demand recovery sooner than later. Factoring in higher marketing and elevated cheese prices leads to a 6-8 percent cut to our FY24/25 EBITDA estimates," said Emkay.
"Devyani offers better risk-reward with a presence in the fast-growing chicken category and offers a multi-category play. We expect the stock to deliver a strong EBITDA CAGR of nearly 29 percent over FY22-25E, led by a 20 percent store count CAGR, 5 percent SSG, and gradual margin gains," said Emkay.
Those who have cautious views
Phillip Capital has maintained a 'neutral' call on the stock with a target price of ₹165.
"We have cut our FY24/25 Pre-IND AS EBITDA estimates by 7-8 percent to account for the slowdown in urban consumption, increased competitive intensity and negative operating leverage to weigh significantly in business having high operating leverage," said Phillip Capital.
"Moreover, rich valuations (26 times FY25 Pre IND-AS EBITDA) do not leave scope for any error and retain 'neutral' with a revised target price of ₹165 (28 times FY25E Pre Ind-As EV/EBITDA)," it added.
Brokerage Kotak Institutional Equities maintained a 'reduce' call on the stock and cut the target price to ₹170 from ₹177 earlier.
Kotak also trimmed its FY2023-25E EBITDA estimates by 2-6 percent.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.
