Stock To Buy: Sharekhan Sees Small Cap Stock Rising 29%, Price Target Rs 231

1. Devyani International Stock Performance & Return

The last trading price of the stock is Rs 179 apiece with an intraday dip of 1.94%. The stock's 52-week high is Rs 215 and 52-week low is Rs 141 apiece, respectively. The small cap stock has given 46% return in last 5-years, 3% in last 1-year, 25% in last 6-months, and declined 8% in last 3-months.

 

2. EBIDTA Margins To Remain At 22% in FY2023

DIL had expected input cost correction to be sooner but it is taking time for the input cost inflation to stabilise. The management has guided that chicken prices are flat q-o-q while price of cheese has gone up q-o-q. EBITDA margin stood at 22% in Q2FY23 and the management expects it to be range bound +/-50 bps till headwinds persist in short term.

However, an expected drop in input cost inflation, better mix and improve efficiencies at store level would help EBIDTA margins to improve by 100-150 bps over the next two years.

3. Fun Flavour Pizza To Help Improve Average Daily Sales For Pizza Hut

DIL recently introduced fun flavoured pizza as a value offering under its Pizza Hut brand. The brand is gaining strong traction since is its launch. It will help the company to improve average daily sales and bridge the gap between the large player in the long run.

Though it's a low margin product, the higher sales volume would help in the mitigating any margin drop due to higher contribution from the brand in long run.

4. Valuation & Key Risks

According to Sharekhan, "with aggressive store expansion plan, focus on increasing the delivery model and strong brands under kitty coupled with experienced parental background, DIL is well poised to achieve strong revenues and EBIDTA growth of 34% and 38%, respectively, over FY2022-25. Stock trades at 22.0x/17.1x its FY2024E and FY2025E EV/EBIDTA. We maintain our Buy recommendation on the stock with an unchanged PT of Rs. 231 over the next 12 months."

Key Risks: Any disruption caused by slowdown in demand, heightened competition due to entry of new brand or delay in expansion in key markets are some of the key risks to our earnings estimates.

5. About Devyani International

Devyani International Limited (DIL) is the largest franchisee of Yum Brands in India and is among the largest operators of chain quick service restaurants (QSR) in India, on a non-exclusive basis, and operate 1,096 stores across more than 224 cities in India, Nigeria and Nepal, as of September 30, 2022.

DIL's business is broadly classified into three verticals that includes stores of KFC, Pizza Hut and Costa Coffee operated in India - Core Brands Business; stores operated outside India primarily comprising KFC and Pizza Hut stores operated in Nepal and Nigeria - International Business; and certain other operations in the F&B industry, including stores of company's own brands such as Vaango and Food Street - Other Business.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.