Devyani International zooms 6% on Thailand foray, will acquire 274 KFC restaurants

Foreign research house CLSA has stuck to its ‘outperform’ call on the stock with a target price of Rs 211 a share

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Devyani International share price rose 6 percent in the early trade on December 19, a day after after the KFC and Pizza Hut operator in India announced a partnership to enter Thailand’s quick service restaurant (QSR) market.

At 9.18 am, Devyani International was quoting at Rs 195.40, up Rs 12.10, or 6.60 percent, on the BSE.

Devyani International DMCC, Dubai, a subsidiary of Devyani International, announced its entry into Thailand by signing a share-purchase agreement to acquire controlling interest in Restaurants Development Co Ltd (RD) Thailand to enter the QSR/ limited service restaurants (LSR) market in that country.

As on September 30, 2023, RD operated a chain of 274 KFC restaurants in Thailand and employed more than 4,500 people.

The transaction is expected to be completed on or before March 31, 2024 and is subject to all customary regulatory and other approvals.

This strategic venture into Thailand is a collaboration between Devyani International Limited and Temasek Holdings (Private) Limited, a global investment company headquartered in Singapore, with over SGD 380 billion in assets under management.

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An extra-ordinary general meeting of the company has been called on January 11 to seek shareholders’ approval for the investment in Devyani International DMCC and “providing corporate guarantee(s) up to an aggregate amount of THB 2.5 billion (equivalent to  Rs 5.83 billion) to secure the credit facility(ies) to be availed by Restaurants Development Co, Ltd”.

Brokerage views

Foreign research house CLSA has “outperform” call on the stock with a target price of Rs 211 a share.

The company will pay Rs 341.4 crore for a 50 percent stake in Restaurant Development Co. Temasek Holdings will take a 48 percent stake and a local Thai partner will take the rest. The total purchase of Rs 1,066 crore included local bank debt of Rs 385 crore.

Jefferies has maintained its “hold” rating on the stock with a target at Rs 190 a share.

Taking about the acquisition, it said the forward growth multiple could be 5-6x EBITDA even if modest growth was assumed, however, it would have liked an India growth effort instead.

Broking house Motilal Oswal remains bullish on Devyani International’s prospects, considering: a) KFC’s strong brand equity and its growth opportunity; b) gradual turnaround in PH, driven by the management’s focus on delivery and improved store metrics; c) network expansion across the portfolio; and d) healthy mid-teens EBITDA (on a pre-Ind AS basis).

Reiterate a “buy” rating with an SoTP-based target price of Rs 220 (based on 50x/30x for KFC/Pizza Hut on a pre-Ind AS basis on March 2025 estimates).

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