Should you bid for loss-making Devyani International’s Rs 1,800 crore IPO?
Manjil Das, INN/Chennai
On Thursday, August 4, Devyani International, the largest franchisee of Yum Brands in India and a leading operator of chain quick-service restaurants (QSRs), will launch its IPO in the major markets.
Its IPO price range is Rs 86-90 per share and the firm expects to raise Rs 1,838 crore at the top end of the pricing range. Most of the money raised in the public offering will be used to settle debts totalling 324 crore rupees.
Market capitalisation/sales for Devyani as of FY21 is 9.5x, compared to rivals such as Jubilant Foodworks (15x), Westlife Development (8.8x), and Burger King India (8.4x) (14x). A premium of Rs 62 per share, or 68-72 per cent, is already being paid on the grey market.
Many analysts feel the company’s values are appealing and that it is positioned for long-term development.
Given the business’s worldwide brand portfolio catering to a variety of consumer tastes, cross-brand synergies, store expansion, and EBITDA positive results, Ronak Kotecha, analyst at Anand Rathi Shares & Stockbrokers, believes that the company is well positioned for long-term success.
Due to its affiliation with Yum, as well as its marketing and operational skills, Devyani International has become a major player in the quick-service restaurant sector. Fast-food culture is projected to expand in India because of a growing working-class population and continuing urbanisation, according to analysts.
While QSR value sales increased 5.5% between 2015 and 2020, Religare Broking predicted that value sales would rise at an even faster rate of 12.4% in the future. In addition, the firm is extending its retail network to take advantage of growth prospects. It launched 109 shops for its key business brands in H2FY21.
Since each restaurant franchise starts to generate a considerable RoE (return on equity) once it reaches a utilisation level of > 90%, this bodes well for long-term investors, “the report states. As a bonus, the firm has a high capacity to generate cash flow. Vikas Jain, senior research analyst at Reliance Securities, recommends that investors subscribe to the offer.
Profitability is still an issue. However, EBIDTA margins during FY19-FY21 were good at 17.3%. Additional cash flow creation was outstanding, with OCF and FCF totalling Rs 820 crore in FY19-2020, respectively.
“As a result, DIL’s net profit margin will improve. A strong 20 percent OCF margin was also maintained in FY19-FY21. “Cash flow generation is projected to continue high despite the substantial revenue increase, thanks to a likely improvement in margin and a favourable working capital cycle. ” Choice Broking is one example of this.
An additional subscribe rating was also awarded to the IPO due to its reduced value and the potential for significant future company growth.