How Devyani International’s global expansion will be gamechanger for Thailand QSR market

Devyani International Limited (DIL) has forayed into the competitive Thailand KFC market through the acquisition of an equity stake in Restaurants Development Co Ltd Thailand (RD) for Rs 340 crore.

The foray into Thailand market sparked a rally in the stock on Tuesday as it surged as much as 7.71 per cent to hit an intraday high of Rs 197.45 per share.

The deal, valued at 0.9 times FY23 enterprise value to sales (EV/sales) and 8 times FY23 EV to EBITDA, positions DIL as a key player in the Thailand Quick Service Restaurant (QSR) sector, unlocking a new growth engine for the company, according to a report by Motilal Oswal.

DIL's acquisition of RD, with a deal value lower than earlier explorations at $130 million, marks a crucial step in expanding its international presence. 

RD currently operates 274 KFC restaurants in Thailand, contributing approximately 30 per cent of the combined entity's total revenue and 26 per cent of Restaurant EBITDA. The move is expected to foster additional growth opportunities and market expansion for DIL, which already has a footprint in Nigeria and Nepal.

Competitive landscape and growth strategy

RD's operation of 274 KFC restaurants positions it as a major player in the Thailand QSR market, with KFC being the largest chain in the country. 

RD's strategic focus on doubling its KFC store count in the next decade, alongside initiatives like drive-through and gas-station stores, is anticipated to drive superior unit economics and revenue growth, the brokerage added. 

The acquisition aligns with RD's goal of maintaining a lower-single-digit Same Store Sales Growth (SSSG) while growing revenue by low-teens.

Thailand market dynamics

Thailand, with a population of nearly 70 million and a per capita income of $21,150, offers an attractive consumption landscape and a resilient economy. The country's poultry-centric meat consumption and stable currency contribute to its appeal as a strategic market for DIL.

“We remain bullish on DIL’s prospects, considering KFC's strong brand equity and its growth opportunity; gradual turnaround in PH, driven by the management's focus on delivery and improved store metrics; network expansion across the portfolio; and healthy mid-teens EBITDA,” Motilal Oswal added. 

Motilal Oswal reiterates a ‘Buy’ rating with a Sum-of-the-Parts (SoTP)-based target price of Rs 220, reflecting confidence in DIL's growth trajectory and strategic moves in the dynamic QSR landscape.

Financial performance

Devyani International Ltd’s consolidated profit fell 37 per cent to Rs 35.8 crore for the September quarter of FY24 (Q2FY24), from Rs 56.83 crore in the same quarter last year.  Total revenue surged nearly 10 per cent to Rs 819.5 crore, from Rs 747.4 crore last year. 

Earnings before interest, tax, depreciation and amortisation (EBIDTA) for the quarter stood at Rs 154 crore, declining by 7 per cent.

Operating margin came in at 18.8 per cent, against 22.2 per cent in the year ago period.

As of 3:07 pm, shares of Devyani International were trading over 5 per cent higher at Rs 192.55 apiece.