One of the largest Yum Brands franchisees Devyani International IPO is here. The IPO starts on August 4 for 2 days. The company will be raising 440 crores of fresh issue and a 155.33 million shares offer for sale for a price band of ₹. 86-90. Postulating the strengths and risks of the IPO, let’s analyze whether to subscribe to it or not.
BUSINESS OF DEVYANI INTERNATIONAL
On a non-exclusive basis, Devyani International Limited is the largest Yum Brands franchisee in India and one of the largest operators of chain quick-service restaurants (“QSR”) in India (Source: Global Data Report), with 655 outlets in 155 cities as of March 31, 2021. Yum! Brands Inc. owns and runs KFC, Pizza Hut, and Taco Bell restaurants around the world, with over 50,000 locations in over 150 countries as of December 31, 2020.
OPERATIONS
The company’s business is divided into three verticals: stores operated in India (KFC, Pizza Hut, and Costa Coffee are referred to as “Core Brands,” and such business in India is referred to as the “Core Brands Business”); and stores operated outside India (primarily KFC and Pizza Hut stores operated in Nepal and Nigeria are referred to as the “International Business”); as well as certain other ventures in the food and beverage industry, such as Vaango and Food Street outlets (“Other Business”).
As of March 31, 2021, the company’s primary brand business had a significant presence in 26 Indian states and 3 union territories. Over the years, the corporation has steadily expanded its outlet network. From 469 stores on March 31, 2019, to 605 stores on March 31, 2021, the company’s Core Brands Business increased at a CAGR of 13.58 per cent. The company is one of the major QSR companies in India that is listed on the Swiggy platform, as well as being one of the largest QSR companies in India that is listed on the Zomato platform.
FINANCES
When the firm opened its first Pizza Hut location in Jaipur in 1997, it began its association with Yum. In Fiscals 2019, 2020, and 2021, sales from the company’s core brands business, together with its International Business, accounted for 83.01 per cent, 82.94 per cent, and 94.19 per cent of their revenue from operations, respectively.
Following the outbreak of COVID-19, the company has enhanced its focus on safety by implementing contactless delivery and takeaway, improving store cleanliness, and adopting additional safety measures such as periodic sanitization and temperature checks.
Subsequently, the company expanded its operations with KFC and Pizza Hut franchises, and as of March 31, 2021, it had 264 KFC locations and 297 Pizza Hut stores across India. Despite the ongoing COVID-19 crisis, the corporation has continued to develop its outlet network, opening 109 outlets in its Core Brands Business in the six months that ended March 31, 2021.
RISK FACTORS
-
The ongoing COVID-19 epidemic has had a substantial influence on the company’s business and operations, both now and in the future. The pandemic’s future influence on the company’s operations, especially its effect on consumers’ ability or desire to dine in stores, is unknown, but it might be severe and continue to harm their business prospects.
-
The company relies on Costa IDA with Costa for their Costa Coffee stores, and the termination or material modification of the existing terms of the Costa IDA will have a material and adverse impact on their ability to continue their Costa business and operations, as well as their future financial performance.
-
The company’s net value has been eroded due to losses in fiscal years 2019, 2020, and 2021. If their net loss continues to rise, it could have a negative impact on their business and financial situation.
-
In the company’s Audited Consolidated Financial Statements, the Statutory Auditors have included various adverse remarks, qualifications, and matters of emphasis.
-
The Company, its subsidiaries, directors, and promoters are all involved in ongoing legal processes. A negative outcome in such actions could affect their reputation, business, financial situation, operating results, and cash flow.
-
Most of the company’s ingredients, packaging materials, and other necessary supplies are transported, supplied, and delivered by third-party logistics providers, and if they fail to deliver, there may be disruptions or delays in their services, which could harm the company’s business, results of operations, and financial condition.
-
The company has certain contingent liabilities that have not been provided for in their financial statements that, if realized, could have a negative impact on their financial status.
-
The company is reliant on many key employees and their loss or inability to attract or retain them could have a detrimental impact on their business, operating results, and financial condition.
-
Payment of the company’s statutory dues has been deferred and defaulted on.
COMPETITIVE STRENGTHS
-
A diverse portfolio of globally recognized brands that cater to a variety of customer preferences.
-
A multi-dimensional, all-encompassing QSR player.
-
A cluster-based approach that ensures presence in major consumption markets.
-
Cross brand synergies with operating leverage.
-
Financial discipline with a focus on cash flows and returns.
-
A distinguished board of directors and a senior management team with extensive experience.
ALL ABOUT THE UPCOMING IPO
-
The purpose of the IPO is that the net proceeds from the new offer would be used to repay the company’s debt (₹ 324 crores) and for general corporate purposes. Whereas, the money from the offer for sale will go to the selling shareholders.
-
The IPO will open on August 4, 2021, and close on August 6, 2021.
-
Devyani International, in consultation with merchant bankers, has fixed a price band at ₹ 86-90 per equity share for its public offer.
-
The total fundraising comes to ₹ 1,838 crores at the higher end of the price band.
-
The investors and promoters are issuing ₹440 crores and an offer for sale of 155.33 million Equity shares.
-
The finalization of the IPO allotment shall be done on August 11, 2021.
-
Investors can bid for as few as 165 equity shares and as many as 165 equity shares in multiples of 165 equity shares after that. Although retail investors can contribute up to ₹2 lakh in an IPO, they can invest as little as ₹ 14,850 per lot and as much as ₹ 1,93,050 for 13 lots.
-
The company has set aside up to 75 percent of the overall offer for eligible institutional purchasers, 10% for retail investors, and 15% for non-institutional buyers.
CONCLUSION
Indian stock markets are maturing to reflect the behaviour of the global market. As a result, cash surplus/risk takers may want to explore investing in this upscale food outlet that today’s generation prefers. Devyani International Limited is well placed to benefit from growing industry trends as it has a strong portfolio of highly recognized global brands and a huge market potential for food services which cater to a range of customer preferences , thereby leading it to reach the point of profitability and value creation. Hence, it is recommended to subscribe to the issue with a long term perspective.
