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    Devyani Intl.

    DEVYANINeutral
    Consumer Services·13 Aug 2025
    Management Summary

    Devyani International reported a quarter of resilient top-line growth despite a challenging macro environment and soft consumer demand in the Indian QSR sector. While KFC showed signs of SSSG stabilization driven by online channels, Pizza Hut remains in a rationalization phase. The company is aggressively diversifying its portfolio through the acquisition of Sky Gate Hospitality and the upcoming launch of three new international brands.

    Highlights

    7

    • Consolidated Revenue reached ₹1,357 crore, representing 11.1% YoY growth.

    • Reported EBITDA stood at ₹205 crore with a margin of 15.1%; Pre-INDAS EBITDA margin was 8.1%.

    • KFC India SSSG stabilized at -0.7%, showing significant improvement from previous quarters of deeper decline.

    • Pizza Hut India continued to struggle with SSSG at -4.2%, leading to a net closure of 12 non-performing stores.

    • Concluded acquisition of Sky Gate Hospitality (Biryani by Kilo, Goila Butter Chicken), increasing stake to 86.13%.

    • Total store count reached 2,145 stores across all brands and geographies as of June 30, 2025.

    • International business (Thailand) grew 11.2% YoY with improved brand contribution margins of 16.7%.

    Concerns

    1

    • Dine-in Cannibalization

    What Changed2

    vs Q2 FY26

    Tone shiftGood → NeutralRisks discussed3 → 4 (+1)

    Key financials

    Single quarter

    05 metrics
    1. 01Consolidated Revenue₹1,357 Cr+11.1%YoY
    2. 02Reported EBITDA₹205 Cr
    3. 03Pre-INDAS EBITDA Margin8.1%-0.8%QoQ
    4. 04Gross Margin (Consolidated)68.2%
    5. 05Total Store Count2,145 stores

    Segment breakdown

    • KFC India₹613 Cr48.3%
    • Pizza Hut India₹187 Cr14.7%
    • International (Thailand)₹433 Cr34.1%
    • Own Brands (Vaango/Sky Gate)₹35 Cr2.8%
    Donut· Share of Revenue

    Guidance & targets

    4
    CategoryTargetPriority
    Capacity
    KFC India Net New Store Additions
    100-110
    		High
    Profitability
    Sky Gate Hospitality Turnaround
    Positive Brand Contribution & EBITDA
    		Medium
    Revenue
    KFC Normalized ADS Target
    ₹100,000
    		Medium
    Other
    New Brand Launches
    3 brands (New York Fries, Tealive, Sanook Kitchen)
    		High

    Risks & concerns

    6
    RiskSeverity

    Dine-in Cannibalization

    Aggressive online promotions are diverting customers from dine-in, where store capacity utilization is already low. — Analyst acknowledged

    high

    Structural Cost Increases

    GST on rent (no input credit) and rising aggregator/delivery expenses are impacting the bottom line on a structural basis. — Management acknowledged

    medium

    Soft Consumer Demand

    Near-term macro factors have led to a phase of soft demand across the QSR industry. — Management acknowledged

    medium

    Input Cost Inflation

    Increase in raw material prices for cheese, flour, and edible oil impacted gross margins by 2.3% in India. — Management acknowledged

    low

    Areas of Evasion(2)

    • Specific transaction growth numbers (only gave '10% plus' range)
    • Specific details of which promotions are being scaled back

    Q&A highlights

    3

    “when we focused more on online, there are some consumers who shifted, because they were able to get the value proposition sitting at home... we will now be balancing out in terms of what is happening in the online and dine-in to ensure minimal cannibalization.”

    Reveals that aggressive online discounting is cannibalizing high-margin dine-in traffic, leading to a 14% YoY decline in KFC dine-in sales.

    asked by Percy Panthaki

    2 min read5 chapters

    Detailed Narrative

    01

    KFC India: A Tale of Two Channels

    KFC India saw revenue growth of 10.5% YoY to ₹613 crore, with SSSG stabilizing at -0.7%. However, this stability masks a significant divergence between channels: online delivery saw positive SSSG and 10%+ transaction growth due to aggressive promotions, while dine-in sales fell 14% YoY. Management acknowledged that the 'Epic Savers' dine-in offer (9 for ₹299) was outperformed by even more compelling online value propositions, leading to channel cannibalization. The company aims to return to a normalized ADS of ₹100,000 by balancing these channel strategies.

    02

    Pizza Hut: Strategic Retrenchment

    Pizza Hut continues to be the laggard in the portfolio, with SSSG at -4.2% and a sequential ADS recovery to only ₹33,000. In response, Devyani is rationalizing its footprint, closing 12 non-performing stores in Q1 and planning to slow down organic expansion for the brand. The focus has shifted to a 'delivery-focused format' and menu innovations like the 'Juicylicious' range to stem the decline, though brand contribution remained slightly negative this quarter.

    03

    Sky Gate Acquisition and Portfolio Diversification

    The acquisition of Sky Gate Hospitality (Biryani by Kilo and Goila Butter Chicken) was completed on June 10, 2025. For the 20 days of consolidation in Q1, the portfolio contributed ₹1.2 crore in negative brand contribution. Management's immediate priority is a 12-month turnaround plan to achieve positive EBITDA by optimizing recipes, kitchen preparation times, and expanding into high-traffic channels like airports and food courts.

    04

    Cost Headwinds and Margin Compression

    Consolidated Pre-INDAS EBITDA margins dipped to 8.1% from 8.9% in the previous quarter. This compression was driven by a 2.3% decline in Indian gross margins due to promotional investments and raw material inflation (cheese, flour, oil). Additionally, structural increases in rental costs due to GST changes (where QSRs get no input credit) and rising aggregator commissions for delivery have created a higher floor for operating expenses.

    05

    International Business as a Growth Engine

    The Thailand business remains a bright spot, contributing ₹433 crore to revenue with a healthy 11.2% YoY growth. Brand contribution margins improved to 16.7%, driven by better gross margin performance. This segment provides a critical buffer to the soft demand and margin pressures currently being experienced in the domestic Indian market.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.