- Consolidated revenue surged 11% YoY, outpacing the broader QSR sector.
- India revenue climbed 12% on Skygate acquisition and 13% store expansion.
- KFC added 14% more outlets but same‑store sales fell 2.9% – a warning flag.
- Pizza Hut’s 6% revenue dip and 9.1% same‑store decline highlight brand‑specific challenges.
- Franchise partners (Costa Coffee, NYF, Tealive, SK) delivered 9% revenue growth with modest new stores.
- Motilal Oswal values the firm at 25x EV/EBITDA for Dec‑27E, implying a target of INR 180.
- Buy recommendation hinges on continued expansion and margin recovery.
You missed the hidden upside in Devyani International’s latest earnings – and you can’t afford another slip.
Why Devyani International’s Revenue Growth Beats the Food‑Service Sector Trend
India’s quick‑service restaurant (QSR) segment is currently wrestling with inflation‑driven cost pressures and a modest slowdown in discretionary spend. While the sector average revenue growth hovered around 5% YoY in Q3 FY26, Devyani International (DEVYANI) posted an 11% consolidated increase, more than double the peer benchmark. The outperformance stems from two engines: the Skygate acquisition, which added INR 115 million of top‑line in a single quarter, and an aggressive store‑addition strategy that lifted India‑only revenue by 12% YoY.
Impact of Skygate Acquisition and Store Expansion on Bottom‑Line Momentum
Skygate, a regional fast‑food chain with 13 new outlets, contributed INR 115 million to DEVYANI’s top line while also bringing a modest EBITDA uplift due to its higher contribution margin (approximately 18% vs the group’s 14%). The acquisition not only adds immediate revenue but also expands the company’s footprint into tier‑2 markets where competition is lighter and rent costs are lower. Combined with a 14% store‑count increase for KFC and a 1% rise for franchise partners, the expansion lever is clearly working.
Same‑Store Sales Pressure: KFC vs Pizza Hut – What It Means for Future Margins
Same‑store sales (SSS) measure the revenue change of stores open for at least a year, isolating growth from new‑store effects. In Q3, KFC’s SSS fell 2.9% while Pizza Hut’s slipped 9.1%. The divergence reflects divergent brand positioning: KFC’s menu price hikes are offset by a dip in footfall, whereas Pizza Hut suffers from a waning appetite for dine‑in pizza amid rising home‑delivery competition. A sustained SSS decline erodes operating leverage, potentially compressing margins unless the company can drive higher ticket sizes or improve cost efficiencies.
Competitive Landscape: How Tata Consumer, Jubilant FoodWorks, and Adani’s Food Ventures React
Peers such as Tata Consumer (operating McDonald’s) and Jubilant FoodWorks (Domino’s) have focused on digital ordering platforms and limited‑time offers to sustain traffic. Both have reported modest SSS growth of 1‑2% in the same quarter, underscoring the difficulty of expanding organically. Adani’s nascent food‑service arm is still in a rollout phase, targeting tier‑2 cities – a space where DEVYANI’s Skygate foothold gives it a first‑mover edge. The competitive pressure reinforces the importance of brand differentiation and cost‑controlled expansion.
Historical Parallel: 2022 Q3 Turnaround and Its Share‑Price Aftermath
When DEVYANI posted a similar 12% revenue jump in Q3 2022 after a major store‑addition program, the stock rallied 27% over the next six months, driven by analyst upgrades and a re‑rating of its valuation multiples. The market rewarded the company’s ability to translate expansion into earnings, but the rally faded when same‑store sales stalled in FY23. The lesson: growth must be sustainable and supported by improving same‑store metrics to keep investor enthusiasm alive.
Technical Snapshot: EV/EBITDA Valuation and Target Price Mechanics
Motilal Oswal applies a 25× EV/EBITDA multiple (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortisation) on the projected December‑27 earnings. At the current EV/EBITDA of 22×, the implied target of INR 180 represents a ~15% upside from today’s price. The multiple is justified by DEVYANI’s higher growth profile versus the sector average of 19×, but it assumes margin expansion from 13% to 15% by FY27, driven by economies of scale and improved franchisee economics.
Investor Playbook: Bull vs Bear Cases for Devyani International
Bull Case: Continued store roll‑out fuels top‑line growth beyond 12% YoY, while the franchise model improves contribution margins. Successful integration of Skygate unlocks cross‑selling opportunities and adds ~30% EBITDA uplift. A stable or improving same‑store sales trend, especially for Pizza Hut, leads to a re‑rating to 28× EV/EBITDA, pushing the stock toward INR 210.
Bear Case: Persistent same‑store sales decline erodes profitability, forcing the company to offer deeper discounts. Inflationary input costs outpace price adjustments, compressing margins below 12%. If the franchise network underperforms, the growth engine stalls, and the valuation reverts to sector‑average multiples (≈19×), pulling the price down to INR 140.
For disciplined investors, the key is to monitor quarterly same‑store sales trends, franchisee contribution margins, and the pace of new‑store openings. A clear path to margin improvement will validate the 25× EV/EBITDA multiple; otherwise, the upside may be limited.