On February 21, Devyani International Ltd, the largest domestic franchisee for Yum Brands (including KFC & Pizza Hut) and the sole franchisee for Costa Coffee, saw its shares surge by 6%. This uptick came as 5.3 crore shares, representing a 4.4 percent stake in the quick service restaurant operator, changed hands in a block deal.
The stake was divested at a floor price of INR 164 each, representing a slight discount of 1.2 percent compared to the previous closing price.
Although the buyers and sellers couldn’t be confirmed, a CNBC-TV18 report suggests that Yum Restaurant India Private Ltd is likely divesting its entire 4.4 percent stake in the KFC operator. Citigroup Global Markets India is the sole book-running lead manager in this transaction.
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The report came at a time when the QSR industry is experiencing weak unit economics, across both dine-in and delivery formats. Despite these industry-wide difficulties, KFC has shown resilience in managing the crisis effectively, as noted by Motilal Oswal Securities in a recent statement.
“On the other hand, PH has been struggling, partly attributed to intense competition in the market. Store expansion plans remain buoyant for Devyani despite near-term industry challenges. The overall guidance of reaching 2,000 stores by FY24 remains on track. We maintain a cautious stance due to the ongoing demand challenges in the near term. The recent correction in the stock partially covers up the near-term pressure,” it said. We reiterate our BUY rating on the stock with a target of INR 195,” it said.
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The Yum stake sale is reportedly valued at INR 814.80 crore, with Citigroup Global Markets India presumed to be the sole book-running lead manager (BRLM).
According to a recent report by Elara Securities, Devyani International was actively focused on improving its delivery performance and strengthening ties between its stores and delivery services. The company aimed to broaden the presence of Pizza Hut and KFC outlets with a specific emphasis on delivery. This strategy involved extensive collaboration with delivery aggregators to capitalize on the rapidly expanding online delivery segment.
“In case of Pizza Hut India, it has shifted focus toward a delivery-centric model while maintaining strategically located dine-in and flagship stores. The accelerated expansion of delivery-focused stores has resulted in significantly improved delivery times, which, in turn, has enhanced overall consumer experience. This transition from large dining-oriented stores to smaller, delivery-focused formats has not only positively affected unit-level performance but also has facilitated a faster nationwide expansion,” it said.
