Block deal: Devyani International shares in news as Yum likely to offload entire stake

Shares of Devyani International Ltd, the largest domestic franchisee for Yum Brands (KFC & Pizza Hut) and the sole franchisee for Costa Coffee, will be in focus today, as Yum Restaurant India is reportedly divesting its entire 4.4 per cent stake in the company through block deals today. A CNBC TV18 report citing sources privy to the developments suggested a floor price of Rs 153.50 per share for the transaction, which would be at a 7.45 per cent discount to Tuesday's closing price for Devyani International on BSE.

The report came at a time the QSR industry is seeing weak unit economics, across dine-in and delivery formats. Despite these industry-wide difficulties, KFC has shown resilience in managing the crisis effectively, Motilal Oswal Securities said in a recent note.

"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 Rs 195," it said.

The Yum stake sale is believed to be valued at Rs 814.80 crore and Citigroup Global Markets India is believed to be the sole book running lead manager (BRLM).

A recent Elara Securities report suggested Devyani International was actively working on enhancing its delivery performance and fostering closer relationships  between its stores and delivery services. It was planning  to expand presence of Pizza Hut and KFC outlets that are  specifically geared toward delivery. This included  collaborating extensively with delivery aggregators to  leverage the fast-growing 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.

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