Devyani share climbs 5% as Kotak says look beyond near-term weakness

Shares of Devyani International climbed 5 per cent in Tuesday's trade after Kotak Institutional Equities upgraded the stock to 'Buy' from 'Add', saying stock investors should look beyond near-term weakness.

Devyani International shares are down 20 per cent in the past three months, owing to weak operating print on an absolute basis and relative to peers. Kotak Institutional Equities expects FY2026 to be a better year for Devyani International, due to a pickup in same store sale (SSS) growth, aided by a weak base and some improvement in the underlying demand. This brokerage also sees improved execution at Devyani. 

On Tuesday, the scrip was trading 5 per cent higher at Rs 163.55 on BSE. "We like Devyani for (1) KFC’s market opportunity, given the strong brand equity and under-penetration in India, (2) optionality of other brands and (3) RJ Corp’s appetite for portfolio augmentation and its track record of creating shareholder value through organic/inorganic initiatives. We roll over and revise FV to Rs 190 from Rs 175. Upgrade to Buy from ADD," it said.

While near-term headwinds, including a weak Q4FY25, may weigh on performance, Kotak believes that the underlying fundamentals of KFC’s India business remain strong. It anticipated Devyani International to add approximately 100 KFC stores annually over the next three years, implying a 13 per cent CAGR in store count and bringing the total to around 1,000 by FY28.

Over the past three years, KFC India’s brand contribution margin (defined as store-level Ebitda margin pre-Ind AS 116) has declined 400 basis points to 17.3 per cent, primarily due to negative operating leverage and the ramp-up impact from nearly doubling its store base to ~700 units as of March 2025, Kotak said. 

However, Kotak now expects margins to improve gradually, driven by recovery in same-store sales growth (SSSG) and as newer stores mature.

Kotak values Devyani at 34 times June 2027 attributable Pre-Ind AS 116 EV/Ebitda. The key rationale for upgrading the stock price is its recent correction, a better FY2026 ahead and optionality such as PH, new restaurant brands such as Tealive, New York Fries and Sanook Kitchen and partnership with PVR-INOX to operate food courts.