Devyani International: Navigating Stormy Waters to Seize Fast-Food Dominance

Devyani International, India’s leading quick-service restaurant (QSR) operator, has faced a tempest of rising input costs and margin pressures in its latest quarter. Yet, beneath the headline widening net loss lies a company executing a bold strategic pivot—one that could position it to dominate a booming fast-food market. By integrating new brands like Biryani By Kilo and sharpening operational discipline, Devyani is primed for a recovery that investors would be wise to act on now.

The Net Loss Dilemma—and Why It’s Manageable

Devyani reported a Q4 FY2025 net loss of ₹14.74 crore, up from ₹7.47 crore in the same period last year. While this paints a challenging picture, the loss is a product of two critical factors:
1. Input Cost Inflation: Soaring expenses for cheese, palm oil, and other essentials surged by 18.38% year-on-year, squeezing margins. Employee costs also rose 10.36%, reflecting broader inflationary pressures.
2. Strategic Investments: The company plowed resources into store expansions, brand acquisitions, and new partnerships—moves that temporarily inflated expenses but will pay dividends over time.

Crucially, **** shows minimal reaction to these results, suggesting the market has yet to factor in the company’s long-term potential.

KFC’s Same-Store Sales Decline—and the Path to Recovery

Devyani’s KFC division saw same-store sales fall by 6.1% in Q4, though this marked an improvement from a 7.1% decline the prior year. The drop reflects broader challenges: stagnant wage growth and rising living costs have hit discretionary spending. However, management’s response signals strategic acuity:

• Menu Innovation: Introducing affordable items—such as KFC’s “Buckets” and Pizza Hut’s value meals—stabilized demand. Pizza Hut’s same-store sales grew 1%, proving the strategy’s efficacy.
• Operational Rigor: A 16.6% EBITDA margin (unchanged from Q4 FY2024) demonstrates cost controls are working. Even as expenses rose 13.5%, revenue grew 15.8%, proving top-line momentum persists.

Strategic Shifts: Biryani By Kilo and the New Brand Playbook

Devyani’s boldest move is its April 2025 acquisition of Biryani By Kilo (BBK), a fast-growing biryani chain with 100 outlets. This isn’t just a bid for market share—it’s a masterstroke:

• Category Dominance: Biryani is India’s most-ordered food item, with 9.1 crore orders on Zomato in 2024. BBK’s expansion into 40 cities will tap this trend, leveraging Devyani’s existing infrastructure.
• Synergies Galore: BBK’s integration with Devyani’s bottling business (managed by Varun Beverages) could cut logistics costs. Imagine biryani outlets paired with PepsiCo beverages—cross-selling at scale.
• Portfolio Diversification: BBK complements KFC and Pizza Hut, reducing reliance on Western brands in an increasingly cost-conscious market.

The acquisition’s ₹419.6 crore price tag may seem steep, but BBK’s 2024 revenue of ₹145 crore (per internal data) suggests a 1.7x revenue multiple—a steal for a high-growth segment.

Valuation: A Discounted Play on India’s QSR Boom

Devyani trades at a P/E ratio of 32x, far below rivals like Domino’s Pizza India (P/E 85x) and Swiggy (P/E 150x). This undervaluation ignores two critical facts:

1. Market Leadership: With 2,039 stores across KFC, Pizza Hut, and Costa Coffee, Devyani commands 30% of India’s QSR market—a moat widening as competitors flounder.
2. Untapped Growth: The Indian QSR sector is set to hit ₹2.5 lakh crore by 2027 (from ₹1.5 lakh crore in 2022), driven by urbanization and rising disposable incomes. Devyani’s brand mix (BBK for affordability, KFC/Pizza Hut for nostalgia, Costa for premium) is perfectly positioned to capture this.

Why Act Now?

The stock’s 0.14% rise on May 23—despite strong results—hints at a buying opportunity. Here’s the catalyst to watch:

• BBK Rollout: The first New York Fries outlet in Mumbai (opened in FY2025) generated buzz. A similar blitz with BBK could spark a valuation re-rating.
• Cost Control Payoff: EBITDA margins are stabilizing at 16.6%, and the Thailand KFC acquisition (contributing ₹16.32 crore in revenue) proves cross-border expansion works.

Final Call: Devyani Is a Buy

Devyani International’s Q4 results mask a company in transition—one that’s weathering cost storms while planting flags in high-growth categories. With a disciplined cost structure, a diversified portfolio, and a prime position in India’s QSR gold rush, this stock is primed to deliver outsized returns. Investors should act now before the market catches on.

The road to recovery is paved with biryani—and Devyani is serving up the best portion.