Pizza Hut, KFC operator Devyani International’s IPO opens tomorrow, should you subscribe?

• Follow

Food and beverages major and the largest franchisee of Pizza Hut, KFC, and Costa Coffee, Devyani International’s Rs 1,838-crore public offer opens tomorrow for subscription. The price band for the quick-service restaurant has been fixed at Rs 86-90 per share having a face value of Rs 1 per share.

The offer comprises fresh issuance of equity shares of Rs 440 crore, and an offer for sale (OFS) of 15,53,33,330 shares totalling Rs 1,398 crore by Dunearn Investments (Mauritius) Pte Ltd and promoter RJ Corp. Dunearn Investments is going to offload 6,53,33,330 equity shares, and RJ Corp will sell 9 crore equity shares through an offer for sale. The company reserved 5.5 lakh equity shares of its IPO for employees.

The operator of KFC, Pizza Hut, Costa Coffee will utilise the net proceeds of fresh issues towards repayment and/or prepayment of the company’s borrowings fully or partially and for general corporate purposes.

An investor can bid for a minimum of 165 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,850 at the higher end of the price band. A retail investor can at max apply for 13 lots or 2,145 shares for Rs 1,93,050.

Ahead of the IPO, shares of Devyani International are quoting at Rs 152 apiece in the grey market marking a premium of 68.89% over its issue price of Rs 90.

Here is what brokerages have to say about the issue

Anand Rathi | Rating: Subscribe

Anand Rathi believes that the company remains well placed for long term growth considering the company’s portfolio of recognized global brands catering to a range of customer preferences, cross-brand synergies, expansion of store network and EBITDA (earnings before interest tax depreciation and amortisation) positive earnings.

The brokerage firm is of the opinion that at the upper end of the IPO price band, Devyani International is offered at 9.5x market capitalization/sales as per FY21 financial statement, compared to peers like Jubilant Foodworks Ltd. (15x), Westlife Development Ltd. (8.8x) and Burger King India Ltd. (14x).

Angel Broking | Rating: Subscribe

Devyani International the largest franchisee of Yum Brands in India has a portfolio of well recognized global brands across the spectrum. Its presence across key consumption markets with a cluster-based approach and experienced Board and senior management team augurs well for the company.

In terms of valuations, the post-issue FY2021 EV (enterprise value)/Sales works out 9.9x to (at the upper end of the issue price band), which is low compared to peers (Jubilant Foodworks-15.4x, Burger King India -14.8x, Westlife Development – 10x). Further, Devyani International has a better operating margin compared to Westlife Development & Burger King proving valuations to be at reasonable levels.

Marwadi Shares & Finance | Rating: Subscribe

Considering the FY-21 adjusted EBITDA (earnings before interest tax depreciation amortisation) of Rs 178.92 crore on post-issue basis, the company is going to list at EV/EBITDA of 62.39 with a market cap of Rs 10,822.7 crore, while its peers namely Jubilant Food and Westlife Development are trading at EV/EBITDA of 66.02 and 206.11 respectively.

Marwadi Shares & Finance has assigned a ‘Subscribe’ rating to this IPO as the company is a multidimensional comprehensive QSR player with a portfolio of highly recognized global brands and is available at reasonable valuation as compared to its peers.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)