Devyani International Ltd (DIL), is gearing up to go public with its initial public offering (IPO). The IPO will open on August 4, 2021, and close on August 6. Any anchor bookings that might happen will take place on August 3. The IPO carries a price band of Rs 86 to Rs 90 per equity share with a face value of Rs 1 per share. The grey market premium for the IPO on Tuesday stood at Rs 59 to Rs 62. This implies that the shares were trading for around Rs 145 to Rs 149 per share on the grey market. On the higher end, this indicated the shares were trading for around Rs 148 to Rs 152 per equity share on the unlisted market.
The Devyani International IPO is looking to mop up a sum of Rs 1,838 crore with its public issue. This amount consists of an offer for sale (OFS) and a fresh issue. The OFS clocked in at Rs 1,398 crore with 155,333,330 equity shares at Rs 1 per share as the face value. The fresh issue on the other hand aggregated up to Rs 440 crore.
The IPO had listed its investor portion into three categories, the qualified institutional buyers (QIBs), the non-institutional investors (NIIs) and the retail investor segment. The QIB segment of investors had an allocation of 75 per cent set aside, the NII category had a 15 per cent reservation and the retail investors had a 10 per cent reservation allocated to them.
The company’s objective for the IPO is to use the net proceeds to fund the repayments and pre-payments for all the company’s borrowings. The rest of the funds will go towards general corporate purposes.
Speaking on the public issue’s outlook, Amarjeet Maurya – AVP – Mid Caps of Angel Broking Ltd. said, “Devyani International Ltd (DIL) is the largest franchisee of Yum Brands in India and is among the largest chain operators of quick-service restaurants (“QSR”) in India on a non-exclusive basis, and operates 696 stores across 166 cities in India, as of June 30, 2021. Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell and has a presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020. In addition, Devyani International is a franchisee for the Costa Coffee brand and stores in India.”
The IPO has received quite the welcome and is highly anticipated thanks to its presence across key consumption markets and its cluster-based approach. It has also utilised and established cross-brand synergies with operating leverage. Other factors that make it an attractive public issue to subscribe to are its disciplined financial history, which focuses on cash flow and returns, as well as the company’s distinguished board of senior managers. It should be noted that Devyani International has been in the business since 1991. Today the brand stands as one of, if not, the largest quick-service restaurant (QSR) chain operators in the country. Devyani International is a popular QSR brand in India thanks to its oversight of popular brands such as KFC, Pizza Hut and Costa Coffee. It has a strong presence in metropolitan cities and its surrounding areas as well.
The company recorded an operating profit in each of the last three years, despite the fact that it also saw a net loss over the same period. In two of the three years, the net worth stood in the negative territory. The funds have, however, been pulled up in the year ended March, by Yum India, RJ Corp. and other investors who injected fresh funds into the company.
Devyani International is looking at an allotment date of August 11. Refunds and accreditation of shares will likely take place on August 12 and August 13 respectively. As for the listing, that date is tentatively set for August 16 but that is yet to be confirmed.
Should You Subscribe to Devyani International IPO?
On the topic of whether one should subscribe or not, Maurya said, “DIL operated 284 KFC stores and 317 Pizza Hut stores and 44 Costa Coffee stores in India as of June 30, 2021. In their Core Brands Business, they had an extensive presence in 26 states and 3 union territories in India as of June 30, 2021. As far as the peer comparison is concerned, the post-issue FY2021 EV/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. We believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue.”