Should you invest in the IPO of loss-making Devyani International?

The company has recorded losses in the last three financial years, but analysts believe it is not much of a concern and advise investors to subscribe to the issue. They believe the stock is being offered comparatively cheaper on the basis of its sales and Ebitda.

The company is going to list at an EV/Ebitda of 62.39, when its peers

and Westlife Development trade at EV/Ebitda ratios of 66.02 and 206.11 respectively, analysts said.

At the upper end of the issue price band, the post-issue FY21 EV/sales works out to 9.9 times, which is low compared with peers Jubilant Foodworks’ 15.4 times, Burger King India’s 14.8 times and Westlife Development’s 10 times.

“Furthermore, Devyani International has a better operating margin compared with Westlife Development and Burger King. We believe this valuation is being done at a reasonable level. Thus, we recommend a ‘subscribe’ rating on the issue,” said Amarjeet Maurya, AVP for Midcaps at Angel Broking.

Devyani International has fixed the price band for its IPO at Rs 86-90 range. The company aims to raise Rs 1,838 crore through a fresh issue of shares aggregating Rs 440 crore and an offer for sale (OFS) of up to 15.53 crore shares.

The firm will use the proceeds of the IPO to pay up its debts and for general corporate purposes. Of the offered shares, 75 per cent is reserved for institutional investors, 15 per cent for high net-worth investors and 10 per cent for retail investors. About 5.50 lakh shares are reserved for employees. Investors can apply for the issue in a lot of 165 shares and multiples thereof.

The company operated 284 KFC stores, 317 Pizza Hut stores and 44 Costa Coffee stores in India as of June 30, 2021. It also operates stores in Nigeria and Nepal. The company also owns brands such as Vaango, Food Street, Masala Twist, Ile Bar, Amreli and Ckrussh Juice Bar.

In FY21, Devyani’s business from the core brands (India & internationally) accounted for 94.19 per cent of revenues from operations. Delivery sales represented 70.20 per cent of revenues in FY21 compared with 51.15 per cent in FY20.

“We assign ‘subscribe’ rating to this IPO as the company is a comprehensive multidimensional QSR player with a portfolio of highly recognised global brands and is available at reasonable valuation as compared to its peers,” said Saurabh Joshi of Marwadi Shares and Brokers.

Between March, 2019 and March, 2021 the core brand stores grew at a CAGR of 13.58 per cent from 469 to 605 and the company attributed its success and continuous growth effort to its 9,356 employees. It is expected that the sale value of the QSR industry will grow at a CAGR of 12.4 per cent over 2020-2025.

The issue will close for bidding on Friday.