KFC IPO

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“It’s finger-lickin’ good”. Does this phrase sound familiar? Wait a minute! I have heard and seen this tagline somewhere. Ohh yea! “KFC” is every chicken lover’s go-to place for chicken cravings. On hearing the word, KFC,1st thing that comes to every chicken lover’s mind are those of spicy hot wings and bucket filled with crispy, juicy chicken pieces. The reason for writing this article is not to make everyone drool with the description of the chicken bucket of KFC. Let us get down directly to business.

Devyani International Ltd., the holding company of KFC, is coming up with an IPO. So now we have the opportunity to become the part-owner of becoming the KFC franchise by investing in IPO. In addition to having ownership of the KFC franchise, they are also owners of PIZZA HUT, TACO BELL, HABIT BURGER GRILL, and many more food chains in India. So vegetarians need not be disheartened that why they should invest in a chicken-related food chain. They have PIZZA too.

Let us look at some facts.

Below are the number of outlets run by Devyani International Ltd.

Pizza hut — 297 stores

KFC- 264 stores

Costa coffee — 64

Vango — 39

TWG -2 stores

Food street — 136 stores

The majority of revenue is generated by Pizza Hut & KFC

We will discuss more in detail about the same.

The parent organization of both KFC and Pizza Hut is the Yum! Brands, an American fast-food multinational corporation.

Devyani International Ltd. is the largest franchisee of Yum Brands in India and is among the largest operators of chain quick-service restaurants in India, on a non-exclusive basis, and operates 655 stores across 155 cities in India as of March 31, 2021. In addition, it also has franchise rights for the Costa Coffee brand and stores in India

Their relationship with Yum began in 1997 when they started their first Pizza Hut store in Jaipur. They have subsequently continued to expand their operations with both KFC and Pizza Hut franchises. As of March 31, 2021, they operated 264 KFC stores and 297 Pizza Hut stores across India. They have an extensive presence in 26 states and three union territories in India.

They collaborate with Yum across various aspects of KFC and Pizza Hut operations include franchisor’s brand protection and management, including product innovation and development, brand strategy, and technology initiatives. They also work closely with Yum on advertising, promotion, and marketing activities.

As an investor, we should have more details about the company’s promoter. The majority of the shares of Devyani International Ltd. are with RJ COP.RJ CORP is the parent company of DEVYANI INTERNATIONAL LIMITED and VARUN Beverages. Varun beverages are the 2nd largest bottling company of Pepsico outside the USA.

Below are the essential figures about Devyani International Ltd.

• Core Brands Business grew at a CAGR of 13.58% from 469 stores from March 31, 2019, to 605 stores as of March 31, 2021.
• India business revenue split up across brands is as follows

1. KFC -54.77% ,

2. PIZZA HUT -25.37 % and

3. Consta coffee is 1.88%

• Revenue from operations in Fiscals 2019, 2020 and 2021, respectively are 83.01%, 82.94% and 94.19%.
• DEVYANI International Business has stores in Nepal, Nigeria.

KFC and Pizza Hut Royalty and Marketing activity –

Yum! Brands carry out marketing activities of KFC. DEVYANI INTERNATIONAL LIMITED must spend 6.00% of gross revenues connected with advertising, promotion, and marketing activities. They should pay 5.00% to Yum! Brands and pay 1.00% for localized/ store-based promotion and marketing activities.

Royalty: In addition to marketing expenditure, they have to pay 6.3% of their revenues to Yum! Brands as the royalty amount for continuing to hold franchise rights of KFC and Pizza Hut stores.

Positive

1. The majority of business is from KFC, and there is no competition in the market.
2. Brand value
3. Revenue generated from delivery sales represented 51.15% of revenue in Fiscal 2020 and increased to 70.20% in Fiscal 2021
4. Operating profits has slight increase due to more delivery orders.
5. Expanding the stores @13% cagr

Negatives

1. Royalty and continuing fees increased by 15.49% from ₹ 727.66 million in Fiscal 2019 to ₹ 840.39 million in Fiscal 2020 primarily due to increased revenue from operations from Core Brands Business. Royalty and continuing fees as a percentage of income from operations was 5.55% in Fiscal 2019 and 5.54% in Fiscal 2020.
2. In-store dining represented 48.85% of revenue from Core Brands Business operations in Fiscal 2020. It declined to 29.80% of income from Core Brands Business operations in Fiscal 2021 due to covid.
3. The attrition rate is high when compared to the industry.
4. Posting net loss from fy2019
5. Present Finance cost is 13%, spent as interest paid on the loan amount.
6. debt to equity ratio was 6.45 as of March 31, 2021
7. total borrowings (consisting of current and non-current borrowings) of ₹ 463 cr as of March 31 2021

Through the IPO route, 440 cr is being raised, and 340cr is used to pay back debt. aft payment of a debt, the debt to equity will be 0.2

At present, the company is making a loss, so we will not get EPS ( Earning per share )

So that we can calculate it by sales to shares = 8.75 times, they are coming with a decent valuation to the market.

Let us look at IPO DETAILS

Issue date: August 4, 2021, to August 6 2021

Price band: 86–90/-

IPO LISTING DATE; August 16 2021

My View :

• One can apply for listing gains and could expect (40–100)%.
• One can apply for the long term by tracking the company regularly.

Investors looking for listing gains, can apply all 4 running IPOs

· Devyani international and krsnaa diagnostic. (Listing gains expected 30–100%)

· Windlas and exxaro Listing gain is expected around (Listing gains expected 10–50%)

Jai Hind !!

Regards

T Sai Prasanth

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