Devyani International Ltd (DEVYANI) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the Devyani International's Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir. Mr. Anoop, you may go ahead.
Anoop Poojari (CDR India): Yeah. Thanks Leo. Good afternoon everyone and thank you for joining
Anoop Poojari (CDR India): on Devyani International's Q2 FY27 earnings conference call. The Chairman has excused himself from today's call due to personal reasons. We have with us, Mr. Raj Gandhi, Non-Executive Director, Mr. Manish Dawar, President and CEO, and Mr. Anupam Kumar, CFO of the company. We'll initiate the call with opening remarks on behalf of Mr. Ravi Jaipuria. Since the Chairman couldn't join us today, Mr. Manish Dawar will read the comments on his behalf. This will be followed by key business and financial highlights by him. Thereafter, we'll have the forum open for a question-and-answer session. Before we begin, I'd like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now request Mr. Manish Dawar to read the Chairman's opening remarks.
Manish Dawar (Devyani International Ltd): Thanks, Anup. Good afternoon, everyone. So I'm going to be reading the comments on behalf of Mr. Jaipuria and then I'll come to the detailed business and financial highlights. Good afternoon, everyone, and thank you for joining us. It gives me great pleasure to welcome you to Devyani International's earnings call for the second quarter of FY 26-27. Our growth momentum carried on firmly into the second quarter. We've had a good quarter with positive SSSGs ranging from 4% to 9% across our brand portfolio in India, except Pizza Hut which saw sequentially better numbers. We added 70 net new stores during the quarter. KFC led the store additions with 50 net new units added in India. This takes our store footprint to footprint to 1,923 stores in India and 2,325 stores globally. We are on track to meet our full full-year guidance of 200 to 220 net new additions with the same discipline: the right locations and a clear line of sight to profitability. Consistent performance across brands quarter after quarter tells us that the steps we've taken to sharpen our consumer proposition are taking hold. Building on the positive SSSG performance, we delivered consolidated sales of INR 1,519 crores, growing 10.4% year-on-year. Despite steep inflation in raw materials and wages, the leverage from higher same-store sales and tight cost control helped us lift EBITDA by nearly 18% to INR 229 crores. This is one of the best quarter two operating EBITDA numbers that we've seen and the same helped us post profit before taxes of INR 5.7 crores for the quarter against a loss last year. Your company delivered a PBT of Rs. 29 crores in H1 versus a loss of Rs. 24 crores in the previous year. Equally encouraging is the quality of growth that we are observing. Across brands we witnessed transaction-led growth and growth in our on-premise channel sales. Both these trends are very heartening and are key to long-term sustainable growth trajectory. On a macro basis, India's food services industry remains one of the most exciting opportunities globally. RedSeer's latest report puts the market at about USD 90 billion growing to USD 150 billion by FY31. Within this, the organized players are expected to grow at 17% to 18% per annum against just 3% to 4% for the unorganized market, a a good tailwind for for your for a company of our scale. The broader economy supports this trajectory. Real GDP grew 7.8% in the first quarter of this financial year and Bain estimates that private consumption growth accelerated from 8% over 22-24 to 10.5% in '25. Indian consumers also remain amongst the most confident in the world with net optimism of 27% against a global average of -12% in the current scenario. More importantly, this growth is broad-based. Tier 2 and smaller cities now account for about 65% of India's online shoppers and Gen Z for 40% to 45%, a clear sign that aspiration is spreading across and well beyond the metros. The headroom in emerging India is vast. India's 30 largest cities have about 20 branded QSR outlets per million people while the national figure is closer to 4. The brands that combine trust, value, and scale will lead this next phase of growth and we are confident that DIL, post merger with Sapphire Foods, will be at its forefront. While the India opportunity is real,
Manish Dawar (Devyani International Ltd): and inspection drive from the food authorities across the country disrupted store operations during the inspections. While we strongly believe that a strong focus on hygiene and operational control is needed and will help formalization journey for the industry, there needs to be consistent application of the same. With food inflation firming and interest rates beginning to rise, we expect discretionary spending to stay under pressure as our peers have also already indicated. By providing sharper value at entry price points, consistent marketing and a concerted effort on bringing guests back into our restaurants, we feel we are well positioned to perform in the coming quarters. Our new management team is settling in, and we are confident that our plans with respect to pre-merger preparations are progressing well. We are expecting that the merger should get approvals in line with our initial plans. You will be pleased to know that we have received CCI approval for the merger from the authorities. With this, I will now go to the detailed business and financial highlights. The current macroeconomic environment in India presents a complex and highly polarized economic landscape. Coupled with this, the uncertain regulatory environment also poses additional complexity. If we analyze the data, we see a stark divergence between current micro realities and macro expectations. Based on the above, we've already started work on some specific initiatives on our key brands. At KFC, we have taken concerted steps to up our recruitment engine through the INR99 and INR149 meal combos. While we continue with our abundant value proposition on Wednesdays, the same has been supplemented by targeted BOGO, BOGO offer in the relevant markets. We have taken similar initiatives on Pizza Hut and will be rolling out the same in the next couple of quarters. At Biryani by Kilo, we are experimenting with better value proposition for the brand at our food courts through the BBK Express outlets. As the brands go deeper into emerging cities, a strong customer recruitment engine is a critical investment for the long-term growth of the brand. We need to make sure that we can achieve the above with a minimal impact on our margins, and hence, we are approaching it in a very calibrated manner. We've also seen strong inflation coming in at multiple levels in the business over the last couple of quarters. Raw materials like chicken, edible oils, dairy, etc. are trending higher year-on-year. There has been some mitigation on account of carry-over effect of old inventories. LPG availability has normalized, but the prices are nearly double as compared to the previous year. Several states have announced steep minimum wage hike further compounding the margin pressure. We've taken a very small and calibrated 1% to 2% price hike on a YTD basis, and we continue to monitor the movement of key raw materials. Our endeavor is to take price hikes on a staggered basis to protect the already muted consumer sentiment. We have tried to mitigate the impact of the above by way of sharper execution on promotions and optimization of deals, coupled with cost-saving measures that have helped us to protect our overall margins. The consolidated DIL revenue for Q2 grew 10.4% year-on-year to INR 1519 crores, and operating EBITDA pre-IndAS basis came in at INR 125 crores with a growth of almost 34% year-on-year. The gross margins at 68.5% was an improvement of 70 basis points over the previous year, and we saw the improvement in both our Indian as well as international business. The consolidated brand contribution margin expanded to 13% with a brand contribution of INR198 crores, up 23% year-on-year. Together with effective management of G&A costs, this helped us post operating operating EBITDA margin of 8.2% versus 6.8% in the previous year. Delivering this performance in a seasonally soft quarter and amid strong inflation is a testament to the execution skills of the DIL team. Moving on to the brands now, at KFC, SSSG came in at 4.4% with the on-premise saliency of 56%. Revenue grew 12.3% year-on-year to INR 642 crores. Gross margin was 68.2%, broadly flat year-on-year, accounting for the high food inflation. Brand contribution margin came in at 13.9%, virtually flat versus the previous year, despite steep minimum wage increases, specially in states like Karnataka, Kerala, Andhra, and Telangana, and elevated LPG prices. We added 50 net new stores, taking the KFC network to 844 stores. Alongside the value combos, KFC also hosted the Fried Chicken Month in July with a buy-one-get-one bucket offer every Friday for dine-in and takeaway.
Manish Dawar (Devyani International Ltd): versus the previous quarter at minus 1.4% with ADS at INR32,000 per store per day. Revenue was INR184 crores, nearly flat Y-o-Y. Gross margin improved to 76.7% on better targeted promotions, but higher LPG and wage costs took brand contribution margin to minus 1.8%, a loss of INR3.3 crores like the previous quarter. We ended the quarter with 632 stores, adding six net new stores to replace underperforming stores that we've closed. We tested a new spicy range of pizzas and sides. Customer response to the three-in-one range of spicy pizzas has been encouraging. We are working on new product ideas and laying the groundwork for the long-term revival of the brand. Our own-brand portfolio of Vaango and Biryani By Kilo delivered healthy performance. BBK continues to show strong traction with a SSSG of 8.1%, while Vaango delivered a SSSG of 6.9% positive. We have seen a strong turnaround in BBK and the brand has improved on both topline growth and margins. The brand contribution margin is now close to double digits. As a result, our own brands portfolio posted a revenue of INR95 crores, nearly 11% higher year-on-year. Gross margins improved to 65.4% from 62.6% last year, and brand contribution came in at INR9 crores, a margin of 9.4%. Our own brands network reached 225 stores, including 26 BBK Express stores. For our franchise brands portfolio, revenue growth remained steady at 7% year-on-year. Costa delivered an impressive 9.9% SSSG, maintaining its strong growth rate. Gross margin at 74.2% was better than 73.6% last year. Brand contribution margin came in at 15.5%. The total store count stood at 202 stores as at the end of the quarter. Our international business maintained its impressive run in delivering strong and consistent growth and posted INR509 crores in quarterly revenues. This is despite Thailand facing severe flooding in September, which resulted in business disruption and overall softer consumer environment due to a higher fuel cost. Gross margins were better on a Y-o-Y basis, but declined slightly sequentially. Brand contribution margin was up by 1.2% compared to last year at 17.9%, and came in at INR91 crores for the quarter. On store expansion, our revamped BD structure is now in place and is executing well. Of the 70 net new stores, 68 were added in India, taking us to 1,923 stores in India and 2,325 globally as of September 30th, 2026. Our new store openings remain in line with the guidance given earlier. As regards our proposed merger with Sapphire Foods, we are pleased to mention that we've received the CCI approval on the merger last week. We are awaiting no-objection from SEBI now. Once we've received the SEBI no-objection, we can proceed with the NCLT application. In summary, we continue to remain optimistic about closing the merger process by the end of the current financial year. The Sky Gate merger is also moving as per the plan and we are expecting the merger approval from NCLT very shortly. As a summary, our results for the quarter demonstrate that we continue to execute five key priorities that we have laid down, that we've laid for ourselves. Number one, expand the store footprint. Number two, maintain positive SSSG. Number three, improve efficiency and margin structure by way of judicious cost controls. Number four, build the next level of team, organization structure with right processes. And number five, readiness for the merged entity. With this, I would request the moderator to open the forum for any questions or suggestions that you may have. Thank you very much.
Moderator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask questions, may press "*" and "1" on your touchtone telephone. If you wish to remove yourself from the question queue, you may press "*" and "2". Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press "*" and "1". The first question is from Saurabh Kundan from Goldman Sachs. Please go ahead.
Saurabh Kundan (Goldman Sachs): Hi, thank you. So, sir, there is a sequential improvement in KFC surely, but when we look at it in the context of some peers, it has lagged. Anything you want to point out that might have impacted us in this quarter? And and any initial sense on how you are doing in October?
Manish Dawar (Devyani International Ltd): at the Navratras effect that predominantly in in the in the northern markets and western markets. And and therefore, because the Navratras in the current year came in in the current quarter, which is in October, and obviously there were some tailwinds for the numbers that have been reported. Whereas in our case, for example, we have a strong KFC contribution coming in from South and East, where Durga Puja is a good positive for us, and Durga Puja fell again in in in the current quarter, which is October, November, December versus the previous quarter in the last year. So, therefore, you will see that on a on a hum, 2, 3 quarter basis will be very similar to each other. We don't expect any big deviation as far as the peer group reportings that we've seen. To your other question in terms of how the numbers are panning out now, we've always said that we are building business for future, we're not building for near future. And therefore, we are taking all the right steps. It could take a little longer more from a structural point of view, and hence our numbers will be there on a sustainable basis. So even in the current quarter, we are hopeful that the triple SG numbers will be sustained to whatever we've reported while let's say we are targeting for slight improvement on whatever you've seen now.
Saurabh Kundan (Goldman Sachs): Sure. Thank you very much. Second question is in your in your remarks sir, you mentioned that you are going to launch similar transactions focus strategies in Pizza Hut going forward like you did in KFC. Can we take that as a first indication from you on how you are thinking about the future of this brand post merger? Will it become more sharply focus on value pizza category?
Manish Dawar (Devyani International Ltd): So Saurabh, I've indicated two things in the past if you remember and then I'll try and link to whatever we've said now. One we said that the innovation engine in Pizza Hut has to work in a much more stronger way, and that has been our weakness in the past given what competition was doing. And as you know, I mean to develop the entire pipeline, to develop the portfolio of innovation takes time. That is what we are currently working on. So, that is work in progress. The other thing that I'd mentioned in the past was all about the right pricing levels and the price laddering. And and while let's say at the premium end we have a good assortment of products available, but at the entry levels the consumer feedback has been that the the assortment of products is weak, and that's the reason Pizza Hut is perceived to be an expensive brand or a premium brand. So, that is something that we are trying to correct by way of innovation. Our other focus area will obviously be dine-in. That again I've indicated in the past. So, these are some of the legs that we are working on. And therefore, what I said today in terms of the value offering was all about linked to the right price point points and the assortment of products at multiple price points and multiple pricing layers. So, so that is what we are And we've seen that with our port with other portfolio of brands that that this is something which is working very well in the current environment and by way of, let's say, controlling in terms of where the offering is whether it is a dining channel or a delivery channel, versus the promotions you can balance out the margins. So, that's how we are operating. We they are we are progressing on Pizza Hut, as well.
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