DEVYANI

Faces Headwinds Amidst Subdued Demand

, a key player in the quick-service restaurant (QSR) space, is struggling with weak demand and competitive pressure. The company's core metrics, particularly average daily sales (ADS) and same-store sales growth (SSSG), highlight significant challenges in its path to a financial turnaround. → Declining Key Metrics: KFC's ADS fell 5.8% year-on-year (y-o-y) to ₹98,000, remaining well below its previous peaks. The company aims to restore this to ₹100,000 in FY26 through value menus and promotions. Pizza Hut's ADS saw an even steeper decline of 8.3% y-o-y to ₹33,000. Both brands recorded negative SSSG in Q1, with analysts emphasizing that improving these metrics is critical for restoring unit-level profitability. → Strategic Responses & Diversification: Devyani is expanding its KFC network, adding eight new stores in India during the quarter, while cautiously handling Pizza Hut's expansion in a crowded market. To diversify its revenue streams, the company acquired Sky Gate Hospitality, including the popular "Biryani By Kilo" brand, marking its entry into the high-growth Indian cuisine segment. While this acquisition is currently loss-making, it is expected to become EBITDA positive in FY27. Devyani is also planning to test-launch new brands like TeaLive, New York Fries, and Sanook Kitchen. → Profitability & Outlook: Consolidated EBITDA margin fell to 15.1% in Q1, down 320 basis points, primarily due to higher marketing spends. Although the company anticipates a profitability improvement from Q3 FY26, margin pressure is expected to persist due to inflation in key ingredients and taxes on rentals and aggregator commissions. Analysts have lowered their revenue and EBITDA estimates for FY26 and FY27, reflecting concerns over slowing growth and soft margins.