Acquisitions And Indian Cuisine Brands Will Broaden Future Market Reach

Key Takeaways

• Targeted acquisitions, brand launches, and diversified formats are set to strengthen market reach amid evolving consumer preferences and rising demand for convenience food.
  
• Investment in digital channels, operational efficiency, and menu innovation underpin enhanced sales growth, margin expansion, and long-term profitability.
  
• Weak same-store sales, margin pressures, risky aggressive expansion, loss-making acquisitions, and rising competition threaten sustained profitability and long-term shareholder returns.

Catalysts

Develops, manages, and operates quick service restaurants and food courts in India, Nepal, Nigeria, Thailand, and internationally.

• Expansion into new consumer segments through acquisition of Sky Gate Hospitality and the launch of Indian cuisine brands such as Biryani by Kilo and Goila Butter Chicken is expected to significantly broaden Devyani's addressable market, especially tapping into rising middle-class income and evolving eating habits, which should drive future revenue growth.
  
• The aggressive rollout of new stores-including in Tier 2/3 cities and international markets-combined with a multi-brand, multi-format strategy (adding New York Fries, Tealive, Sanook Kitchen) positions Devyani to capture opportunities arising from rapid urbanization and increasing demand for convenience food, supporting both top-line growth and enhanced market penetration.
  
• Strong traction in digital channels and delivery platforms (e.g., positive online SSSG and transaction growth through initiatives on Zomato and Swiggy) allows Devyani to capitalize on the fast-growing digital food delivery market, unlocking additional incremental sales while optimizing marketing spend for higher operating leverage and potentially improving net margins.
  
• Ongoing menu and format innovation-including value offers (e.g., dine-in combos like Epic Saver) and new product launches-aims to address customer preferences for affordable, convenient, and varied dining, likely supporting a recovery in store traffic and driving higher transaction growth, which could translate into improved same-store sales and gross margins as promotional spend normalizes.
  
• Back-end integration, process optimization (such as reducing store size and experimenting with cloud kitchen and alternative formats), and rationalization of underperforming stores are designed to enhance operational efficiency; together with supply chain scale, these factors can support sustained margin expansion and long-term profitability.

Devyani International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Devyani International's revenue will grow by 15.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 3.8% in 3 years time.
• Analysts expect earnings to reach ₹2.9 billion (and earnings per share of ₹2.13) by about August 2028, up from ₹91.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹3.8 billion in earnings, and the most bearish expecting ₹1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 125.1x on those 2028 earnings, down from 2139.1x today. This future PE is greater than the current PE for the IN Hospitality industry at 35.3x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.93%, as per the Simply Wall St company report.

Devyani International Future Earnings Per Share Growth

Risks

• Sustained negative or flat same-store sales growth (SSSG) for 8–9 consecutive quarters in key brands like KFC and continued negative SSSG in Pizza Hut indicate underlying demand or brand perception issues; this trend pressures both revenue growth and store-level profitability over the long term.
  
• Input cost inflation (notably in cheese, flour, and edible oils), persistent increases in delivery aggregator expenses, and GST changes (which do not allow credit on input rent) are compressing gross margins and operating EBITDA, with management warning that these impacts are structural and likely to persist-directly threatening net margin and earnings expansion.
  
• Heavy dependence on aggressive store expansion-especially in Tier 2/3 cities and with delivery-first models-risks lower unit economics, dilutive same-store returns, and potential cannibalization, which could ultimately weigh on return on capital employed (ROCE) and long-term shareholder value.
  
• Integration of newly acquired and loss-making brands like Sky Gate Hospitality (Biryani by Kilo and Goila Butter Chicken) adds drag to the margin profile, requiring successful turnaround; if turnaround efforts fail, continued operating losses from these portfolios could persistently dilute consolidated earnings.
  
• Intensifying competition from cloud kitchens, local players, and tech-native QSR brands, coupled with a shift in consumer behavior toward convenience and rapid delivery formats (e.g., 20-minute delivery), threatens to erode traffic to traditional stores, depress like-for-like sales, and reduce long-term revenue growth potential in core urban segments.

Valuation

• The analysts have a consensus price target of ₹185.458 for Devyani International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹215.0, and the most bearish reporting a price target of just ₹139.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹75.5 billion, earnings will come to ₹2.9 billion, and it would be trading on a PE ratio of 125.1x, assuming you use a discount rate of 15.9%.
  
• Given the current share price of ₹158.86, the analyst price target of ₹185.46 is 14.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.