Devyani International IPO in progress: Should you subscribe to the share sale?

The initial public offer (IPO) of Devyani International, the largest franchisee of Pizza Hut, KFC and Costa Coffee in India, has opened today. The firm has fixed a price band of Rs 86-90 for the IPO. At the upper end of the price band, the IPO is expected to fetch Rs 1,838 crore.

The share sale will close on August 6.

The company has already raised Rs 824.87 crore from 63 anchor investors on August 3.

The company in consultation with merchant bankers and selling shareholders, has finalised the allocation of 9,16,52,499 equity shares to anchor investors, at a price of Rs 90 per share, said Devyani International in a BSE filing.

The IPO consists of fresh issue of equity shares worth Rs 440 crore and an offer-for-sale of up to 155,333,330 equity shares by promoter and existing shareholder.

The allotment of shares will be done on August 11,2021 and will make their market debut on August 16, 2021.

Ravi Kant Jaipuria, Varun Jaipuria, and RJ Corp Limited are promoters of the company.

The promoters of the firm hold 75.79% stake which will come down to 67.99% after the share sale.

A minimum of 165 shares or l lot can be applied for by retail investors for which one will have to spend Rs 14,850.

Retail investors can apply for a maximum of 13 lots comprising 2,145 shares for which Rs 1,93,050 will have to be spent.

Under the offer-for-sale, Dunearn Investments (Mauritius) Pte Ltd, a wholly owned subsidiary of Temasek Holdings, will offload 6,53,33,330 shares and promoter RJ Corp will sell 9 crore shares.

Kotak Mahindra Capital Company, CLSA India, Edelweiss Financial Services and Motilal Oswal Investment Advisors are the book running lead managers to the issue.

The offer includes a reservation of up to 5.50 lakh equity shares for the company's employees.

75 per cent of the issue size has been reserved for qualified institutional buyers (QIBs), 15 per cent for non-institutional buyers and the remaining 10 per cent for retail investors.

Proceeds from the fresh issue will be used to retire debt and general corporate purposes.

Devyani International is an associate company of RJ Corp, the largest bottling partner of food and beverages (F&B) major Pepsico, and has interests in the Indian retail F&B sector.

The company is the largest franchisee of Yum Brands, operating core brands such as Pizza Hut, KFC, Costa Coffee besides its own brands such as Vaango, Food Street, Masala Twist, Ile Bar, Amreli and Ckrussh Juice Bar.

It currently operates 297 Pizza Hut stores, 264 KFC stores and 44 Costa Coffee as on March 2021 in India.

Here's a look at what brokerages say about the ongoing IPO.

Anand Rathi is positive on prospects of the IPO. "At the upper end of the IPO price band, Devyani International is offered at 9.5 times market capitalization / sales as per FY21 financial statement, compared to peers like Jubilant Foodworks Ltd. (15x), Westlife Development Ltd. (8.8x), Burger King India Ltd. (14x). We believe the company remains well placed for long-term growth considering the company's portfolio of recognized global brands catering to a range of customer preferences, cross brand synergies, expansion of store network and EBITDA positive earnings; we give this IPO a "Subscribe" rating."

BP Equities has given a 'subscribe' rating for the long term, considering the expected improvement in financial performance and visible growth drivers.

"On the valuation front, based on upper price band and diluted equity shares the company is valued at 9.54x Price/Sales which is reasonably priced when compared to its listed industry peers (i.e, Jubilant Foodworks - 12.9x, Burger King India - 14.4x and Westlife Development - 8.81x)," the brokerage said.

Marwadi Financial Services has assigned a subscribe rating to the IPO.

"Considering the FY21 adjusted EBITDA of Rs 178.92 crore on post issue basis, the company is going to list at EV/EBITDA of 62.39 with a market cap of Rs 10,822.7 crore, while its peers namely Jubilant Foodworks and Westlife Development are trading at EV/EBITDA of 66.02 and 206.11, respectively," said Marwadi Financial Services.