Biryani by Kilo: Devyani share price target sees upside revision on expanding delivery menu

Devyani International Ltd received a revision in its target price by Nuvama Institutional Equities, following the company's acquisition of 80 per cent stake in Sky Gate. With this purchase, Devyani will now further expand its offerings by entering categories of premium Biryani (Biryani by Kilo-BBK), North Indian Food (Goila Butter Chicken) and affordable daily vegetarian meals (The Bhojan).

Following this, Nuvama has upped its target price on Devyani International to Rs 216 from Rs 179 earlier, while maintaining its 'Buy' rating on the stock. 

The deal transaction is being done at a trailing twelve month EV/Sales of nearly 2 times, which is higher than what it had paid for the recent acquisition of a Thailand business (0.8–1 times. 

"Although this acquisition forms a lower proportion of the business currently (5 per cent of FY25E revenue), we expect Devyani to scale it up significantly given its expertise in operating
and expansion with presence of 1,658 stores across the country across formats," Nuvama said.

Devyani is acquiring the entity at an equity valuation of Rs 519 crore and would buy 80.72 per cent in a secondary round from existing investors. This compares against its previous
fund-raise at Rs 780 crore (pre-money valuation). The consideration will be predominantly settled by way of Devyani equity swap. With this latest acquisition, Devyani will have 10 brands in 10 different categories.

The acquisition of Sky Gate aligns well with Devyani's vision of becoming a multi-brand and multi-category offering. This is positive as it gives the company an alternative expansion lever other than KFC, Nuvama said. 

The Biryani category, which forms a big portion of Sky Gate’s revenue, has all the qualities of a QSR offering and a large TAM, the brokerage said.

"This transaction will lead to dilution of 1.93 per cent for existing DIL’s shareholders and is likely to be completed by May," Nuvama said.

Nuvama said the recent forays into different categories and brands — Tealive, New York Fries –
NYF, Sanook Kitchen (all three in Nov-24) and the Sky Gate acquisition now — shows Devyani's vision of transforming into a Multi-Brand play, a marked departure from its earlier concentrated play in KFC and Pizza Hut. 

"We expect the profitability ramp-up at Sky Gate to begin from FY26 given DIL’s expertise and scale, and hence tweak FY26E/27E Ebitda by -4 per cent/+1 per cent. Valuing Sky Gate’s business separately at 2 times 9MFY27E EV/sales yields a revised target price for Devyani of Rs 216 (earlier Rs 179); maintain ‘BUY’," Nuvama said.