Devyani's domestic struggles continue as it integrates Thai acquisition
Motilal Oswal Financial Services. KFC and Pizza Hut – Devyani's mainstays in India, accounting for more than 60% of total revenue – continued to struggle in Q4 amid lower disposable incomes, weak consumer sentiment, and increased competition for Pizza Hut. Same-store sales growth, a key measure of comparable sales, paints a concerning picture.
The pace of decline worsened in the past quarter, with KFC’s same-store sales down 7% Pizza Hut's falling 14%. Unsurprisingly, average daily sales were also affected, with Pizza Hut and KFC reporting year-on-year declines of 18% and 12%, respectively. Also read | Mint Explainer: What's behind the slowdown in fast-food sales? On profitability, the domestic brands clocked strong gross margins thanks to a benign raw-material basket.
However, the overall earnings before interest, taxes, depreciation, and amortization (Ebitda) margin was 16.6%, down 340 bp year-on-year, owing to negative operating leverage in the domestic business and the onboarding of the Thailand restaurants, which have lower margins than the Indian business. Additionally, the devaluation of the Nigerian naira hit the bottom line hard, wiping out ₹42.4 crore from total profits. Devyani will now have to navigate a challenging domestic environment while integrating its new Thai acquisition.
Success will depend on reviving same-store sales in India amid increased competition, and leveraging its Thailand business for further growth. Also read: Why Devyani International's entry into Thailand looks appetizing Despite the challenges, management remains optimistic. It views the current consumer slowdown as temporary and anticipating an improvement after the general elections.
Read more on livemint.com
