Market laggard Devyani International shares feast on Thailand’s KFC deal, jump 8%
The development triggered a strong investor interest in the stock with nearly 82 lakh shares changing hands on the NSE, while the stock witnessed a 5.20 times spurt in volumes on the BSE.
The stock has been a market laggard with returns of just over 2% in the last 12 months while stock's returns in 2023 stand at a mere 7%. In contrast, the Nifty has given over 16% returns.
Devyani International's Dubai subsidiary Devyani International DMCC on Monday announced its entry into the Thailand market by signing a share purchase agreement to acquire a controlling interest in Restaurants Development Co, Thailand.
This strategic venture is a collaboration between Devyani International and Temasek Holdings (Private).
While Jefferies recommended a 'Hold' on the counter, it estimates a 3% upside in the stocks over the Monday closing price. The stock has already surpassed the target of Rs 190.
Jefferies called it a «surprising move».
According to its estimates, the forward growth multiple could be 5-6X the EBITDA even if a modest growth is assumed. «We however would have liked an India growth effort instead and hope this does not kick-start overseas M&As,» the brokerage said in a note.
The deal is subject to a minority vote.
On the valuation front, brand contribution margin (pre-Ind AS 116) is in the 14-16% range versus 20%+ for KFC India, and assuming corporate overheads at around 3-4% of sales, EBITDA margin would be around 11-12%, Jefferies said.
This implies an acquisition valuation at a significant discount to Devyani's valuations of 7x FY23 EV/sales and 50x EV/Ebitda, the US brokerage added.
On the other hand, Nuvama recommended a buy with a target price of Rs 225, a 22% upside over the Monday closing price. The
