Motilal Oswal Financial Services has reiterated a Buy rating on Devyani International, holding its target price at Rs 160 — implying 35% upside from the current market price of Rs 118. In a July 30 results update titled "Improving operational print," the brokerage said the KFC and Pizza Hut franchisee's consolidated revenue grew 17% year-on-year in the first quarter of fiscal 2027, with same-store sales growth momentum that built through the second half of last year carrying into the new fiscal year despite a volatile demand backdrop.

Q1FY27 Headline Numbers

Consolidated revenue rose to Rs 15.8 billion, broadly in line with the brokerage's estimate, while India revenue climbed 15% year-on-year to Rs 10.7 billion, driven by improving KFC performance and contributions from acquired brands. Gross profit increased 18% year-on-year to Rs 10.9 billion, with gross margin expanding 90 basis points year-on-year to 69.1%. Reported EBITDA grew 24% year-on-year to Rs 2.5 billion, with consolidated EBITDA margin improving 100 basis points year-on-year to 16.1%. Profit before tax came in at Rs 223 million, sharply higher than Rs 19 million a year earlier and a reversal from a loss of Rs 207 million in the preceding quarter, aided by higher other income. Adjusted profit after tax was Rs 178 million, up from just Rs 15 million in the year-ago quarter.

Brand-Wise Performance

KFC remained the primary growth engine, with average daily sales holding flat year-on-year at Rs 98,000 and management reiterating an aspiration to reach 5-6% same-store sales growth, at which point brand contribution margins could exceed 20% once average daily sales climb to the Rs 105,000-110,000 range. Pizza Hut, by contrast, continued to post negative same-store sales, though the trend improved sequentially from a 3.7% decline in the prior quarter; management described the brand's revival strategy as a "back-to-basics" approach focused on product and ingredient quality, and appointed a new chief marketing officer to lead the turnaround effort. Regional operating margin in India rose 24% year-on-year to Rs 1.4 billion, with KFC's regional margin improving 140 basis points to 16.9% on the back of gross-margin expansion, while Pizza Hut's regional margin stayed negative at roughly negative 2%, marginally worse than the negative 1.1% recorded a year earlier.

The Devyani-Sapphire Merger: A Key Catalyst

1. The proposed merger between Devyani International and fellow KFC/Pizza Hut franchisee Sapphire Foods is expected to be completed by the end of fiscal 2027, with the transaction already having received approvals from both the National Stock Exchange and the Bombay Stock Exchange in June.
2. The brokerage estimates the combination could deliver recurring annual synergies of approximately Rs 2.2 billion, driven by lower Pizza Hut operating costs, reduced corporate overheads, and broader operational efficiencies.
3. Motilal Oswal has built in a more conservative EBITDA gain of roughly Rs 500 million in fiscal 2028 from the merger, citing weak broader quick-service-restaurant industry performance and the possibility of delays in realising synergy benefits.
4. Management has retained its guidance of 200-225 net new store additions for fiscal 2027, with KFC expected to contribute 100-110 of those, and the remainder split across Costa Coffee, Biryani By Kilo and the international business.

Stock Levels To Watch

The stock trades well below its 52-week high of Rs 191, and its 12-month relative performance shows a decline of 27% against broader indices — a gap the brokerage's Rs 160 target implies could close substantially if the KFC-led earnings recovery and merger synergies play out as expected.

Estimates And Valuation

Devyani is expected to swing from a marginal loss in fiscal 2026 to modest profitability in fiscal 2027 and beyond, with earnings per share growth described by the brokerage as moving from a loss position to a projected 202% increase by fiscal 2028. The Rs 160 target is derived by valuing the business at 25 times projected pre-Ind AS EV/EBITDA for March 2028.

Promoter holding stood at 61.4% as of June 2026, broadly stable from March 2026, with domestic institutional investors holding 18.8% and foreign institutional investors 6.8% of the company.