BOB Capital Markets has reiterated its “BUY” recommendation on Devyani International with a revised target price of Rs 141, implying an upside potential of nearly 19% from current levels. The brokerage believes the quick-service restaurant operator is entering a fresh recovery cycle after reporting improving demand trends, strong KFC momentum, resilient international growth and early signs of operational stabilisation across Pizza Hut India. Despite near-term profitability pressures, analysts remain optimistic that the proposed Sapphire Foods merger, aggressive store expansion and technology-led operational upgrades could significantly strengthen Devyani International’s long-term earnings trajectory. The brokerage expects revenue and EBITDA CAGR of 11% and 20% respectively over FY26-FY28.

BOBCAPS Sees Recovery Gathering Pace Across Core QSR Portfolio

Devyani International delivered a stable operational performance in Q4FY26 despite lingering pressure on discretionary spending. The company posted quarterly revenue of Rs 14.3 billion, registering a healthy 18.5% year-on-year growth, supported by improving customer traffic trends across major brands.

The company’s same-store sales growth (SSSG) performance highlighted a mixed but gradually improving consumption environment. KFC India emerged as the standout performer with SSSG of 4.9%, while Pizza Hut India remained under pressure with a decline of 3.7%. Biryani By Kilo, however, continued to maintain positive momentum with mid-single-digit growth.

Management indicated that customer engagement levels improved sequentially during the quarter, aided by value-focused promotional campaigns, calibrated pricing strategies and stronger dine-in traffic recovery.

KFC India Delivers Strongest Quarter in More Than Three Years

KFC India reported its best operational performance in nearly 14 quarters. Revenue from the segment rose nearly 15% year-on-year to approximately Rs 5.86 billion during Q4FY26.

The improvement was largely driven by:

• Higher dine-in footfalls
• Value-oriented pricing strategies
• Targeted customer reactivation campaigns
• Menu innovation and promotional optimization

Average Daily Sales (ADS) for KFC stood at nearly Rs 84,000 per store, significantly ahead of the broader QSR industry average. Importantly, management confirmed that positive momentum has continued into the first 45 days of the current quarter, strengthening confidence regarding sustainability of the recovery cycle.

The company also maintained pricing discipline, implementing menu price increases of less than 0.5%, thereby protecting customer affordability amid weak consumer sentiment.

Pizza Hut Turnaround Strategy Enters “Back-to-Basics” Phase

Pizza Hut remains Devyani International’s key operational challenge, but management believes the turnaround strategy is beginning to show early signs of stabilisation.

While Pizza Hut India reported negative SSSG of 3.7%, Average Daily Sales stabilised around Rs 30,000 per outlet.

The company’s revised strategy now focuses heavily on:

• Improving dough and product quality
• Better cheese and toppings standards
• Enhanced pricing architecture
• Superior in-store customer experience
• Operational execution improvements

Management has also introduced a fresh leadership structure for the Pizza Hut business, including a new Chief Marketing Officer overseeing strategic repositioning initiatives.

Notably, Devyani has decided against aggressive Pizza Hut expansion during CY26, preferring to focus on portfolio optimization and closure of underperforming stores.

International Business Emerges as Major Growth Engine

International operations continued to provide one of the strongest growth pillars for Devyani International.

Quarterly international revenue crossed the Rs 5 billion mark for the first time, expanding roughly 20% year-on-year.

Nepal emerged as the fastest-growing geography with revenue growth of nearly 46%, while Thailand maintained resilient ADS performance and stable profitability.

Analysts believe the international business offers multiple strategic advantages:

• Geographic diversification
• Margin stability
• Reduced dependence on Indian discretionary demand
• Long-term scalability opportunities

The brokerage expects overseas operations to remain a major contributor to earnings growth over the next three years.

Biryani By Kilo Achieves Important Profitability Milestone

One of the biggest positives in the quarter was Biryani By Kilo turning contribution-positive.

Following improving unit economics, Devyani International has initiated pilot launches of smaller “BBK Express” formats to accelerate expansion at lower capital intensity.

The company believes this format could unlock a scalable and profitable growth avenue within India’s rapidly expanding organized food delivery segment.

Costa Coffee also maintained stable operational performance despite inflationary pressure in coffee and cocoa prices.

Store Expansion Remains Aggressive Despite Sector Challenges

Devyani International continues to pursue aggressive network expansion across key brands.

The company ended FY26 with a global store network of 2,256 outlets.

Store mix includes:

For FY27, management plans to add approximately 200-225 new stores, with KFC contributing nearly half of total additions.

BOBCAPS believes this network expansion strategy could substantially improve operating leverage once discretionary consumption strengthens.

Margins Face Temporary Pressure Amid Inflation and Investments

While revenue momentum improved, profitability remained under moderate pressure.

Consolidated gross margins improved 30 basis points year-on-year to 68.8%, supported by reduced online discounting and improved dine-in mix. However, EBITDA margins declined 30 basis points to 16.2%.

Margin pressures primarily stemmed from:

• Weak Pizza Hut operating leverage
• Customer acquisition investments
• Coffee and cocoa inflation
• Dine-in recovery initiatives

Despite these pressures, BOBCAPS expects EBITDA to grow strongly over FY27-FY29 as scale efficiencies improve and loss-making stores are rationalized.

Sapphire Foods Merger Could Become Long-Term Game Changer

The proposed merger with Sapphire Foods remains one of the most significant strategic catalysts for Devyani International.

The combined entity could emerge among the world’s largest Yum! franchise partners, offering:

• Enhanced operational scale
• Improved procurement efficiencies
• Broader geographic reach
• Technology integration benefits
• Stronger brand diversification

BOBCAPS also highlighted Devyani’s “DIL 2” technology-led transformation strategy as an important long-term operational efficiency driver.

Financial Outlook and Valuation

BOBCAPS expects a sharp recovery in profitability over the next three financial years.

The brokerage has maintained its BUY recommendation with a DCF-based target price of Rs 141 based on March 2028 estimates.

Key Risks Investors Should Monitor

Despite the improving outlook, analysts caution that several risks remain.

These include:

• Slower-than-expected discretionary consumption recovery
• Persistent weakness in Pizza Hut turnaround execution
• Input cost inflation in commodities such as coffee and cocoa
• Aggressive discounting pressure within the QSR industry
• Potential delays in achieving merger synergies

Nevertheless, BOBCAPS believes Devyani International’s improving operational trajectory, international diversification and long-term scale opportunities position the company favourably within India’s rapidly expanding organized QSR sector.