Devyani International Limited
Q1 FY26
Call date · August 13, 2025

1 · Management Commentary

Key Positives

  • Consolidated Q1 revenues grew 11.1% YoY to INR 1,357 crore, driven by KFC, Costa, and Food Court businesses in India, and 11.2% YoY growth in international business.
  • Acquisition of Sky Gate Hospitality (Biryani by Kilo, Goila Butter Chicken) completed, expanding presence in Indian cuisine segment.
  • Store network expanded to 2,145 stores (1,067 KFC, 627 Pizza Hut, 221 Costa Coffee).
  • Launch of new international brands (New York Fries, Tealive, Sanook Kitchen) planned for next quarter.
  • Online channel initiatives led to positive SSSG for KFC online sales.

Key Negatives

  • Margins declined: consolidated EBITDA margin at 15.1% (down due to lower ADS and higher marketing/promotional investments).
  • Brand contribution margin dropped to 13.1% (vs 15.3% YoY), mainly due to Indian operations.
  • KFC SSSG stabilized at -0.7%; Pizza Hut SSSG at -4.2%.
  • Pizza Hut India saw net store closures (down 12 QoQ) and plans to slow organic expansion.
  • Higher rental costs due to GST changes and increased aggregator/delivery expenses.

Forward Guidance

  • Capex: On track to open 100–110 net new KFC stores in FY26; Pizza Hut expansion to slow.
  • New products/segments: Launch of New York Fries, Tealive, Sanook Kitchen in next quarter; focus on scaling Sky Gate brands post-turnaround.
  • Expected client wins/losses: Not disclosed.
  • Revenue/margin outlook: Expect gross margin and brand contribution margin improvement from Q3 as promotional investments are optimized; working towards positive brand contribution and EBITDA for Sky Gate portfolio within 12 months.
  • Other strategic initiatives: Continued focus on multi-cuisine, multi-format strategy; optimizing store formats and channel mix; differentiated strategies for online and dine-in to minimize cannibalization.

2 · Q&A Highlights

Q 1 (Composite): What is the outlook for KFC SSSG and what are the key drivers for improvement?
A (Management):
• KFC SSSG has stabilized after 8–9 quarters of decline; online channel SSSG is positive due to targeted initiatives.
• Focus is now on improving dine-in performance over the next 1–2 quarters, expecting overall SSSG to improve.

Q 2 (Composite): Timeline and strategy for scaling new brands (Biryani by Kilo, New York Fries, etc.) and turnaround of Sky Gate portfolio?
A (Management):
• New brands will be tested and scaled based on consumer response; Sky Gate (Biryani by Kilo, Goila Butter Chicken) focus is on turnaround to positive brand contribution and EBITDA within 12 months before ramp-up.

Q 3 (Composite): Impact and duration of promotional/marketing spends on margins; when will these start contributing positively to EBITDA?
A (Management):
• Promotional investments will continue for another 1–2 months; optimization and margin improvement expected from Q3 as learnings are implemented.

Q 4 (Composite): Quantification of Sky Gate’s negative impact on own brands’ margins and GST/aggregator cost increases?
A (Management):
• Sky Gate contributed INR 1.2 crore negative brand contribution in first 20 days of consolidation; GST on rent and higher aggregator costs are structural and impact bottom line due to lack of input credit.

Q 5 (Composite): QSR sector outlook, competitive threats from cloud kitchens/aggregators, and SSSG recovery timeline?
A (Management):
• QSR sector remains a high-opportunity industry; densification has impacted SSSG but is necessary for long-term growth.
• Cloud kitchens are complementary; company is working on cloud/online strategies.
• SSSG expected to turn positive over next few quarters as store addition pace moderates and online strategies mature.

Q 6 (Composite): Transaction growth from promotions, ADS targets, and geographic spread of campaigns?
A (Management):
• Transaction growth >10% overall, higher in online channels; normalized KFC ADS target is INR 100,000.
• Promotions were run across geographies with differentiated strategies for online and dine-in.

Q 7 (Composite): Nature and effectiveness of online promotions and value offers; which initiatives are working?
A (Management):
• Mix of banner advertising, flash sales, new combos, and targeted discounts; value offers resonate most with Indian consumers.

Q 8 (Composite): Dine-in sales decline despite promotions; strategy to revive dine-in growth and potential for sharp SSSG recovery?
A (Management):
• Dine-in sales declined due to stronger online offers; Epic Savers exceeded menu mix targets but online offers were more compelling.
• More dine-in focused promotions planned; expect recovery as consumer sentiment improves and differentiated strategies are implemented.

3 · Other Key Numbers

  • Consolidated Q1 FY26 revenue: INR 1,357 crore (up 11.1% YoY)
  • Consolidated gross profit: INR 925 crore (margin 68.2%)
  • Brand contribution margin: 13.1% (vs 15.3% YoY)
  • Reported EBITDA: INR 205 crore (margin 15.1%)
  • Pre-INDAS operating EBITDA: INR 110 crore (margin 8.1%)
  • Total store count (June 2025): 2,145 (KFC: 1,067; Pizza Hut: 627; Costa Coffee: 221)
  • KFC India:
    • Net new stores in Q1: 8 (total 704 as of June 30, 2025)
    • Revenue: INR 613 crore (up 10.5% YoY)
    • ADS: INR 98,000
    • SSSG: -0.7%
    • Gross margin: 67.1%
    • Brand contribution margin: 15.5%
  • Pizza Hut India:
    • Net store closures in Q1: 12 (total 618 as of June 30, 2025)
    • Revenue: INR 187 crore (up 3% YoY)
    • ADS: INR 33,000
    • SSSG: -4.2%
    • Gross margin: 74.8%
    • Brand contribution: Slight negative
  • Franchise brands (Costa Coffee, New York Fries, Tealive, Sanook Kitchen):
    • Revenue: INR 52 crore
    • Gross margin: 75.2%
    • Brand contribution: INR 6.7 crore
  • Own brands (Vaango, Biryani by Kilo, Goila Butter Chicken):
    • Revenue: INR 35 crore
    • Gross margin: 70.1%
    • Brand contribution margin: 6.7%
    • Sky Gate negative brand contribution (20 days): INR 1.2 crore
  • International business:
    • Revenue: INR 433 crore
    • Gross margin: 65.6%
    • Brand contribution: INR 72 crore (margin 16.7%)
  • KFC online sales: Positive SSSG; higher aggregator costs due to increased online share.
  • GST on rent: Structural increase in rental costs due to change in GST applicability; no input credit available.
  • Transaction growth from promotions: 10%+ overall; higher in online channels.
  • New York Fries maiden store opened at Mumbai International Airport.
  • Sky Gate Hospitality: 105 outlets at acquisition.
  • Pizza Hut: ‘Unlimited Pizza Fridays’ pilot showed healthy growth in transactions and ADS at participating stores.
  • KFC: ‘Epic Savers Offer’ (9 for INR 299) contributed significantly to dine-in sales.

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