Devyani International IPO opens today, anchor investors pump in Rs 824 crore, should you subscribe?

Devyani International’s IPO opens today for subscription

Devyani International’s Rs 1,838 crore IPO opens today for subscription. The largest franchisee of Yum Brands in India and is among the largest operators of chain quick-service restaurants operating brands such as KFC, Pizza Hut and Taco Bell. The company’s public issue is a mix of a fresh issue of equity shares and an offer for sale by existing shareholders. Ahead of the IPO, Devyani International has raised Rs 824 crore from anchor investors that include marquee foreign investors. The IPO will remain open for subscription till August 6.

About the issue

Investors can bid for the issue in a fixed price band of Rs 86-90 per share, in bid lot of 165 equity shares, translating to a minimum investment of Rs 14,850. Of the total issue, Rs 1,398 crore is an offer for sale while the remaining Rs 440 crore is a fresh issue of equity shares of the face value Rs 1 per share. 75% of the entire issue is reserved for Qualified Institutional Buyers (QIB) while 15% is for Non-Institutional Investors (NII) and the remaining 10% for retail investors. Devyani International is looking to repay or prepay all or certain of the company’s borrowings using the funds raised through the fresh issue. Currently, the promoter group holds a 75.8% stake in the company, which will be trimmed to 65.2% post issue. The public shareholding will increase to 34.8% from the current 24.2%. Ahead of the IPO, shares of Devyani International were trading at a premium of Rs 64 per share.

Anchor investors pump in Rs 824 crore

Ahead of the IPO, Devyani International has allocated 9.16 crore equity shares to 63 anchor investors for Rs 824 crore at the higher end of the price band. Abu Dhabi Investment Authority, Fidelity Funds, Goldman Sachs, Government of Singapore, Nomura, Vantagetrust, CLSA Global, BNP Paribas, Kuwait Investment Authority, and Macquarie are some of the marquee foreign investors that have picked up a stake in the company through Anchor investment. ICICI Prudential. Tata Mutual Fund, Mirae Asset, Sundram Mutual Funds, Nippon Life India, and Aditya Birla Sun Life are among the domestic investors who have invested in the company.

Should you subscribe?

Devyani International has a global presence with more than 50,000 restaurants in over 150 countries, at the end of 2020. “Considering the FY-21 adjusted EBITDA of Rs 1789.23 on post-issue basis, the company is going to list at EV/EBITDA of 62.39 with a market cap of Rs1,08,227 mn, while its peers namely Jubilant Food and Westlife Development are trading at EV/EBITDA of 66.02 and 206.11 respectively,” said analysts at Marwadi Financial Services. 

Devyani International operates 3 business verticals including. Core Brands Business (KFC, Pizza Hut, and Costa Coffee stores in India), International Business, and Other Business The company’s revenue from core brands business, together with their international business, represented 83.01%, 82.94% and 94.19% of revenue from operations in the previous three financial years. The brokerage firm has a “Subscribe” rating to the IPO. 

Analysts at Angel Broking, value Devyani International on the post-issue FY2021 EV/Sales at -9.9x to (at the upper end of the issue price band), which they say is low compared to peers such as Jubilant Foodworks-15.4x, Burger King India -14.8x, and Westlife Development – 10x. “Devyani International has a better operating margin compared to Westlife Development & Burger king. We believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue,” they added.