Devyani International Ltd Q1 FY2027 Concall Summary

Key Takeaways

• KFC engine firing, Pizza Hut still resetting: KFC delivered 3.3% SSSG and ~22% Brand Contribution growth, while Pizza Hut SSSG stayed negative at minus 2.2% and the brand posted a Brand Contribution loss as the back-to-basics reset continues.
• Record profitability on cost discipline: Consolidated Operating EBITDA hit an all-time high of ₹151 crore, up ~38% YoY, driven by Brand Contribution improvement and tight G&A management despite commodity, wage and LPG inflation.
• Delivery is now cannibalising dine-in: Management explicitly called out that delivery is eating into dine-in sales, a structural shift from the post-COVID era, and is rebalancing investment toward the dine-in channel to protect margins and experience.
• Merger with Sapphire Foods cleared by exchanges: NSE and BSE approvals received in June 2026; completion targeted by end of FY27, which will unlock the Pizza Hut restructuring and technology synergies currently blocked by the three-way structure.
• What to watch next quarter: Whether KFC SSSG sustains through Shravan's drag, any early signs of Pizza Hut ADS improvement, and the pace of new-store openings under the consolidated BD function.

KFC: The Core Growth Engine

• SSSG momentum sustained: 3.3% positive SSSG extended the H2 FY26 trend, driven by a deliberate rebalancing of investment toward the dine-in channel; offline saliency improved to 57%, over 3pp higher YoY.
• Revenue and margin both expanded: Revenue grew nearly 12% YoY to ₹684 crore; Gross Margin restored to 69.4% (up 2.3pp YoY) on judicious discounting, and Brand Contribution margin expanded 1.4pp with Brand Contribution growing ~22% YoY to ₹115 crore.
• Dine-in saliency target: Management aims to reach 59%-60% dine-in saliency from the current 57%, but does not expect to return to 65% in the near future given consumer preference for convenience, especially in North India.
• The 20% margin path: Once KFC crosses 105,000-110,000 ADS, Brand Contribution margins can cross 20%; at 5-6% SSSG, that threshold is approximately 1.5-2 years away, subject to macros, though management acknowledged the target is in the current cost context and inflation could move it.
• Global initiatives incoming: Three KFC global initiatives (beverages sub-brand "Kwench", sauces, boneless snacking) will come to India; "Kwench" capex and product optimisation homework is mostly done and a test launch is being planned.
• Marketing discipline: Spends deliberately rebalanced toward driving dine-in visits rather than deep online discounting; the common thread across brands is spending where the consumer occasion is genuine and getting a return on spends.

Dawar: "Whereas today, delivery as it stands today, it is actually eating into the dine-in sales. And that is the reason we are making concerted effort to make sure that the consumers come back to dine-in because that is where you can have the best customer experience. That is where your food tastes the best. That is where you can get the full flavours and everything."

Pizza Hut: The Reset That Needs the Merger

• SSSG still negative but improving: SSSG at minus 2.2%, improving sequentially, with ADS ticking up to ~₹32,400 per store per day; the brand continues a back-to-basics reset focused on product quality and everyday value.
• Margins under pressure: Gross Margin improved to 76.3%, but higher costs and operating deleverage led to slight Brand Contribution margin erosion; the brand posted a Brand Contribution loss of ₹4 crore.
• Store rationalisation underway: Ended the quarter with 626 stores as the company continues to right-size the brand.
• The structural problem: The three-way structure (Devyani, Sapphire, Yum!) has been the biggest issue affecting decision-making, initiatives and innovation; this gets corrected only when merger approval comes.
• Fundamental ADS gap: The core problem is low ADS versus competition; ADS cannot improve without a differentiated offering in innovation and at every price point with right price laddering.
• FY28 is the real pivot: Full energy will be put behind Pizza Hut only once the two entities come together; until then, the focus is on getting the product right, new propositions and innovations, all of which have lead time.

Dawar: "There is nothing wrong with Pizza Hut as a brand. When I say nothing wrong, means that despite whatever has happened or not happened, Pizza Hut has continued to remain the number 2 pizza brand in the country on a national basis... We have seen multiple brands coming in, tried scaling up and then kind of dying down quietly."

Own Brands & International: The Diversification Payoff

• Biryani By Kilo delivered +7.2% SSSG and Vaango +7.1% SSSG; BBK is progressing well on both top line and bottom line and is on track for the acquisition-case turnaround.
• BBK financials: Revenue of ₹98 crore; Gross Margins improved slightly sequentially to 65.9%; Brand Contribution turned positive at ~₹10 crore (10.2% margin), a milestone from the negative position at acquisition.
• BBK format innovation: 23 BBK Express stores opened (small-box, lower-capex format) showing initial good response in food courts; dine-in format testing begun in food courts and airport locations; planning to test a sattvic vegetarian portfolio during Shravan/Navratri.
• BBK ambition: Management's objective is to build BBK into a ₹1,000 crore brand in the next few years.
• International business delivered 20%+ YoY growth to ₹523 crore revenue; Gross Margins stable sequentially; Brand Contribution margin improved 1.5pp vs last year to 18.2% on effective cost management and operating leverage.
• Thailand performance: Management "very happy" with Thailand results; the international piece is evolving well on both top line and bottom line; keen to look at further territory expansion if opportunity arises, though no formal process has been launched.
• Costa Coffee: Revenue growth steady at nearly 6% YoY; higher input costs led to lower Gross Margin at 74.6%, but Brand Contribution margin was higher than last year at 15.1% on better cost management.

Dawar: "In a mature market like India, I am talking about 15 to 20 years from now, the Indian food category outside home will be a far bigger category than the Western food category. And therefore, we have started to prepare ourselves from that point of view."

DIL 2.0: New Team, New Structure

• Leadership fully in place: New COO, CTO and Chief Marketing Officer hired; the entire leadership team is now in place with joining dates ranging from 2-3 weeks to ~2 months ago; initial results are encouraging, bringing new energy and a different view that is translating into numbers.
• BD consolidation: As part of DIL 2.0, the entire business development activity has been consolidated under one leader, unlike the past where individual brands focused on their own BD; this has led to a rethinking of the store opening strategy and approach to landlords.
• Technology buildout: The company has decided to build a core in-house tech team and outsource the buildout to Cognizant Technologies rather than building a full-fledged in-house team; the new CTO comes from the QSR industry with experience in India and overseas.
• Technology benefits timeline: Technology platforms are being built now; benefits are expected to start realising a few quarters after the merger, as the company has historically been weak on technology adoption.
• Promoter ambition: Promoters feel Devyani can be "another Varun" (Varun Beverages) over a period of time and are bullish on the business.

Jaipuria: "Under Manish's leadership, we have continued to strengthen our management team. The new team is fully in place now and settling in well in their respective roles. I am encouraged by the early cultural and operational shifts that I see across the organization as we build what the team has called 'DIL 2.0'."

Cost & Margin Management

• Record EBITDA despite headwinds: Consolidated Operating EBITDA of ₹151 crore (9.6% margin, ~38% YoY growth) was the highest ever, achieved through Brand Contribution improvement and effective G&A cost management.
• Cost headwinds active: Food commodity inflation, minimum wage hikes, annual increments, and significantly higher LPG prices in recent months; seasonal factors led to higher utility and wage costs during the quarter.
• Mitigation: Slight price increases were taken in KFC and Pizza Hut to mitigate cost impact; raw material and packaging prices continue to be monitored.
• Dine-in shift is capex-neutral: Current store formats have excess capacity to accommodate the dine-in shift; future store openings will use the same format as currently, so no change in capex intensity is expected.
• Macro not yet behind: Rupee-dollar, oil pricing, LPG prices and availability issues (huge availability issues through the cycle, though managed to mitigate) remain concerns; management noted the macro situation is not yet behind and news keeps coming in.

Guidance & Commitments

Key Metrics