KFC operator Devyani International’s IPO fully subscribed on day one; check grey market premium

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Updated: August 04, 2021 4:41 PM

Devyani International’s IPO was fully subscribed in three hours of bidding on the initial day today.

Devyani International IPODevyani International IPO will remain open for subscription till Friday.

Devyani International’s IPO was fully subscribed in three hours of bidding on the initial day of sale. Retail investors led the bidding, oversubscribing their portion of the Rs 1,838 crore IPO within the opening hour. Devyani International, the largest franchisee of Yum Brands in India, operators a chain of quick-service restaurant brands such as KFC, Pizza Hut and Taco Bell. The public issue is a mix of a fresh issue of equity shares and an offer for sale (OFS) by existing shareholders of the company. Devyani International is one of the four IPOs that opened today for subscription.

Retail investors oversubscribe

Retail investors have subscribed the issue 11.07 times their portion, bidding for 22.54 crore equity shares against 2.03 crore on offer. The non-Institutional Investors (NII) portion has been subscribed 0.67 times so far on day one of the IPO, with bids received for 2.03 crore shares against 3.05 crore shares on offer. Qualified Institutional Buyers (QIB) subscribe their portion 0.77 times. QIBs have bid for 4.67 crore shares against the 6.11 crore on offer. The employee portion of the issue was fully subscribed, with bids coming info 1.54 times the reserved portion. Overall the issue has been subscribed 2.61 times. Shares of Devyani International are expected to list on August 16, 2021. 

Investors can continue to bid for the issue in a fixed price band of Rs 86-90 per share till Friday evening. The minimum bid lot for the issue is of 165 equity shares, translating to a minimum investment of Rs 14,850. Devyani International’s Rs 1,838 crore IPO, only Rs 440 is a fresh issue of equity shares while the remaining is an OFS by existing shareholders. The promoter group currently holds a 75.8% stake in the company, which will be reduced to 65.2% post a successful listing on the bourses. The public shareholding will increase from 24.2% to 34.8%. 

Grey market premium at 66%, should you buy?

In the unlisted space, Devyani International shares were trading at a premium of Rs 60 per share or a 66% premium over the IPO price of Rs 90 apiece. The premium in the grey market has soared from the previous week when Devyani International was trading at Rs 50 per share. “Amidst the pandemic, Devyani International has continued to expand their store network and in the 6 months ended March 31, 2021, they opened 109 stores in their Core Brands Business. The QSR companies have grown the fastest among the Food Service industry at 5.5% CAGR during FY2015-20 and it is expected to grow at a much faster rate of 12.4% over FY2020-25,” analysts at LKP Securities said while pinning a subscribe rating on the issue. 

Analysts at ICICI Direct value the company at 7x price/sales (post issue) FY20 on upper band. “We believe DIL would be able to capture the growth owing to metro lifestyle and outside food habits. This, coupled with the company’s cost rationalisation initiatives will help drive profitability in future. We recommend Subscribe to the issue,” they added.

Devyani International, despite its large presence is still a loss-making entity. “While the company has reported losses over the past three years, the losses have halved over the past year, due to various steps such as downsizing its stores, to cater to rising deliveries, rather than dine-ins amid the pandemic,” INDmoney – a SEBI registered investment advisor said in a report. “Devyani International IPO is priced at a Price/ Sales ratio of 9.54 times on a post-issue fully diluted basis (based on FY21 sales). This is lower compared to its listed peers Jubilant Foodworks (12.88 times), Burger King (14.92 times) and Westlife Development (9.81 times). However, as Jubilant Foodworks has superior profitability and return ratios, it is expected to command a premium valuation,” they added.

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