Devyani International's first quarter profits plummet by a whopping 87.74% despite a rise in revenue - an analysis of the causes behind this anomaly.
Devyani International Reports Significant Profit Drop Despite Revenue Growth
Devyani International, a leading operator of popular brands like KFC and Costa, experienced a substantial decline in its Q1 net profit compared to the same period last year, despite a notable increase in revenue from operations.
The reasons for this profit decline are multifaceted. Higher expenses, including increased costs of materials consumed, employee benefits, and other expenses, contributed to the drop. These rising costs were not fully offset by the revenue growth, impacting profitability.
Additionally, the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) fell by 8.28% year-over-year, leading to a decline in EBITDA margins from 18.3% to 15.1%. This decrease reflects a reduction in operational efficiency and profitability.
Despite these challenges, Devyani International's revenue from operations grew by 11.05% year-over-year, reaching ₹1,356.97 crore in Q1 FY26. This growth was driven by strong performances from brands like KFC and the Food Court business in India, as well as a 11.2% year-over-year growth in the international business.
The company also expanded its store network, adding 106 new stores in Q1 FY26. Notably, Devyani International recently concluded the acquisition of Sky Gate Hospitality, which runs "Biryani by Kilo" and "Goila Butter Chicken" brands, with an additional approximately Rs 103 crore investment. This acquisition increased Devyani International's stake in Sky Gate Hospitality to 86.13%.
In terms of individual brand performances, KFC India showed a 10.5% year-over-year growth, with revenues of Rs 612.60 crore in Q1. Pizza Hut India, on the other hand, experienced a 3% year-over-year growth, with revenues of Rs 187.30 crore.
It's important to note that Devyani International is the largest franchisee of Yum Brands in India and among the largest operators of chain quick service restaurants (QSR) in India. Yum! Brands Inc. operates brands such as KFC, Pizza Hut, and Taco Bell.
The growth in Devyani International's Q1 revenue was driven by healthy growth from KFC, Costa, and the Food Court business in India, as well as a 11.2% year-over-year growth in the international business. However, the company's profitability was impacted by higher expenses, a decline in EBITDA, and increased investments in marketing and promotions.
Devyani International posted a profit drop of 87.74% in Q1 FY26 to Rs 3.69 crore. Despite this, the company remains optimistic about its expansion in the Biryani and Indian cuisine segment, as expressed by its Non-Executive Chairman, Ravi Jaipuria.
Stock market investors may find the financial performance of Devyani International, a leading operator of KFC, Costa, and other popular brands, worth considering, given its significant profit drop despite revenue growth in Q1 FY26.
Business expansion appears to be a key strategy for the company, as evidenced by the addition of 106 new stores and the acquisition of Sky Gate Hospitality, which runs "Biryani by Kilo" and "Goila Butter Chicken" brands. This growth has increased the company's stake in Sky Gate Hospitality to 86.13%.
The higher expenses, including increased costs of materials consumed, employee benefits, and other expenses, alongside the decline in EBITDA and investments in marketing and promotions, may be factors that impacted Devyani International's profitability during the same period.
Although the company experienced a profit drop in Q1 FY26, the growth in its revenue from operations, particularly from KFC, Costa, and the Food Court business in India, as well as its international business, might suggest potential for dividend returns in the future for those interested in investing in the finance sector, including traditional stocks and markets, or even decentralized finance (defi) platforms.
