Motilal Oswal Financial Services has reiterated its Buy rating on Devyani International Limited with a target price of ₹165 — valued at 25x EV/EBITDA on March 2028 estimates — after Q4FY26 results that showed an improving KFC trajectory, continued weakness at Pizza Hut, and a merger pipeline with Sapphire Foods that the brokerage expects to unlock meaningful scale efficiencies by FY28.
Q4FY26 operational performance
Devyani’s consolidated revenue grew 19% year on year in Q4FY26, with India revenue up 18% year on year led by KFC performance and the Skygate acquisition. The company is witnessing a gradual recovery in demand trends across its brands, though the trajectory remains uneven by format.
KFC — the flagship brand — delivered sales growth of 15% year on year with same-store sales growth recovering to 5% in Q4FY26 from -3% in Q3FY26, against a favourable base of -6.1% in Q4FY25. KFC’s restaurant operating margin improved 70 basis points year on year to 17%, driven by gross margin expansion of 120 basis points. The brand closed five stores in Q4 as part of the rationalization drive — a deliberate prioritisation of unit economics over network expansion that Motilal Oswal views constructively. KFC’s consumer recruitment strategy, which has been the primary tool for SSSG recovery, is showing results.
Pizza Hut remains the problem child. Revenue declined 4% year on year with SSSG at -3.7% — a deterioration that resulted in restaurant operating margin of -1.4% against +0.7% in the base quarter. No stores were added in Q4FY26, reflecting management’s decision to pause Pizza Hut expansion until unit economics stabilise. Franchise brands — Costa Coffee, NYF, and SK — grew revenue 3% year on year, while acquired brands Vaango and Sky Gate contributed ₹91.10 crore in revenue.
India restaurant operating margin was 12.9% — up 13% year on year in absolute terms but down 50 basis points on a margin basis. International operations delivered revenue of ₹500 crore, up 20% year on year, with restaurant operating margin expanding 160 basis points year on year to 17.7% — the international business continues to be a reliable margin contributor.
The Devyani-Sapphire merger: the medium-term thesis
The proposed merger of Devyani International and Sapphire Foods India — both major QSR franchise operators with overlapping brand portfolios including KFC and Pizza Hut — is the central event for the medium-term investment case. Motilal Oswal expects the merger to be completed by the end of FY27.
The brokerage estimates recurring annual synergies of approximately ₹220 crore from the combined entity, driven by lower Pizza Hut operating costs, reduction in overall corporate overheads, and other operational efficiencies. However, given weak QSR industry performance and potential delays in synergy realisation, Motilal Oswal models an EBITDA gain of approximately ₹50 crore in FY28 rather than the full synergy run-rate — a conservative assumption that provides upside optionality if the merger executes ahead of schedule.
The combined entity is expected to benefit from scale efficiencies across brands and geographies, improved unit economics through operating leverage and revised commercial terms with master franchisors, and enhanced execution capabilities from a larger and more diversified organisational structure.
Management commentary on the macro environment
Management noted that geopolitical disruptions — including the ongoing West Asia crisis — disproportionately impact smaller QSR players, potentially aiding market share gain for larger organised operators like Devyani. Business disruption from the gas crisis has been described as minimal despite supply challenges related to the Middle East conflict. The company undertook only a marginal price increase of less than 0.5% on its menu at the portfolio level in Q4FY26, with future pricing decisions to remain dependent on the inflationary environment and commodity cost trends. Motilal Oswal broadly retained its FY27 and FY28 EBITDA estimates.
Valuation
At 25x EV/EBITDA on March 2028 pre-Ind AS estimates, Motilal Oswal’s ₹165 target implies meaningful upside from current trading levels. The brokerage’s thesis rests on three pillars: KFC’s improving SSSG trajectory, Pizza Hut’s eventual stabilisation under the more cautious store expansion approach, and the Sapphire merger delivering scale synergies from FY28. Full-year FY26 revenue and pre-Ind AS EBITDA grew 13% and declined 9% year on year respectively — a weak EBITDA year that the brokerage views as the trough, with recovery expected through FY27 and FY28 as unit economics improve and merger synergies begin to flow.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a SEBI-registered financial advisor before making investment decisions.