Devyani International Limited (DEVYANI) Earnings Call Transcript & Summary

Gentlemen, good day, and welcome to the Devyani International's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Devyani International's Q4 FY '25 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Non-Executive Chairman of the company; Mr. Raj Gandhi, Non-Executive Director; Mr. Virag Joshi, CEO and Whole Time Director; and Mr. Manish Dawar, CFO and Whole-Time Director of the company. We will initiate the call with opening remarks from the Chairman, followed by key financial highlights by the CFO. Thereafter, we will have the floor open for a question-and-answer session. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now request Mr. Ravi Jaipuria to make his opening remarks.

Good afternoon, everyone, and thank you for joining us today. I'm pleased to welcome you to Devyani International's post results earnings conference call to discuss our performance for the fourth quarter and financial year 2025. The previous financial year was a challenging one, marked by several headwinds, including a slowdown in GDP growth, input inflation, weak urban consumption and shifting geopolitical dynamics. However, the Union Budget 2025 aims to counter some of these pressures by attempting to boost consumption through tax relief measures targeted at individuals. Despite these headwinds, we are pleased to report that DIL continues to demonstrate strong momentum in its growth journey, both organically and through strategic acquisitions. During 2025, DIL reported consolidated revenue of INR 4,951 crores, registering a robust 39.2% year-on-year growth. This performance was primarily driven by the strategic acquisition of KFC stores in Thailand and supported by ongoing store expansion in India. The company's EBITDA margin stood at 17%, while absolute EBITDA increased by 29.1% over '24. Most recently, we announced the acquisition of Sky Gate Hospitality, owners of Biryani By Kilo and other brands, making our entry into another high-potential food category. This will further strengthen our overall brand portfolio and deepen our well-laid out strategy. During the year, we also tied up with 3 international brands that is New York Fries, Tealive and Sanook Kitchen. We are proud to share that we have recently opened the first New York Fries store in Mumbai. This marks the beginning of our expansion with the new brands, and you will see more coming in the current year. Our store expansion strategy has been instrumental in driving growth and reinforcing our market leadership by following a balanced approach of scaling the footprint while maintaining rigorous store level performance standards. We successfully added 257 new stores during full year '25, elevating our total presence to 2,039 stores as of March 31, 2025. We have achieved our store rollout target across all brands, reflecting disciplined execution and strong execution capabilities. Our core brands, KFC, Pizza Hut and Costa remained at the forefront of this expansion, collectively contributing 204 net new stores, thereby further strengthening the presence of our brands. The store growth not only extends our reach to the new consumers, but it also serves existing ones better, enhances the operational synergies and brand equity across markets. On the market front, our brand campaign, Taste the Epic was recognized as an innovative and impactful campaign at the ACEF Global Customer Engagement Awards. Over the past 5 years, DIL has outperformed the organized QSR market in terms of both revenue growth and new store openings. While the revenues for the listed QSR industry grew at a CAGR of 29.6%, DIL achieved a significantly higher CAGR of 44.5%. The industry store count expanded at a CAGR of 22.5%; against that, DIL recorded a robust store growth of 31% CAGR. To conclude, despite a subdued demand environment, DIL has remained focused on expansion while actively exploring new and innovative ways to engage with consumers. As one of the leading players in the Indian QSR sector, we are well positioned to capitalize on anticipated recovery in the industry with market conditions expected to improve, driven by union budget initiatives focused on agriculture and rural prosperity, along with increased consumption supported by tax relief measures. We remain optimistic about the growth opportunities ahead. Overall, we remain confident in our strategy, execution capabilities and ability to deliver constant growth. Our focus will remain on scaling profitability, strengthening both our core and emerging brands and creating long-term value for our stakeholders. With this, I would like to conclude my address and now hand over to Manish for the financial highlights. Thank you very much.

Thank you, Mr. Jaipuria. Good evening, everyone. A very warm welcome, and thank you for your valuable time for attending DIL's Q4 FY '25 Earnings Conference Call, our 15th such call since our listing in August '21. DIL has continued with its store expansion plans. The store count as of 31st March '25 was 2,039 stores with our core store footprint at 1,917 stores, comprising of 1,060 KFC stores, 637 Pizza Hut stores and 220 Costa Coffee stores. The consolidated operating revenue for FY '25, including Thailand, was INR 4,951 crores with a robust growth of 39.2% versus FY '24. The Indian business witnessed a revenue growth of 7.5%. Quarter 4 FY '25 consolidated revenue stood at INR 1,213 crores versus INR 1,047 crores in Q4 FY '24, growth of 15.8%. Indian business revenue for quarter 4 FY '25 was INR 801 crores, reflecting a growth of 6.6% versus quarter 4 FY '24. The gross margin of the consolidated business for FY '25 was 68.9% versus 70.3% in FY '24. The gross margin for quarter 4 FY '25 was 68.5% versus 68.7% in quarter 3 FY '25. A slight drop in margin was contributed mainly by cooking oil, coffee bean prices and higher deal composition. The brand contribution for FY '25 was at 14.2% versus 15.5% in FY '24. This is mainly on account of sales deleverage and the amendment in GST law on rentals. Consolidated operating EBITDA, including Thailand, on a pre-Ind AS basis for FY '25 was INR 494 crores versus INR 381 crores in FY '24. Pre-Ind AS margins for FY '25 was 10% versus 10.7% in FY '24. FY '25 consolidated reported EBITDA margins on a post-Ind AS basis was 17%, INR 842 crores versus 18.3% in FY '24. The PBT for FY '25 on a consolidated basis was INR 12.8 crores versus INR 3.7 crores in full year '24 with a growth of 248%. Moving the discussion to our core brands, KFC in India added 100 new stores in FY '25. With this, the total store count for KFC in India stands at 696 stores as of 31st March '25. Average daily sales for FY '25 was INR 94,000 versus 105,000 in FY '24. Revenue of FY '25 at INR 2,179 crores increased by 6.6% versus FY '24. Gross margin for KFC for FY '25 was 68.9% versus 68.3% in quarter 4 FY '25. The brand contribution margin for FY '25 was at 17.4% and 16.2% for quarter 4, respectively. FY '25, a decrease of 100 basis points. During the quarter, Pizza Hut India closed 14 stores. Overall, on a full year basis, Pizza Hut added 63 net new stores in FY '25 versus 61 in FY '24. The Pizza Hut India store count was 630 as of 31st March '25. Revenue for FY '25 was INR 732 crores versus INR 709 crores in FY '24. And for the quarter '25, revenue was INR 175 crores versus INR 162 crores in quarter 4 FY '24. The ADS for the brand was INR 34,000 in FY '25 versus INR 37,000 in FY '24. Gross margin for FY '25 was 76.3% versus 75.9% in FY '24 and brand contribution margin for FY '25 was INR 20 crores with a margin at 2.7%. Costa Coffee added 11 new stores during the quarter and 41 stores during the entire financial year of '25, reaching a cumulative store count of 220 stores as of 31st March '25. FY '25 revenue at INR 199 crores was INR 152 crores in FY '24 with a 30.8% growth and quarter 4 FY '25 revenue was INR 52 crores with a 16.1% growth versus quarter 4 FY '24. The gross margin for FY '25 was 75.4% versus 76.8% in FY '24. This impact is primarily because of inflation in coffee beans as well as other input materials for Costa Coffee. Brand contribution for FY '25 was 16.1% and FY '24 was 17.6% versus 16.9% in the previous quarter. Moving to our international business. Our total number of international stores was 375 as of 31st March '25. The international business revenue for the quarter was INR 419 crores. The gross margin for FY '25 was 64.2%, an improvement of 3% versus FY '24. And the brand contribution margin for FY '25 was at 15.9%, an improvement of 2.3% versus FY '24. This is primarily on account of Thailand consolidation. Most recently, we announced the acquisition of Sky Gate, owners of Biryani By Kilo, Goila Butter Chicken and The Bhojan, marking our entry into high-profile Indian high-potential food category. We have acquired the business at an equity valuation of INR 519 crores. The stake of 80.72% will be settled by way of preferential allotment of DIL shares in accordance with SEBI regulations. DIL shareholders have voted in favor of the transaction, and we are planning to close the same in the next couple of weeks. We will also be infusing up to INR 90 crores cash by way of additional capital in the business. The business is currently loss-making, and we are hoping to turn it around in the next 1 year. To conclude, we continue to maintain a disciplined approach to growth, supported by strong execution and diversified brand portfolio that includes high potential domestic and international formats. Our expansion strategy remains focused on driving profitability through operational efficiency and the continued rollout of small format stores, which are both capital efficient and scalable. As we look ahead, we believe the anticipated improvement in market conditions positions us well to build on the momentum of FY '25. On that note, I would like to request the moderator to open the forum for any questions or suggestions that you may have. Thank you very much.

[Operator Instructions] Our first question comes from the line of Vivek from Jefferies.

A few questions. First on KFC. Manish, this INR 83,000 ADS number looks very low. I mean if I look at -- I mean, except for, let's say, if you go back to second quarter 2021, this is the lowest number that I have seen at least in the 18 quarter. What is the key reason for this number to be so low?

Vivek, we've seen primarily 1 or 2 markets which have got impacted in KFC, which has pushed the SSSG down and, therefore, the ADS numbers also. So one is AP and Telangana, where we've seen the impact of bird flu, which was only in AP and Telangana in this year. And the bird flu lasted for almost about 70 to 75 days. We are seeing the sales now coming back in AP and Telangana. That has primarily kind of pushed down the table on SSSG as well as the ADS. The other thing that we've seen is primarily Kerala and West Bengal, where the impact of geopolitical situation continues. And we are hoping that as things kind of now stabilize, we will see the SSSGs coming back in Kerala and West Bengal also. As you know, these are 3 very important states for us. And therefore, as we see the improvement coming back in these states, things will start to improve. At the same time, Karnataka, which is the largest state for us, has seen a very, very stable numbers. Even the SSSG in Karnataka as a state and Bangalore as a city is positive. And there, the ADS momentum is maintained. So therefore, in our view, let's say, once these 3 states start to come back, we are seeing the signals now, we will see a better ADS as well as SSSG.

Got it. So does that mean, Manish, fourth quarter marks the trough and things should sequentially get better or you can be at this level for some time and then the improvement may still be away. The other way of putting this also is that the SSS number of minus 6% is also on a base of minus 7%, which was on a base of plus 2%. So it's not that the base had been very high, right? So how do you think about the improvement? You get better from here or you stay here for some more time?

You're right, Vivek. We should see better numbers sequentially. And as I said, I mean, it is primarily because overall, we are seeing the recovery, and that's the reason I kind of called out these 3 states separately because most of the other states, for example, I mean, UP is a good state for us. There are other states also which have seen a positive SSSG. So as, let's say, these 3 states start to come back, we should. And I think in our belief also, it's probably the trough that we are seeing.

Okay. And one last bit on this point, Manish, so -- and again, apologies if I don't understand your business that well. But let's say, if I go back to, let's say, '22 -- fiscal '22, fiscal '23, you were broadly ballpark INR 120,000 in terms of ADS. That number, let's say, in the last 3 quarters has been reasonably below INR 100,000 or INR 1 lakh. Do you think there is something, which has changed in the business? Or do you think as and when urban consumption picks up, you can still go back to those, let's say, INR 120,000 or thereabouts kind of numbers, which are looking quite far. But do you think that issue will -- those numbers are achievable in the next few years?

Vivek, I think, what we need to bear in mind that, let's say, when we had an ADS of almost INR 125,000, INR 127,000, there were about 300-odd KFC stores, which are now sitting at close to 700 stores. So it's more than double. And all of this has happened in the middle of the consumption slowdown and all. So therefore, the way we are looking at the business in terms of what used to be INR 120,000, the new normal should be about INR 100,000, INR 105,000, and we are confident of delivering the same margins that were delivered at INR 125,000, INR 127,000 ADS at INR 100,000. So we've kind of geared up the business accordingly that from a profitability perspective, we should be able to deliver the same margins. Obviously, with this kind of store growth, there is some bit of cannibalization also happening, that kind of impacts the ADS numbers.

Sure. What I meant, Manish, was that was a cyclical high at that point of time. I understand the stores have -- but India is a growth market as you have been also highlighting over time, and we have seen cycles in this business, particularly. My simple question is this INR 120,000 number is not an abnormal number. So as and when the cycle picks up, I'm not thinking about average, but as and when cycle picks up, those are still possibilities? Or you think that there was something specific we were coming out of COVID and so on and so forth. That's why that starting point was incorrect from that perspective.

So we are resizing the business, Vivek, for about INR 100,000, INR 105,000 because, as you know, I mean, over a period of time, we've reduced the store sizes also. We've reformatted the store sizes. We've maintained the payback periods. So therefore, I mean, read that whatever was INR 120,000, INR 125,000 number is INR 100,000, INR 105,000. And as I said, we'll be able to deliver the same margins, which we were delivering at INR 120,000 at INR 100,000, INR 105,000 now.

Got it. Crystal clear, Manish. Second question is just a big picture or, let's say, whatever your philosophical thoughts are. But as I see the kind of acquisitions that you have done, whether it's overseas or India in terms of brands, at least as an outsider, I get a feeling that the portfolio is getting a bit complicated. You have too much on your plate right now. There are like -- there is like KFC, which is the star and then there are a lot of actors around it. How do you ensure that the management bandwidth stays on course and there is no accident in the journey, therefore?

So Vivek, the way we are structured, every brand gets a completely independent focus as far as the brand team is concerned. And when I say, the brand team, there's a separate CEO for the brand. There's a separate marketing team. There's a separate operations team and so on and so forth. It's only the support functions, which are common across the brand, and that kind of works as a foundation for the entire business. So therefore, even for, let's say, if you were to look at, say, newer brands in terms of Sanook Kitchen and Tealive and all, we've hired a new CEO. If you were to look at the Thailand business, the team that existed prior to our acquisition has continued as is there's been no change in the team, and they are doing a great job. So we are not kind of tinkering too much as far as the brand teams are concerned. So that's how we are kind of scaling up. Obviously, the new brands, they need more bandwidth. But again, over a period of time, our objective is to create multiple legs for the business so that we are not just dependent on 1 or 2 brands. And if you look at, let's say, our recent acquisition in terms of Biryani, I mean, that's the largest online ordered and online consumed item as far as the Indian cuisine is concerned, and Biryani is a large category. And we've acquired a company which is one of the market leaders in the space. And there also, even in this acquisition, the founders and the promoters who originally founded the brand will continue to run and manage the brand. We will only kind of harmonize the support functions to be able to draw the synergies. Otherwise, we have no intention to kind of change the fundamental brand management from that perspective.

Got it. And just one last follow-up, if I may, Manish, on this point. For the longest time, you -- Devyani had, let's say, Yum! portfolio and Costa alongside and a couple of your own brands. And we have now seen a pickup in pace in terms of what you have done both outside India and in India. It just gives a feeling that is there -- are you a bit concerned about KFC or a deceleration in the growth of that business and which is why you are actually going after quite a few opportunities. I mean it's just the pace has surprised. So if you can just elaborate a bit more on that part, why do so many things instead of just focusing on a couple of big things?

So as you know -- so as far -- okay, let me just address this in multiple parts. One is as far as KFC is concerned, it remains our star brand. We are as bullish on KFC as we were ever. So therefore, there's no change in terms of the way we look at the brand, the way we are bullish on the brand, the way we are kind of expanding the brand. So there's no change. Pizza Hut, obviously, we've slowed down a little bit, and we've communicated that also in the past in terms of store growth and the other things. And we want to create a leg, which kind of becomes another, let's say, Pizza Hut in the business. As you know, even, for example, let's say, the new brands that we've signed up, they are all unique brands, which are currently not so prevalent in the market, and we are trying to create that category. So therefore, we are quite bullish on those. Even Biryani, for example, if you were to look at, I mean, that's the largest Indian food category, as I said. So obviously, we want to create different legs. And at the same time, in terms of the opportunity and when it comes, I mean, it's a matter of when it comes and when you're able to grab it. So therefore, I mean, obviously, I mean, it cannot be at our speed and our choice when these opportunities come. So we are absolutely in sync with what you are saying, and we are absolutely cognizant to whatever you are saying that we have to focus and we have to pay attention to these new brands and the existing businesses that we have. And that's what we are doing.

[Operator Instructions] Our next question comes from the line of Gaurav Jogani from JM Financial.

Manish, my first question is with regards to the corporate overhead and specifically the overhead in the international business. That seemed to have jumped quite higher. If you can provide any details why so? And how is the outlook there?

So as far as international business, Gaurav, is concerned, we've done some reclassification in terms of the management fee that we charge to Thailand to harmonize between -- in the accounting treatment of what was happening in India and what was happening in Thailand. Otherwise, in terms of the corporate overheads, they are absolutely in control. There's no change. If at all, if you look at the current quarter, they are down by a few bps versus the previous quarter. Even the full year basis, it's more or less remained the same versus what it was on a full year basis. So it's only a reclassification between the heads that you're seeing that aberration a little bit.

Manish, if you look at the absolute terms, last quarter, the corporate overheads were around INR 54 crores and this quarter, it's around INR 59 crores. So I mean in bps terms also Q-o-Q and Y-o-Y, both it has increased actually.

So that's what I said, there is a reclassification between the brand contribution and the corporate overheads. Otherwise, if I were to negate that, then it stays on course. That's what I said.

Okay. Okay. Got it. And Manish, the other question is with regards to the margins again. I mean you partly alluded that KFC margins despite a lower ADS, you might be able to do the same numbers that you were doing earlier. So how should we think of the margin in the next 2 years, given that the recovery has been gradual versus what the earlier expectation was?

So if you look at even the current margins, Gaurav, we are currently sitting at about 16.2% at probably, as Vivek said, the worst ever ADS in the history of the brand at INR 83,000. So as I said earlier, let's say, once we are able to hit INR 100,000, INR 105,000, we will be able to get back to 20% margins on this one. So that is how we've kind of reshaped the business. And we are absolutely confident that once the top line recovers, those numbers are doable because otherwise, if you look at a decline from INR 127,000 to INR 83,000, the brand would have been loss-making brand, which is not the case. We are still delivering 16% to 17% brand contribution margin. So therefore, that kind of gives you the proof that we've already resized the business. We've already kind of recreated that from an overall P&L perspective.

Our next question comes from the line of Jignanshu Gor with Bernstein.

Manish, one question on Pizza Hut. So what do we think is our plan forward for reviving that brand? Because I think it seems to have stabilized at these ADS levels, and they are not levels at which we can generate returns for us. So what are our plans for that? And I think there was some conversation in your sister concerns investor call also regarding this. So I would love to hear your perspective, please.

So Jignanshu, on Pizza Hut, as we've communicated in the past, we've slowed down the growth exactly because of the same concerns. And therefore, we are in discussions with Yum! in terms of how do we turn around the brand because -- for example, you know that most of the levers are controlled by Yum! in terms of innovation, in terms of price point, promotions and so on and so forth. So we are currently in discussions with Yum! in terms of how do we take this brand forward. See, overall, let's say, if you were to look at between us and our second franchise partner, it still remains a strong brand. I mean, between the 2, it's almost INR 1,200 crores, INR 1,300 crores brand, which is the #2 brand in the country after the market leader. We are absolutely hopeful that the brand can be turned around. We have to make the tweaks as far as innovation, value offerings, communication is concerned. So I think we should be able to come back to you by next quarter in terms of what is our exact plan on Pizza Hut.

Okay. Great. And second question was on Thailand. So any specific details we can share about what is the shape of the business there? And what is your outlook for going forward there in terms of either growth or profitability?

See, Thailand business is very stable. We've improved the margins from the time we've actually taken over the business. We've managed to maintain SSSGs as well as the ADS numbers at a healthy level compared to the rest of the business. So therefore, it's going at a right clip. We are also evaluating introducing new brands in Thailand. So for example, Tealive, as you know, we communicated that we've signed up this brand for India and Thailand. And you will see the new stores opening both in India and Thailand in the current quarter for Tealive. So our idea is to kind of leverage the existing Thailand infrastructure with the new brands from our portfolio, with the new brands that we are signing and, therefore, build it further from there. We are bullish on the Thailand business as well as the overall market.

A small follow-up on Thailand itself. So are we profitable PAT level this year?

No, PAT level, we are not. But at a brand contribution level, at an EBITDA level, we are positive because I think I don't know whether you -- sorry, go ahead.

No, no, no, sorry, please finish. Please finish.

So because, for example, Thailand has more aggressive depreciation policy than India, and we've not tried to kind of realign that to the Indian business because of tax reasons. And that's the reason the PAT is negative. Otherwise, on a cash basis, it is self-sufficient.

I'm so sorry. And lastly, Tealive is part of Thailand business then? Or will it be like a new subsidiary?

It will be part of the main business and the legal entity. It will not be a new subsidiary.

Our next question comes from the line of Saurabh Kundan from Goldman Sachs.

Most questions are already answered. Just one, that you might have already had your development agreement discussions with Yum! on an annual basis. If you could just let us know format-wise, what would be your targets this year and a few years ahead as well?

So Saurabh, we do not have annual development targets discussions with Yum!. We typically enter into an agreement, which spans over a period of 5 to 6 years. And that is how we kind of maintain. In case of any exceptional situation, we obviously go back to Yum! and we mutually align in terms of what is doable in the current circumstances and so on and so forth. So as far as KFC is concerned, there's no change. We've talked about for this year about 110 to 120 stores. We are on course for that. There's no deviation. As far as Pizza Hut is concerned, we are having an overall discussion, which is what I mentioned in my earlier response in terms of how do we take the brand forward, and that includes the development discussions also with Yum!. So we'll be able to come back to you by next quarter in terms of what is our exact plan on Pizza Hut, but KFC stays absolutely on course.

Our next question comes from the line of Devanshu Bansal from Emkay Global.

Manish, there has been gross margin decline across formats. Checking if you can segregate this into impact due to value offerings? And the second that you mentioned that there is some input inflation as well. And a light question is, are you planning to take some price increase to beat this inflation?

Sure. So Devanshu, 2 things there. If you look at, let's say, KFC, we've seen input price increase in palm oil, a small bit in chicken and the flour. But we think it will probably come back. And we've seen in the current quarter, even the oil prices are stabilizing now. So therefore, that is not a big worry. We do not want to take a price increase given the current overall consumption slowdown and so on and so forth. So we'll try and absorb to the extent we can. But we are hopeful that things should improve from where we are. As far as Pizza Hut is concerned, there's no big input price increase. So therefore, it's stable gross margins. And third one is Costa, where we've seen a very strong input increase as far as the raw coffee bean pricing is concerned. And there, we've taken and balanced it out from a pricing perspective as well as the deals and promotions. So we are also trying to introduce some value layers in all of our brands, and we've seen that happening very, very strongly with the competitive brands whereas we've been kind of a little behind the curve, which has impacted our SSSGs also. So therefore, we are planning to become a little more aggressive on the value layers, and we will see that happening from the current quarter.

Understood. And the value layers, at least from an annual perspective, can have some impact on the gross margins or that is manageable?

Not so much because as of now, it's only test mode. We will try and implement and introduce that to the market. Let's see how it goes. And typically, it takes almost 1 or 2 years by the time it becomes a sizable composition of the menu mix. So -- but again, what is important is you need to have these value layers and price offerings so that you are able to get the footfalls in the stores. And then once the consumer comes into the store, then obviously, it's not such a big issue.

Understood. Last question is biryani By Kilo, currently, the brand is having some operational loss. So what are the medium-term expectations on the scale that this can achieve and the margin improvement that can happen in this format? You mentioned some infusion of INR 90 crores in this brand. What is the period for which the growth can sustain with this infusion that we are making?

So Devanshu, Biryani By Kilo, as you understand, there's a huge opportunity, and let me explain you that in bits and pieces. So one, as we kind of take over the brand, there's kind of opportunity in all lines. So we can improve the GMs from where they are, we can improve the brand contribution where they are and so on and so forth. So that's how I said on an organic basis, we will be able to turn around the brand in 1 year's time. At the same time, in terms of the expansion growth, so for example, they've got 3 brands, which is Biryani By Kilo, Goila Butter Chicken and The Bhojan. It can easily fit into all of our food court locations, whether it is on the highways or it is there in the malls or it is there in the airports. So that's a good synergy that we can drive in because, as you know, even today also, we deal with third-party brands. So we are going to be -- in fact, we've already started that exercise that wherever on a per square feet basis, we have some inefficiency coming in, we'll be easily able to replace the third-party brands with the -- with our own brands coming out of the Sky Gate portfolio. At the same time, they have a network of cloud kitchen. So we are also evaluating whether in their cloud kitchen, we can put some of our brands depending on the location and what is the size of the cloud kitchen. So both ways, the synergies can work. So we see it as a great opportunity. It can become a very strong leg in the business over a period of time, and that's the reason we are bullish on this entire portfolio.

And for the period, this INR 90 crores infusion, is this the only infusion that we plan or this is going to be a continuous process where some money will be required to be infused in this brand for some time?

See, it is too early to comment on that because we are hoping that with this, the overall brand will turn profitable, one, for sure. And second, we have to understand, let's say, the first 2 phases of the brand expansion from a store perspective will be very efficient because we'll just house the brands within our own food courts and airports. So therefore, it will not be a huge CapEx. But let's see what is our growth aspiration because we are drawing up the long-term plans to be able to figure out. But from an operations perspective, INR 90 crores should be enough. And at the same time, please remember that as the overall portfolio exists today, we have to do a buyout of 1 or 2 subsidiaries, and that is where some of the cash out of INR 90 crores will go away. Because Goila Butter Chicken is not fully owned by Sky Gate, so we have to complete that acquisition. That is part of the terms. And at the same time, the Mumbai franchise partner ownership is -- has to be consolidated. So some bit of money will go towards consolidation of that. And the founders have already signed the term sheets on that.

The next question comes from the line of Percy Panthaki with IIFL Securities.

My question is on the KFC. You earlier mentioned that you are basically making it such that at INR 105,000 sort of ADS, you would still make close to about 20% ROM. So just wanted to understand, apart from the store size change, what other measures are being put in place for this to happen? And for the store size change, is it just a change for the stores, which have opened in the last year or so or even the older stores, you are somehow resizing downwards?

So Percy, we've done that analysis, to answer your last question first. Wherever, let's say, KFC stores are exceptionally large and, as you know, over a period of time, we've kind of opened new stores and, therefore, there has been some bit of cannibalization in the existing stores. We are planning to carve out the space for our newer brands, which are very, very small kiosk type of formats and so on and so forth. So obviously, these brands will be independent, but we'll be able to carve out some space. To your earlier question in terms of where are these margins going to be coming from? One is obviously the format that we've discussed earlier. And the other one is as we kind of go along and if the ADS is a little down, you have the opportunities -- from a labor perspective, you have the opportunities from other overhead perspective. That is what we have looked at, and we've kind of brought in that efficiency in the business. We are also negotiating some terms with the landlords, which again is a continuous process in the business. And therefore, we are hopeful that we'll be able to kind of control the rentals also to some extent.

And is there any change in terms with the brand owner in terms of ad spends, royalties, et cetera?

That remains the same. There is no change. So as you know, I mean, our commitment on royalty as well as the brand spends is on a percentage to the top line. So there's no change on that. And we do exactly as per the agreements that we've committed to.

Got it. Just wanted to understand in terms of Sky Gate, the business has an EBITDA loss, so do you have a plan in terms of how many more quarters it will take for it to be EBITDA breakeven?

So as I said, Percy, earlier on that we'll be able to turn around the business in 1 year's time. And therefore, we are absolutely confident that, that should happen. So...

Got it. And just one last question. In a conference call with one of your sister franchisees, they said that there was a little bit of a sort of difference of opinion in terms of the ad spends on Pizza Hut. So I would like to know your take on that.

See, there's no difference of opinion, I would say, because we both have different geographies. We both have a focus in terms of the formats because they are opening a little -- they are operating a little larger stores, which are more dine-in focused, whereas our portfolio is small format, which is more delivery-focused. So as such, there is no difference of opinion. All we are trying to do is basically do whatever is required locally to ensure that the business kind of gets back on track. So because of the geography and because of these different formats, that is where the difference is.

Our next question comes from the line of Sanjeev Raj from Anand Rathi Institutional Equities.

So just want to understand a little bit better on our recent entry into the Biryani business. So we know that we are a differentiated brand in QSR through strong execution and position. But if you look at the Biryani business, it's highly fragmented. Around 70% to 80% of the business is unorganized player. So it's very competitive and it's a low entry barrier and tough to scale. So what's the thought process behind this move and how we are planning to bring differentiation in terms of value in such a competitive space? And also you mentioned that currently the business is loss-making, how you are planning for a turnaround strategy here?

Sure. See, Biryani, as you know, is a large category. I absolutely agree with you that it's highly fragmented. But as the food services play kind of grows in the country and as the consumption grows, we've seen a huge amount of consolidation on the Western brands. The same thing will happen in the Indian food category also. So the brand is very well positioned. It's a premium brand. There's a very strong repeat rate from the consumer's point of view, and the consumers indeed love this brand. So one -- sorry, go ahead.

No, if you look at the cuisine, it's been changing from the state to state or region to region. If you look every 200 kilometers, the taste has been changing, right? So on that part, how you are making the taste and how you are planning to manage this total strategy?

Sure. So if you look at the Biryani market overall, the largest category is Hyderabadi Biryani, followed by Lucknowi Biryani and then Calcutta Biryani. So let's say, if you were to look at between these 3, that will be almost like 60% to 70% of the market. So from that point of view, while it kind of varies from state to state, but it is not as fragmented as we used to think in the past. And we've actually gone into the details of how much is what category and which state and so on and so forth. And that is how we took a call. Coming to your question in terms of the turnaround, as I said earlier, we have the opportunities on material sourcing. So there's a good opportunity there in terms of the way we buy. And obviously, we will start to buy and source for Biryani By Kilo as well. So there's a sourcing opportunity. There is an opportunity on the labor, the way the labor gets deployed. There's an opportunity on the rentals. Because currently, the space or the premises that we operate from has a potential available. So we can actually house some of our brands there or we can actually cut the space wherever it is not required. So there could be a lot of synergies, which will be coming in as a result of Sky Gate becoming part of a bigger portfolio, including all the support functions and so on and so forth. So that is how our plan is to turn around the business.

My second question is that, so are we trying to position ourselves as a full range QSR player with a variety -- wide variety of food offerings because we are already present in [ stock ] category, KFC, Pizza is there, burgers, snacking and South Indian veg meals, now Biryani. Is that the idea is to build a broader portfolio to serve a different customer preference?

See, we already are present in all the categories. As you know, in the Indian market, QSR big categories are basically chicken, pizza, burgers, coffee. So we are present in all of these categories. We've now got into the Indian category, which we were missing earlier apart from Vaango because Vaango was only focused on South Indian. And at the same time, we've taken some new brands, which are typically indulgent brands on the go, more whatever rather than, let's say, a planned occasion, it's more whatever temptation buying or temptation consumption. So we are trying to position ourselves to cover various spaces available, not only from a brand perspective, but also from a channel perspective. And that's the reason we talked about our food court strategy in the past. And all of this portfolio helps with our food court strategy as well.

So finally, on KFC, so we have reported almost 6.57 roughly, negative 7% SSG. In last 2 years, we have been reaching the bottom. So can we say this is the bottom? And you have mentioned that 2 markets have affected by bird flu. Apart from this, this negative SSG is coming largely from Tier 1 or Tier 2 cities, sir?

Yes, it's largely coming from 3 markets, as I said, one is AP-Telangana, Kerala and West Bengal and rest of the markets have already turned around. And we are absolutely hopeful that these 3 markets also should turn around in the next few months.

As there are no further questions, I would now like to hand the conference over to management for closing comments.

Thank you very much. We hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our Investor Relations team. Thank you once again for your interest and support and for taking the time out to join us on this call. Thank you very much once again.

Thank you. On behalf of Devyani International, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.