Good Morning Toasters!

Hey friends!! No markets today, which depending on how your day went is a boon or a bane 🤭. In today’s issue, we cover Devyani International’s quarterly results, which has the master franchise for Pizza Hut, KFC and Costa Coffee in the country, with the recently IPO’d company dropping a record year.

Apple Inc., the world’s most valuable company dropped numbers last week, with its services business line growing the fastest, and now contributing the most in terms of topline, after iPhones.

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Market Watch

Nifty 50: 17,069.10 | -33.45 (0.20%)
FII Net Sold: INR 1,853.46 crore

Sensex: 56,975.99 | -84.88% (-0.15%)
DII Net Bought: INR 1,951.10 crore

Company News

Devyani International drops #’s, with KFC & Pizza Hut recording growth of +40%; what’s up and what do you need to know?

• India’s master franchise holder for KFC, Pizza Hut and Costa Coffee recorded 36% YoY growth in topline, led largely via an increased store count (more on this below)
• EBITDA % for the quarter at 24.3% was ahead of Bloomberg consensus estimates, led by improvement in gross margins, despite raw material inflation, and better cost-control at the head-office level
• Consolidated EBITDA for the quarter is up 44% YoY; the company has undertaken price hikes to mitigate the inflationary input pressures on its core branded, with plans to undertake similar price hikes (evenly spread out) in the future to efficiently manage cost pressures

Interesting! Share some details?

• KFC revenues grew by 39%, led by 3% Same Store Sales Growth (SSG, a key metric to track the QSR industry) and the rest by store additions; the company added 25 new stores during the quarter, taking the # to 100 for FY22
• Pizza Hut (PH) revenues grew by 41%, with SSG of 2.3%, and the remainder via new store additions; the company added 22 new stores for the quarter; the high store count contribution to revenue growth can be a similar theme in Dominoes results later in the month, with SSG growth floundering
• Coffee-chain, Costa Coffee recorded strong revenue growth of 37%, led by SSG 36% and the remainder via store additions (5 for the quarter)
• At on overall level, the revenue growth of 36.4% was led primarily by new store additions (36% increase), with the company adding 54 new stores during the quarter, and 246 for FY22

Nice! Tell me more?

• Pizza Hut sales mix continued along similar lines, with the Q4FY22 on-premium consumption along with similar levels on QoQ and YoY basis, indicating a continuing trend of ordering in (via own / aggregators)
• Pizza Hut has seen a strong uptick in revenue, primarily led by new stores added, which have increased from 297 in FY21 to 413 in FY22, indicative of the deep value proposition of this category within the overall QSR space
• Counter-intuitively, KFC’s mix of on / off premise consumption is heavily skewed towards on-premise, with ~84% during pre-pandemic days, and now recording ~59% (during Q4)
• The company recorded its highest ever Net New Store addition for the year (246) taking its overall store count to 938; in another highest ever for Devyani, the QSR chain dropped record profits of INR 1,551 Mn vs a loss of 833 Mn in FY21
• KFC and Pizza Hut are now sizeable brands for the company, with INR 10,000 Mn and INR 5,000 Mn in contribution

Okay! Final thoughts? Stock, Valuation, Expectations going ahead, and Dominoes read-through?

• The company IPO’d in August 2021, and since then is up 45% from its issue price, with the last 1M return paling in comparison looking at the overall market scenario
• Devyani has maintained strong financial discipline, reaching a positive net debt position, while expanding into newer markets and leveraging its comprehensive brand portfolio

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Around the World 🌎

• Inflation continues to plague – Consumers across the board are less willing to absorb the huge increase in prices as rising gasoline prices are shrinking their disposable income. This can be seen in cigarette smokers moving to discounted brands as well as falling demand for high-ticket items like mattresses. Even in staples and other groceries consumers are seeking discounted products and lower-cost brands. Economists however are still hopeful that consumer spending will remain resilient going forward in spite of the widening trade deficit and shrinking GDP
• Musk has a new supporter – News has it that it was Jack Dorsey – founder of Twitter who resigned last year under pressure from the board – who told Musk that Twitter is better off as a private company. Though Musk has not been upfront about his plans for the platform, he has made it clear that the biggest objective is to promote free speech (which includes bringing back OG Trump!). Dorsey stands to walk away with > $1 billion for his stake if the deal with Musk comes through
• 2008 all over again? – The NASDAQ Composite saw its worst performance in more than a decade as investors worried over a probable recession due to soaring inflation and rising interest rates. The tech-heavy gauge is seeing trillions being wiped out in market value as shares across the board (software, semiconductors, social media) lose favour with the market. The Nasdaq dropped by 4.2% on Friday, bringing its losses for the month to 13% (worst since Oct 08) while the index is down 21% so far

Company News

Apple continues stellar post-pandemic run; what’s up and what do you need to know?

• The world’s most valuable company dropped its quarterly numbers last week, with sales jumping more than expected from last quarter, touching a whopping wait of it USD 97 Bn for the quarter
• This during a quarter which has been besieged by supply chain challenges, a conflict b/w Russia & Ukraine and multiple Fed led hikes to manage sky-rocketing inflation
• All-in-all, this was Apple’s third best quarter ever, with sales of iPhones, Macs and other hardware devices like AirPods all growing faster than expected;
• The second highest revenue contributor after the iPhones, the services business (which includes the revenue accrued from AppStore, Music + TV, ICloud) grew the fastest during the quarter (see image below)

Damn! That’s some muscle! Tell me more?

• The post-pandemic slump still hasn’t hit Apple (think: other FAANG cos struggling), with the stock up more than double since the pandemic began, and staying there
• Apple’s board has authorised USD 90 Bn in stock buybacks, which believe it or not is even more than last year, with the large amounts of cash utilisation towards stock buybacks a strong vote of confidence from the company’s perspective
• All are not rosy, however, with the company indicating a potential slowdown in sales & manufacturing due to the strict no Covid-19 policy currently being executed in China
• The Chinese market accounts for ~20% of overall sales for the company and ~85% of manufacturing, which is likely expected to reflect in the ensuing quarters

Okay! Anything else?

• Apple was able to navigate the acute supply chain challenges mainly by shifting production resources between products to prevent shortages (making more iPhones than iPads when they ran low)
• The likelihood of a similar solution working in the future would seem low, given the general post Covid-19 end of pandemic feel in the world at the moment
• That being said, Apple isn’t just any other company after all; its USD 2 Tn Market Capitalisation not only makes it the world’s most valuation company but it is also single-handedly responsible for ~2% of the world’s GDP
• And that’s massive, not only in financial terms but also with respect to providing a consensus/indicator on the overall global economy health
• With strong demand & make-shift supply chain keeping the numbers rolling, investors globally are enthused about the current economic environment to pass eventually

What else caught our eye? 👀

Indian manufacturing is Undeterred

• The Manufacturing Purchasing Managers’ Index (PMI) beat all analyst expectations and improved to 54.7 in April from 54.0 in March owing mostly to recovering demand as restrictions ease
• The survey also highlighted intensifying inflationary pressures (thanks to rising commodity prices, the ongoing war and increasing transportation costs) which might hamper demand in the future
• Job creation remained mild and business confidence improved at the start of the year – yet remained subdued than average as the outlook is difficult to predict

GoI coming to edible oil rescue

• The GoI may consider a reduction on the cess charged on edible oil imports after Indonesia placed a ban on shipments of crude palm oil leading to a spike in prices
• Though India will be engaging with Indonesia through diplomatic channels, the Ministry is likely to propose a cut in the 5% Agriculture Infrastructure Development Cess (AIDC) and explore other potential supply options
• India is the largest importer of edible oil from Indonesia and the supply accounts for 40% of India’s overall edible oil consumption basket

Results Preview (Nifty 200)

Tuesday, 3rd May: Adani Enterprise, Godrej Properties, Hero Motocorp, JW Energy, Tata Steel, Titan Company

Wednesday, 4th May: ABB India, Deepak Nitrite, Havells India, Kotak Mahindra Bank. OFFS, Tata Consumer Products, Adani Green, Adani Total Gas

Educational Topic of the day

Whipsaw

A whipsaw is a slang term used by traders that describes the condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com