The December 2025 quarter results paint a picture of a company grappling with structural profitability challenges despite maintaining robust revenue momentum. Whilst the company has successfully expanded its store footprint and driven same-store sales growth, rising employee costs, depreciation charges, and interest expenses have eroded margins and pushed the company deeper into losses. The operating profit margin (excluding other income) contracted to 16.04% from 16.48% in Q3 FY25, reflecting persistent cost pressures in the quick-service restaurant segment.
Quarterly Performance Trend: Revenue Growth Masks Profitability Concerns
| Quarter | Revenue (₹ Cr) | QoQ % | YoY % | Operating Margin | Net Profit (₹ Cr) |
|---|---|---|---|---|---|
| Dec'25 | 1,440.90 | +4.66% | +11.32% | 16.04% | -10.39 |
| Sep'25 | 1,376.75 | +1.46% | +12.65% | 13.97% | -21.89 |
| Jun'25 | 1,356.97 | +11.91% | +11.05% | 15.18% | 3.69 |
| Mar'25 | 1,212.59 | -6.32% | — | 15.34% | -14.74 |
| Dec'24 | 1,294.40 | +5.91% | — | 16.48% | -0.49 |
| Sep'24 | 1,222.16 | +0.02% | — | 16.01% | 0.02 |
| Jun'24 | 1,221.90 | — | — | 17.66% | 30.11 |
The quarterly trend reveals a consistent pattern of revenue growth but volatile profitability. Whilst Q3 FY26 revenues reached an all-time high of ₹1,440.90 crores, the operating margin has declined from the peak of 17.66% achieved in Jun'24. The company's inability to translate top-line growth into bottom-line gains stems from disproportionate increases in operating expenses, particularly employee costs which surged 15.59% year-on-year to ₹217.49 crores in Q3 FY26.
Financial Performance Analysis: Cost Pressures Erode Margin Gains
Devyani International's Q3 FY26 performance demonstrates the challenges inherent in scaling a quick-service restaurant business in India's competitive and cost-intensive market. Net sales grew 11.32% year-on-year to ₹1,440.90 crores, driven by a combination of store additions and same-store sales growth. On a sequential basis, revenues expanded 4.66% from ₹1,376.75 crores in Q2 FY26, indicating sustained momentum through the festive season.
However, the revenue growth failed to translate into profitability improvements. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at ₹231.07 crores, yielding an operating margin of 16.04%—down 44 basis points from 16.48% in Q3 FY25. The margin contraction reflects rising input costs and higher employee expenses, which increased to 15.09% of sales from 14.54% in the year-ago quarter.
The gross profit margin compressed to 10.54% from 12.00% in Q3 FY25, indicating pricing pressures and unfavourable product mix shifts. The company's ability to pass on cost increases to consumers appears limited given intense competition in the QSR space from both organised and unorganised players. Furthermore, depreciation charges surged 13.54% year-on-year to ₹166.65 crores, reflecting the capital-intensive nature of store expansion and refurbishment activities.
Interest costs remained elevated at ₹70.02 crores, up 4.54% from ₹66.98 crores in Q3 FY25, as the company continues to service a substantial debt burden. The combination of weak operating performance and high fixed costs resulted in a pre-tax loss of ₹14.91 crores. After accounting for a tax credit of ₹4.92 crores, the consolidated net loss stood at ₹10.39 crores, compared to a loss of ₹0.49 crores in the same quarter last year.
⚠ Critical Profitability Challenge
Persistent Losses Despite Revenue Growth: Devyani International has reported losses in four of the last seven quarters, with the Q3 FY26 loss of ₹10.39 crores representing a significant deterioration from the marginal ₹0.49 crore loss in Q3 FY25. The company's inability to achieve sustainable profitability despite consistent double-digit revenue growth raises serious concerns about the viability of its business model and operational efficiency. With a negative PAT margin of -0.69% and weak return on equity of -1.99%, the company is destroying shareholder value rather than creating it.
Operational Efficiency: High Leverage and Weak Returns Constrain Performance
Devyani International's operational metrics paint a concerning picture of a company struggling with capital efficiency and profitability. The company's return on equity (ROE) stands at a dismal -1.99% for the latest period, significantly below the average ROE of 14.18% over the past five years. This sharp deterioration in ROE reflects the company's inability to generate adequate returns on the capital employed, particularly given the substantial equity base of ₹1,094.41 crores as of March 2025.
The return on capital employed (ROCE) has similarly weakened to just 4.11%, well below the five-year average of 9.21%. A ROCE of 4.11% indicates that the company is earning barely above the cost of capital, making it difficult to justify continued investment in expansion. The weak ROCE stems from a combination of low operating margins, high depreciation charges, and elevated interest costs that collectively compress returns on the capital base.
The company's leverage profile remains a significant concern. With an average debt-to-EBITDA ratio of 3.66 times and net debt-to-equity of 2.05 times, Devyani International carries one of the highest debt burdens in the QSR sector. Long-term debt stood at ₹670.05 crores as of March 2025, down slightly from ₹725.51 crores in the previous year, but still representing a substantial financial obligation. The EBIT-to-interest coverage ratio of just 1.50 times indicates limited headroom to service debt obligations, particularly if operating performance deteriorates further.
The balance sheet reveals a capital-intensive business model with fixed assets of ₹2,716.55 crores as of March 2025, up from ₹2,499.11 crores in the previous year. This reflects ongoing store expansion and refurbishment activities. However, the sales-to-capital-employed ratio of just 1.05 times suggests inefficient asset utilisation, as the company is generating only marginally more than one rupee of sales for every rupee of capital employed.
Working capital management appears reasonably efficient, with current assets of ₹473.76 crores more than covering trade payables of ₹441.14 crores. However, current liabilities of ₹1,112.86 crores exceed current assets, indicating reliance on short-term funding and potential liquidity pressures if operating cash flows weaken further.
Industry Context: QSR Sector Challenges and Competitive Pressures
The quick-service restaurant industry in India has experienced significant turbulence over the past year, with several listed players reporting disappointing results amid shifting consumer preferences, intense competition, and cost inflation. Devyani International's struggles mirror broader sector challenges, including normalising demand post-pandemic, increased competition from delivery aggregators, and rising input costs that compress margins.
The company operates as a franchisee for Yum! Brands, running KFC and Pizza Hut outlets across India, Nigeria, and Nepal. Whilst the franchise model provides brand recognition and operational support, it also entails royalty payments and adherence to pricing structures that limit flexibility in responding to local market conditions. The company's ability to differentiate itself from competitors is constrained by the standardised nature of franchise operations.
Consumer behaviour in the QSR segment has evolved significantly, with increasing preference for delivery and digital ordering channels. Whilst this shift has expanded market reach, it has also increased reliance on aggregator platforms like Swiggy and Zomato, which charge substantial commissions that further pressure margins. Devyani International's ability to build direct digital channels and reduce aggregator dependence will be critical to improving profitability.
Market Positioning: Scale Without Profitability
Devyani International operates over 1,000 stores across multiple brands and geographies, making it one of the largest QSR franchisees in India. However, scale has not translated into profitability or operational efficiency. The company's negative PAT margin of -0.69% in Q3 FY26 compares unfavourably with profitable peers in the organised QSR space. The challenge lies in achieving the delicate balance between aggressive expansion to capture market share and maintaining unit economics that support sustainable profitability. With a market capitalisation of ₹15,164 crores, investors are pricing in expectations of future profitability improvements that have yet to materialise.
Peer Comparison: Valuation Premium Despite Weak Fundamentals
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Devyani Intl. | NA (Loss Making) | 9.22x | 14.18% | 2.05x | — |
| Jubilant Food | 104.36x | 15.40x | 16.97% | 2.02x | 0.24% |
| Travel Food | 39.70x | 12.17x | 34.47% | -0.60x | — |
| Westlife Food | NA (Loss Making) | 12.06x | 8.09% | 2.65x | 0.15% |
| Sapphire Foods | 1963.25x | 4.34x | 7.90% | 0.90x | — |
| Restaurant Brand | NA (Loss Making) | 4.61x | — | 1.82x | — |
Devyani International's valuation metrics present a mixed picture when compared to peers in the leisure services sector. Trading at a price-to-book value of 9.22 times, the stock commands a premium to some peers like Sapphire Foods (4.34x) and Restaurant Brands (4.61x), but trades at a discount to Jubilant FoodWorks (15.40x) and Westlife Food (12.06x). The P/BV multiple appears elevated given the company's loss-making status and weak return on equity.
The company's average ROE of 14.18% over five years positions it favourably against some peers, though the latest ROE of -1.99% highlights recent deterioration. Devyani International's debt-to-equity ratio of 2.05 times is comparable to Jubilant FoodWorks (2.02x) and lower than Westlife Food (2.65x), but significantly higher than Sapphire Foods (0.90x), which operates with a more conservative capital structure.
The absence of a P/E ratio due to losses places Devyani International alongside Westlife Food and Restaurant Brands in the loss-making category, whilst profitable peers like Jubilant FoodWorks and Travel Food command significant earnings multiples. The market appears to be pricing in expectations of a return to profitability, but the recent trend suggests this turnaround may take longer than anticipated.
Valuation Analysis: Premium Pricing for Uncertain Recovery
Devyani International's valuation appears expensive relative to its current financial performance and near-term prospects. With the stock trading at ₹123.00, the company commands a market capitalisation of ₹15,164.33 crores despite generating losses and delivering negative returns to shareholders. The price-to-book value of 9.22 times implies the market is valuing the company at more than nine times its net asset value, a premium that appears difficult to justify given the weak ROE and persistent losses.
The enterprise value-to-EBITDA multiple of 21.94 times suggests the market is pricing in significant future growth and margin expansion. However, with operating margins contracting and profitability remaining elusive, this valuation appears optimistic. The EV-to-sales ratio of 3.34 times is elevated for a business with negative profit margins, indicating that investors are paying a substantial premium for each rupee of revenue generated.
The stock has declined 36.53% from its 52-week high of ₹193.80, reflecting growing investor scepticism about the company's ability to achieve sustainable profitability. Trading just 12.02% above the 52-week low of ₹109.80, the stock appears to have found a floor around current levels, but the lack of positive catalysts suggests limited upside potential in the near term.
The company's valuation grade has oscillated between "Fair" and "Attractive" over recent months, currently standing at "Fair" as of February 2026. This reflects the market's uncertainty about the company's trajectory and the difficulty in assigning a clear valuation framework to a loss-making entity with inconsistent financial performance.
Shareholding Pattern: Promoter Stability Amid Institutional Exit
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 61.37% | 61.42% | 62.62% | 62.72% | -0.05% |
| FII | 5.77% | 6.55% | 9.42% | 10.46% | -0.78% |
| Mutual Funds | 15.90% | 15.94% | 14.36% | 13.35% | -0.04% |
| Insurance | 2.96% | 3.24% | 3.63% | 3.51% | -0.28% |
| Other DII | 0.58% | 0.58% | 0.10% | 0.01% | 0.00% |
| Non-Institutional | 13.42% | 12.28% | 9.88% | 9.95% | +1.14% |
The shareholding pattern reveals a concerning trend of institutional divestment, particularly among foreign institutional investors (FIIs). FII holding has declined sharply from 10.46% in March 2025 to just 5.77% in December 2025, representing a cumulative reduction of 4.69 percentage points over three quarters. This sustained selling by sophisticated foreign investors signals waning confidence in the company's near-term prospects and profitability trajectory.
Mutual fund holdings have shown marginal stability, declining slightly from 15.94% in September 2025 to 15.90% in December 2025. However, the broader trend since March 2025 shows an increase from 13.35%, suggesting domestic institutional investors have been more willing to maintain exposure despite the challenging operating environment. With 26 mutual funds holding stakes, the company retains some institutional support, though this could erode if financial performance fails to improve.
Promoter holding has remained relatively stable at 61.37%, with RJ Corp Limited holding 57.98% and Varun Jaipuria holding 3.21%. The slight sequential decline of 0.05% is marginal and does not indicate any significant change in promoter commitment. The absence of any pledged shares is a positive factor, indicating promoters are not using their holdings as collateral for borrowings.
The increase in non-institutional holdings from 12.28% to 13.42% quarter-on-quarter suggests retail and other investors have been accumulating shares, possibly viewing the recent price decline as an opportunity. However, this shift from institutional to retail ownership is typically viewed as a negative signal, as it suggests more informed investors are exiting whilst less sophisticated participants are entering.
Stock Performance: Severe Underperformance Across All Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +7.56% | +1.94% | +5.62% |
| 1 Month | -16.98% | -2.13% | -14.85% |
| 3 Months | -22.98% | +0.57% | -23.55% |
| 6 Months | -24.86% | +3.60% | -28.46% |
| YTD | -16.89% | -1.50% | -15.39% |
| 1 Year | -32.71% | +6.81% | -39.52% |
| 2 Years | -28.72% | +16.44% | -45.16% |
| 3 Years | -18.89% | +37.96% | -56.85% |
Devyani International's stock performance has been dismal across virtually all timeframes, with the company consistently underperforming both the benchmark Sensex and its sector peers. Over the past year, the stock has declined 32.71% whilst the Sensex gained 6.81%, resulting in a negative alpha of 39.52 percentage points. This severe underperformance reflects deteriorating fundamentals, persistent losses, and waning investor confidence.
The three-year performance is equally concerning, with the stock down 18.89% compared to the Sensex's gain of 37.96%, translating to a negative alpha of 56.85 percentage points. This long-term underperformance suggests structural issues rather than temporary cyclical challenges. The company's inability to capitalise on the post-pandemic recovery in consumer spending and dining-out trends highlights execution challenges and competitive pressures.
The stock has underperformed its sector as well, with the leisure services sector declining 27.95% over the past year compared to Devyani International's 32.71% fall. This 4.76 percentage point underperformance versus sector peers indicates company-specific challenges beyond broader industry headwinds.
From a technical perspective, the stock is currently in a bearish trend that began on January 5, 2026, at ₹140.10. The stock is trading below all key moving averages—5-day (₹115.71), 20-day (₹125.25), 50-day (₹132.57), 100-day (₹148.29), and 200-day (₹159.97)—indicating sustained selling pressure and weak investor sentiment. The high beta of 1.35 suggests the stock is significantly more volatile than the broader market, amplifying downside risk during market corrections.
The risk-adjusted return of -0.98 over the past year, combined with volatility of 33.40%, places the stock in the "high risk, low return" category—an unfavourable combination for investors. The negative Sharpe ratio indicates investors have not been compensated for the elevated risk they have assumed by holding the stock.
Investment Thesis: Weak Fundamentals and Deteriorating Trends
The investment thesis for Devyani International remains fundamentally challenged across multiple dimensions. The company's quality grade of "Below Average" reflects weak long-term financial performance characterised by an average ROCE of just 9.21% and an average ROE of 14.18%, both of which have deteriorated significantly in recent quarters. The latest ROCE of 4.11% and ROE of -1.99% highlight the severity of the profitability challenge.
The financial trend is classified as "Flat" for Q3 FY26, indicating stagnation rather than improvement despite record revenues. Key negative factors include ROCE at a multi-quarter low of 4.84% on a half-yearly basis and non-operating income representing an unsustainable 162.66% of profit before tax, suggesting the company is relying on other income rather than core operations to support reported numbers.
From a valuation perspective, the "Fair" grade suggests the stock is neither attractively priced nor expensive, though this assessment appears generous given the loss-making status and weak fundamentals. The technical trend remains firmly bearish, with the stock trading below all major moving averages and exhibiting negative momentum across multiple indicators including MACD, Bollinger Bands, and KST.
The proprietary Mojo score of just 17 out of 100 places the stock firmly in "Strong Sell" territory, reflecting the confluence of weak fundamentals, bearish technicals, and deteriorating financial trends. The score has declined from 55 (Hold rating) in November 2025, indicating rapid deterioration in the investment case.
Key Strengths and Risk Factors
✓ Key Strengths
- Strong Brand Portfolio: Exclusive franchisee for Yum! Brands (KFC, Pizza Hut) provides brand recognition and operational support
- Scale and Network: Over 1,000 stores across India, Nigeria, and Nepal provide geographic diversification and market reach
- Revenue Growth Momentum: Consistent double-digit top-line growth of 11-13% YoY demonstrates ability to expand market presence
- Institutional Support: 25.21% institutional holdings with 26 mutual funds maintaining positions indicates some investor confidence
- Promoter Commitment: Stable 61.37% promoter holding with zero pledged shares signals long-term commitment
- Long-term Growth Track Record: Five-year sales CAGR of 32.88% demonstrates historical ability to scale operations
⚠ Key Risk Factors
- Persistent Losses: Negative net profit in four of last seven quarters with Q3 FY26 loss of ₹10.39 crores indicates structural profitability challenges
- Margin Compression: Operating margin declined to 16.04% from 16.48% YoY; gross margin contracted to 10.54% from 12.00%
- Weak Returns: ROE of -1.99% and ROCE of 4.11% indicate poor capital efficiency and value destruction
- High Leverage: Debt-to-EBITDA of 3.66x and net debt-to-equity of 2.05x create financial vulnerability and limit flexibility
- FII Exodus: Foreign institutional holding declined from 10.46% to 5.77% over three quarters signals waning confidence
- Severe Underperformance: Stock down 32.71% over one year vs Sensex gain of 6.81%; negative alpha of 39.52%
- Bearish Technicals: Trading below all moving averages with bearish momentum indicators across timeframes
- High Volatility: Beta of 1.35 and volatility of 33.40% create amplified downside risk during market corrections
Outlook: Critical Monitoring Points for Recovery Assessment
Positive Catalysts to Watch
- Return to Profitability: Achieving consistent quarterly profits with positive PAT margins above 2-3%
- Margin Expansion: Operating margins recovering towards 17-18% levels seen in FY23-24
- Debt Reduction: Material deleveraging with debt-to-EBITDA falling below 3.0x
- Institutional Re-entry: FII and mutual fund holdings stabilising or increasing, signalling renewed confidence
- Improved Unit Economics: Same-store sales growth coupled with better cost management at store level
Red Flags Requiring Immediate Attention
- Continued Losses: Further quarterly losses or widening of loss magnitude beyond current levels
- Further Margin Erosion: Operating margins falling below 15% indicating structural profitability challenges
- Liquidity Stress: Deterioration in interest coverage below 1.5x or difficulty in debt refinancing
- Accelerated Institutional Exit: FII holdings falling below 5% or mutual fund redemptions exceeding 2% per quarter
- Store Closure Announcements: Net store closures rather than additions indicating business contraction
- Breach of 52-Week Low: Stock falling below ₹109.80 would signal complete loss of investor confidence
The road ahead for Devyani International remains fraught with challenges. Whilst the company has demonstrated an ability to grow revenues and expand its store network, the persistent inability to achieve sustainable profitability despite operating at significant scale raises serious concerns. The combination of margin pressures, high leverage, weak returns on capital, and deteriorating investor sentiment creates a difficult operating environment with limited near-term catalysts for improvement.
For the company to stage a meaningful recovery, it must address fundamental issues around unit economics, cost structure, and capital efficiency. This will require difficult decisions around store rationalisation, pricing strategy, and potentially renegotiating franchise terms to improve profitability. Without visible progress on these fronts, the stock is likely to remain under pressure despite the recent correction from highs.
Investment Verdict: Strong Sell
Score: 17/100
For Fresh Investors: Avoid initiating any positions. The combination of persistent losses, deteriorating margins, high leverage, and bearish technical trends creates an unfavourable risk-reward profile. Wait for clear evidence of sustained profitability and margin improvement before considering entry.
For Existing Holders: Consider exiting positions on any technical bounce. The company's inability to achieve profitability despite record revenues and the sustained institutional selling indicate structural challenges that may take multiple quarters to resolve. The stock has significant downside risk if operating performance fails to improve materially in coming quarters.
Fair Value Estimate: ₹95-100 (20-23% downside from current levels), based on 7.0-7.5x EV/EBITDA and assuming no near-term profitability improvement. Valuation support exists around book value of ₹9.07, implying potential floor around ₹100-105 levels.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
