Devyani International's Margins May Be Weighed by Cost Pressures — Market Talk

What happened

Citi Research analyst Ashish Kanodia said Devyani International's profit per sale may be weighed by cost pressures. The Indian fast-food operator raised prices slightly and plans more increases to offset higher raw material, wage and utility costs. Citi cut its target price to 174 rupees from 186 rupees but kept a buy rating.

Confirmed

Global impact / market context

Profit per sale is the share of each sale left after costs. If raw materials, wages and utilities cost more and price increases do not fully cover them, less profit remains from each sale. That can lower earnings and weigh on the stock even though Citi still expects gains.

Analyst inference

Fast-food restaurant players saw weak same-store sales growth, which means sales at stores open a year or more, or contractions for a long stretch. They are now seeing improvement as consumers spend more on optional purchases. Continued same-store sales growth and better profit per sale could drive the stock higher.

Analyst inference

What to watch

1. Citi cut its target price to 174 rupees from 186 rupees while maintaining a buy rating. Shares closed Monday at 116.65 rupees, so the target remains above the closing price. Confirmed
2. Devyani plans further calibrated price increases, meaning measured and gradual rises, to offset higher raw material, wage and utility costs. Watch whether these increases stick without hurting customer demand. Proposed
3. Watch same-store sales growth and profit per sale for signs that cost pressures are easing. Continued improvement in both is what Citi says can drive the stock higher, so weaker results would challenge that view. Analyst inference

Evidence

• Original source link unavailable