Devyani International Navigates Muted Demand with Strategic Expansion and Innovation in Q2 FY26

Devyani International Limited (DIL), a prominent multi-dimensional QSR player in India, recently announced its financial results for the second quarter and half year ended September 30, 2025. The company reported a consolidated operating revenue of INR 1,377 crore for Q2 FY26, marking a robust 12.6% year-on-year growth. Despite this top-line expansion, the quarter presented a mixed bag of operational challenges and strategic advancements, reflecting a dynamic market environment.

The period saw significant policy developments, notably the transition to GST 2.0, which the company views as a positive step towards simplifying the tax framework and broadening consumption in India. DIL proactively passed on the benefits of reduced input costs to consumers, aiming to stimulate demand. However, out-of-home consumption was impacted by seasonal factors like Shraavana and Navaratri falling in the same quarter, coupled with unseasonal rains in eastern India during September, which affected overall sales.

Segmental Performance and Strategic Growth

DIL's core brands, KFC and Pizza Hut, continued their expansion journey. KFC India added 30 net new stores, bringing its total count to 734, and is on track to open 100-110 new KFC stores this fiscal year. KFC India's revenue reached INR 572.3 crore, growing 5.3% year-on-year. However, same-store sales growth (SSSG) for KFC India was negative at -4.2%, reflecting the muted demand environment.

Pizza Hut India added 3 net new stores, ending the quarter with 621 outlets. Its revenue stood at INR 186 crore, flat on a year-on-year basis, with SSSG at -4.1%. The company maintained gross margins at 74.8% for Pizza Hut, achieving near breakeven at the brand contribution level through prudent cost control.

The international business demonstrated strong resilience, with revenues growing 14% year-on-year to INR 449.5 crore, accompanied by slightly better margins. This growth was primarily driven by strong performance in Thailand, despite some impact from civil unrest in Nepal and weather-related disturbances in Thailand.

Franchise Brands, including Costa Coffee, Tealive, New York Fries, and Sanook Kitchen, contributed INR 51 crore in revenue. The company test-launched Tealive with 6 new outlets, receiving positive initial customer feedback, and plans further expansion. The owned brands portfolio, comprising Vaango, Biryani By Kilo, and Goila Butter Chicken, recorded INR 86 crore in revenues. The integration of the Skygate portfolio (Biryani By Kilo and Goila Butter Chicken) is on track to achieve brand contribution breakeven by March 2026.

Financial Summary Table (INR Crore)

Operational Efficiencies and Future Outlook

The company's consolidated gross margin stood at 67.8% in Q2 FY26. The consolidation of the Skygate portfolio impacted gross margin by 50 basis points. Excluding this impact, gross margin remained stable quarter-on-quarter. Consolidated brand contribution was 11.7%, with Skygate consolidation impacting it by 70 basis points. Operating EBITDA (pre-IndAS) was INR 93.4 crore with a margin of 6.8%, while reported EBITDA was INR 194.3 crore with a 14.1% margin. The Skygate consolidation also impacted reported EBITDA margins by approximately 1%.

Management highlighted its focus on innovation and value offerings to stimulate demand. KFC launched the 'Chana Chatpata Burger' and new grilled chicken offerings, while Pizza Hut introduced 'Ultimate Cheese Crust'. These initiatives, coupled with promotions around festive events, aim to enhance customer engagement and drive transaction growth. The company is also expanding Biryani By Kilo into airport and food court locations, testing new models for growth.

Segment Comparison Table (INR Crore)

Devyani International Limited continues to strengthen its fundamentals and adapt to evolving consumer preferences. With a strong foundation, a diversified portfolio, and disciplined execution, the company remains well-positioned to capture upcoming opportunities in India's consumption story and deliver sustainable, profitable growth in the years ahead, despite the prevailing headwinds. The management's focus on strategic expansion, operational efficiencies, and brand integration underscores its commitment to long-term value creation.