Devyani International Ltd Management Discussions

ECONOMIC OVERVIEW

The global economy is anticipated to strengthen in 2025 as uncertainties diminish and major Western central banks are expected to lower interest rates towards the end of 2024. This shift is expected to boost capital flows to India, enhancing private investment and exports. While inflation concerns persist, they are projected to ease in the latter half of the next fiscal year, barring any unexpected spikes in oil or food prices. India has emerged as the fastest-growing economy in the world and is expected to be one of the top three economic powers over the next decade, backed by its robust democracy and strong partnerships. As India races to clinch the third spot in terms of GDP, the consumer market is also set to become the worlds third-largest by 2027.

Despite significant challenges in the global environment - including renewed disruptions of supply lines following the rise in geopolitical tensions, the synchronized tightening of global monetary policies, and inflationary pressures, the Indian economy has shown substantial growth. According to a survey by the Reserve Bank of India, consumer confidence has barely reached pre-pandemic levels, and the improvement over the past few months has been gradual, despite a strong pickup in economic activity. However, the rapid growth of the middle-income class has led to rising purchasing power and even created demand for premium luxury products and services. With the number of middle-to-high-income households with increasing disposable income to rise, this trend will likely get further amplified, driving overall private consumer expenditure growth. Indias per capita income has steadily increased by 140%—from US$1,674 in 2014 to US$2,341 in 2022.

India has successfully navigated multiple economic shocks in recent years, solidifying its position as one of the fastest- growing major economies in the world. The IMF has raised Indias economic growth forecast to 6.8% for 2024-25 and 6.5% for 2025-26, up from its previous forecast of 6.7% for 2024. The growth in GDP during the year 2023-24 is estimated at 7.6 % as compared to 7.0% in 2022-23. With inflation currently around 4.7%, close to the mid-target of 4%, further decreases in inflation are expected, which should bolster consumer spending. This positive outlook for consumption, combined with continued economic reforms and strong public investment, supports a robust growth trajectory for India in the coming years.

Source: IMF - April 2024, Deloitte: India economic outlook - April 2024

INDUSTRY OVERVIEW & OUTLOOK

The India Foodservice Market is poised for healthy growth, with an estimated value of USD 78 billion in 2024, projected to skyrocket to USD 125 billion by 2029, indicating a notable CAGR of 10 %, surpassing the 6% growth recorded during 2017-2023. Currently, Full-Service restaurants hold a dominant 43% share, expected to maintain their leading position. Concurrently, Cloud Kitchens are set to experience accelerated growth at 17%, fuelled by the rising demand for food delivery through digital platforms.

The India Quick Service Restaurant (QSR) Market size is estimated at 25 billion USD in 2024, and is expected to reach 39 billion USD by 2029, growing at a CAGR of 8.7% during the forecast period (2024-2029). The India Quick Service Restaurant Market is fragmented, with the top five companies occupying 4.7% of the market share out of which your Company is one of the leading players. Furthermore, consumers in India spend 35% of their total expenditure on food and the average spending on fast food has been rising consistently. Chained Outlets constitute a significant segment, with a 52% value share in 2023, driven by urbanization and the trend of eating out, promising robust growth. Meat-based cuisines command the largest segment by cuisine type, driven by increasing popularity among consumers with rising disposable incomes and a growing young population. Pizza, expected to grow at an 11% CAGR from 2024-2029. Factors such as online food ordering, low start-up costs, and evolving consumer preferences are anticipated to drive further growth.

The aggregate revenues of the domestic QSR industry witnessed healthy growth of 54% in FY 2022 and 33% in FY 2023. This growth was supported by strong pent-up demand post-Covid and the wide adoption of user-friendly delivery applications and tech-enabled delivery channels. However, the first half of the fiscal year 2024 saw a drop in the operating margins to approximately 18.6% from 20.6% in first half of the previous fiscal year. The average daily sales (ADS) also saw a moderate downfall. This is due to the aggressive store expansions undertaken in the past two fiscal years. As new stores require time to mature, the impact is visible on the overall sales trajectory.

Overall, the transformation of Indias economy is driving significant shifts in the Foodservice industry, with recent stringent regulations enforced by FSSAI playing a crucial role in stimulating growth within the organized sector. Moreover, technological advancements, including automation of

restaurant operations and utilization of data-driven insights, are revolutionizing consumption patterns, while the adoption of pre-processed and pre-packaged ingredients is streamlining kitchen preparation processes to meet evolving consumer demands efficiently.

Source: ICRA Report - January 2024, Mordor Intelligence

KEY DRIVERS FOR GROWTH & OPPORTUNITY

The Indian food services industry is evolving rapidly and has immense potential. The interplay of various drivers is influencing its growth, including:

Urbanization and Changing Lifestyles: As Indias urban population continues to grow, the demand for quick and convenient food options has surged. The rise of fast-paced lifestyles has led to an increased preference for ready-to-eat meals. QSR Industry caters to this growing need by providing hassle-free food options.

Rising Disposable Income: With Indias fast-growing economy and rising disposable incomes, consumers are willing to spend on dining out or ordering food. QSRs provide an affordable alternative to full-service restaurants, making them attractive to a broader audience.

Diversifying Culinary Trends: The increasing exposure to global cultures, driven by travel and tourism, has led to a growing demand among consumers for a blend of international and fusion cuisines.

Digital Transformation and Growing Influence of Food Aggregators: The widespread availability of affordable internet access, budget-friendly smartphones, and the ubiquity of social media platforms are contributing to the industrys expansion, has enhanced online ordering experiences. The widespread adoption of app-based ordering and doorstep delivery services provided by food aggregators continues to fuel growth in the Indian food services market due to the convenience they offer.

Aggressive Store Expansion: QSRs pursued expansion, particularly in Tier 2 and 3 cities, where competition was lower and potential was higher. The industry aimed to add approximately 2,300 stores between FY2023 and FY2025, with an estimated capital expenditure of around 5,800 crore.

QSRs adapted to changing market dynamics and customer expectations through variety, customization, and innovation in their offerings. Notable trends included:

Cloud Kitchens: These delivery-only kitchens operate without physical storefronts, reducing operational costs, expanding reach, and allowing experimentation with various cuisines and concepts.

Indian Homegrown Brands: Brands offering authentic regional flavours, such as biryanis, chaats, dosas, and parathas, gained popularity and are competing with global QSR giants.

Co-Branding and Cross-Selling: QSRs partnered with beverage, snack, and dessert brands to offer complementary products and services, increasing the average order value and fostering customer loyalty.

BUSINESS OVERVIEW

Company Snapshot

Devyani International Limited ("DIL¹ or the "Company") stands as a vibrant force in Indias Quick Service Restaurant (QSR) arena, presenting an array of captivating brands. The Company is the largest non-exclusive franchisee of Yum Brands in India, with franchises for Pizza Hut and KFC. Moreover, its the esteemed host of Costa Coffee in India and the innovative creator of Vaango and Food Street. As of March 31, 2024, DIL operates a total of 1,782 stores across multiple cities in India, Nepal, Nigeria and Thailand.

DILs business canvas extends across three captivating realms: the "Core Brands Business" housing KFC, Pizza Hut, and Costa Coffees Indian ventures; the "International Business," where the flavors of KFC, Pizza Hut, and other brands transcend borders into Nepal, Nigeria and Thailand; and the enchanting "Other Business" domain, where Vaango and Food Street shine in their culinary brilliance.

Since 1997, DIL has had a longstanding partnership with Yum India, starting with the launch of its first Pizza Hut store in Jaipur. Over time, DIL expanded its operations to include franchises of both KFC and Pizza Hut. As of March 31,2024, DIL operates 941 KFC stores and 572 Pizza Hut stores across countries. Additionally, DIL has 179 Costa Coffee stores under its operations, as of the same date. Amidst turbulent market currents, DILs star gleams brightly, witnessing a 43% surge in its store constellation, ascending from 1,243 establishments on March 31, 2023, to 1,782 emblems of culinary excellence (including 288 KFC stores in Thailand) by March 31, 2024.

DIL operates as the franchise partner of Yum for KFC in India and holds the exclusive franchise partnership for KFC in Nepal, Nigeria and Thailand through its subsidiaries. KFC, a worldwide chicken restaurant brand, has a presence in more than 200 countries and territories worldwide, with more than 30,000 restaurants.

ph Stores Revenue inr Mn

DIL serves as the franchise partner of Yum for Pizza Hut in India. Pizza Hut, the leading global pizza company, focuses on offering delicious, ready-to-eat pizzas. Pizza Hut operates in various segments, including delivery, carry-out, and casual dining, with a presence in more than 120 countries and a network of more than 19,900 restaurants worldwide.

DIL is a franchisee of the popular coffee shop chain Costa • Coffee in India. Costa Coffee is a well-known global brand with over 3,900 coffee shops spread across 41 countries around the world. As a franchisee, DIL has the license to operate Costa Coffee outlets in India and offer their range of beverages and food items to customers.

Notes: (1) in Million for India Business

KEY DEVELOPMENTS DURING THE YEAR

• Significant Milestones

• Record Revenues: Consolidated revenues of the Company have reached ~ 3,556 Crore

• Store Growth: We now operate 1,782 stores across our portfolio of brands and countries, more than doubling over the last three years.

• Store Milestone: Both KFC and Pizza Hut crossed important store milestones of 550 stores each & Costa Coffee has crossed 150 stores as of March 31, 2024

• International Growth: The Companys strategic expansion into Thailand QSR market with 288 KFC stores across the country has upscaled our International Business

• Achievements: The Company has earned the Master Franchisee of the Year 2023 Award from Franchise India, recognizing exceptional achievement and innovative strategies in the Franchising Landscape Recognition as the Most Accessible Fastest Growing Brand at Yum EFTS Conference and was honoured as FMCG Sectoral Star at the Fortune Indias The Next 500 for 2023

• Store Additions

• DIL continues to accelerate expansion across markets, enabling customers to experience its multi-dimensional and globally renowned brand portfolio.

• I n FY2024, the Company added 527 stores (net) across Core Brands (includes 288 KFC stores in Thailand), taking the total restaurant count to 1,692 as of March 31, 2024.

BUSINESS STRENGTHS Competent Leadership

• Having 30+ years of invaluable experience, Mr. Ravi Jaipuria is a seasoned entrepreneur who has demonstrated exceptional skills in conceiving, leading, building, and expanding food, beverage, and dairy enterprises across South Asia and Africa.

• DILs Board of Directors comprises accomplished and proficient individuals with diverse backgrounds in finance and business, bringing a wide range of expertise to the table and ensuring the organizations continued success.

Formidable Brand Portfolio

• Robust assortment of rapidly expanding brand names, such as KFC, Pizza Hut, Costa Coffee, Food Street, and Vaango, comprise a diverse brand portfolio.

• DIL holds the distinction of being the largest franchisee of Yum Brands in India, managing their renowned brands KFC and Pizza Hut across India, also extending to Nigeria (KFC only), Nepal and now Thailand (KFC).

• The synergy from managing a diverse brand portfolio within our operations has enhanced consumer accessibility.

Omnichannel Strategy

• DILs omni-channel strategy is designed to serve the perfect dining experience as per consumer preference.

• By offering dine-in, takeout, or delivery, the Company ensures that consumers can enjoy their meals on their terms: how, when, and where they choose. This makes each interaction with the brand uniquely satisfying.

• An omnichannel approach ensures a consistent brand experience across all channels so that every customer receives the same quality of service.

Enhancing Performance Through Operational Synergies

• Leveraging economies of scale, operational efficiency can be achieved across multiple core brands, resulting in significant benefits.

• Matching the pace of growing operations, the supply chain continues to be scaled up, fostering a resilient ecosystem.

• DILs cluster-based store expansion strategy deepens market penetration and captures a larger share of consumer spending. This proximity in store locations also optimizes transportation costs, further boosting the Companys operational leverage.

Focus on Scaling-up Stores

• As of March 31, 2024, DIL has 1,429 stores across all brands in 27 states and 8 union territories across 250+ cities.

• Added total of 245 net new stores during FY2024 in India, led by 106 stores for KFC, 61 stores for Pizza Hut and 67 stores for Costa Coffee.

• Expanded footprint to nearly 11 new cities in FY 2024.

• As of March 31, 2024, DIL operates 288 KFC stores in Thailand.

Resilient Financial Performance

• Healthy Revenue from operations came in at 35,563 million despite a dynamic & challenging macroenvironment

• Reported EBITDA at 6,524 million Financial Overview

• DIL demonstrated strong performance across all key operational and financial metrics, in the face of a challenging macroeconomic environment that impacted consumer sentiment and demand in FY2024

• During the year, DIL achieved its highest-ever store openings, adding 539 new stores (including 288 KFC Stores in Thailand). This, coupled with the strength of DILs diverse brands, resulted in a robust year-on-year revenue growth of 18.6% to 35,563 million (Including Thailand), compared to 29,997 million in the previous year.

• Gross profits saw an encouraging 19% year-on-year increase to 24,998 million (Including Thailand), as opposed to 20,992 million in FY2023. The profitability of individual stores also benefited from higher sales and ongoing cost-saving initiatives.

• Brand contribution margin was 15.5% in FY2024 compared to 18.7% in FY2023 which contributed to a pre-IndAS EBITDA of 3,807 million, with margins to 10.7% from 14.5% the previous year.

Particulars	FY24	FY23	YoY Growth
Revenue	35,563	29,977	19%
Gross Profit	24,998	20,992	19%
EBITDA	6,524	6,551	-0.4%
Depreciation	3,848	2,788	38%
Finance Cost	1,869	1,475	27%
PAT	-97	2,625	-104%

For key financial ratios and changes refer Note No. 51 of the Standalone Financial Statements.

CORPORATE SOCIAL RESPONSIBILITY AND SPECIAL INITIATIVES

The Board of Directors of your Company has established a CSR Committee and implemented a CSR policy. This policy authorizes the Company to undertake initiatives to eliminate hunger and poverty, promote education, employment, training, and rural development activities.

Over the years, your Company has been committed to creating a fair, inclusive, and diverse workplace for its employees, recognizing their importance as valuable assets. Additionally, the Company has invested in outlets managed by a group of specially-abled employees, who are remunerated and provided with equal growth opportunities as other employees. Your Company continues to encourage these employees to develop the necessary skills to perform efficiently in their current roles and improve them for potential career advancements.

Your Company has participated in the National Apprenticeship Promotion Scheme (NAPS) introduced by the Government, and spent Rs. 17.66 million towards the scheme. The implementation of this scheme within the Company aims to foster skill development among youth and freshers across India, enhancing their employability. With this, the Companys aspiration is to contribute to the national agenda of creating a skilled workforce that meets industry demands.

Your Company also led the compassionate initiative "Feed the Children", aimed at alleviating hunger and spreading joy among underprivileged children. Through strategic partnerships with NGOs across the country, the Company extends its reach to those in need, with the mission to provide nourishing meals and create moments of happiness for the young souls.

HUMAN RESOURCES

As of March 31, 2024, Devyani International employs a total of 21,990 individuals, with 16,371 based in India and 5,619 located outside of India (Including Thailand). All personnel within the Company are provided trainings including on- the-job assessments, web-based modules, and mandatory courses on fire safety and general functions. Regular training audits are conducted to ensure compliance. Customized training modules are provided for different positions, with additional, more specific training offered to area managers.

Your Company does not have any labor union representation or collective wage negotiating contract for its employees. It hires part-time staff to handle peak-hour workloads and also collaborates with third-party manpower and service organizations to provide contract workers for specific store services, including security. The number of contract workers employed is primarily determined by the type and extent of work assigned to external contractors on a regular basis.

Your Company invests a portion of its total revenue in HR initiatives to enhance employee well-being and create a positive work environment. These initiatives include:

• Health and Fitness Centers: Your Company has established corporate tie-ups with health and fitness centers at discounted rates for employees benefit.

• Wellness Activities: The Company organizes events like Yoga Day and sports meets to promote a healthy lifestyle for all employees.

• Performance Based Rewards and Motivation: The Companys rewards and recognition programs, including the Presidents Awards and weekly recognition at RSC, acknowledges and motivates the employees. Performance-based rewards and incentives are provided to both RSC and store employees. These initiatives collectively contribute to a supportive and engaging workplace culture.

Aligned with our strategic objective of nurturing a competent and agile workforce, poised to meet the demands of tomorrow, several training and development programs were implemented during the year such as "LEAP - Next Gen Leaders" initiative aimed to prepare future leaders for pivotal roles and the "LEAP - Emerging Leaders Program" which was introduced to cultivate leadership skills within the existing employee base, reinforcing our internal talent development strategy. Complementing these, the "EMPOW - HER" program focused on the development of women leaders, aligning with our commitment to Diversity, Equity, and Inclusion (DEI) principles. Furthermore, the "Store Capability Building programs" were specifically designed to enhance the skills and capabilities of our store-level employees, with training in consumer service, store operations, inventory management, and other retail-specific competencies.

Your Company is dedicated to fostering an inclusive and empowering work environment for women, actively addressing the cultural challenges they encounter. Our commitment is reflected in our women-led initiatives. Currently, KFC India operates four women-led stores, with the diversity rate of 33%, in addition to this, Pizza Hut India currently has five exclusively women-operated stores, and the female diversity rate stands at 25%. These initiatives are strategically designed to enhance opportunities for inclusivity and diversity within the workforce, empowering diverse hires to assume significant leadership roles within the organization.

OUTLOOK & STRATEGY

DIL maintains an optimistic outlook on its growth prospects for the upcoming year, despite the prevailing challenges in the macroeconomic landscape. The company firmly believes that its strategic priorities and commitment to operational excellence will position it to leverage significant opportunities within the Indian food services industry.

DILs strategic focus includes expanding its store presence across its Core Brands while maintaining a strong emphasis on unit-level performance to drive growth in its delivery business. Additionally, the company plans to make targeted investments in technology to enhance its digital capabilities and proactively adapt to evolving consumer trends.

The unique positioning of DILs brands allows them to cater effectively to the preferences of young Indian consumers. With a proven track record of resilience and adaptability, DIL is confident in its ability to navigate the current market conditions with agility and emerge stronger. Overall, the company remains enthusiastic about the future and is committed to delivering sustainable growth for all stakeholders in the years ahead.

Increasing Operational Efficiency - DIL is committed to enhancing customer experience and improving business efficiency. Our operational efficiency is built on the synergies of centralized sourcing and regional multi-brand distribution, reducing the need for extensive storage and unlocking cost efficiencies. By increasing the number of outlets, the company can spread fixed overhead expenditures and improve profitability.

Expanding Footprint and Market Presence - With the omnipresence of social media and internet across the country the gap between urban and suburban has reduced. The Companys consistent investments in new store openings have strengthened our presence in established cities and emerging non-metro markets. This extensive footprint keeps us ahead in capturing unfolding opportunities. Along with focusing on safety and hygiene, the Company is strategically expanding its store network of Core Brands to tap into the growing demand for organized players in the food services industry and spread their brand presence.

Strong Product Innovation - DILs constant focus on product innovation and new launches have resulted in increased consumer salience across its Core Brands, with several new launches already seeing strong consumer acceptance. The successful launch of Pizza Huts Global bestseller Melts, popular for its versatile and convenient meal option for the young on-the-go generation in India, is just one example of DILs commitment to staying ahead of the curve.

Strengthening Distribution - DIL plans to improve delivery performance and establish synergies between its stores and delivery services. With the digital era also bringing a rapid rise in online orders, DIL has strategically seasoned the Companys approach, shifting from large dine-in spaces to compact, delivery-savvy units. This move enhances unit-level metrics and enables the Company to add outlets across the country faster.

Digital and Technological Integration - DIL recognizes the importance of digitization, automation, Artificial Intelligence and Machine Learning in connecting internet traffic with its offline resources. Investments in technology infrastructure are an important element of DILs commitment to delivering seamless customer experience and improving overall operational efficiency. Investment in a scalable and advanced cloud data warehouse along-with Business Intelligence platform is just one of the many examples of how DIL is leveraging technology to transform every dimension of its business.

RISK MANAGEMENT, AUDIT AND INTERNAL CONTROL

Devyani International has implemented effective internal control mechanisms that are well-equipped to handle the diverse nature of its business and the complexities of the market it operates in. These stringent standards and comprehensive measures ensure the optimal utilization of resources while safeguarding the companys assets and interests. All transactions are duly authorized, recorded, and accurately reported, thanks to checks and balances that maintain the reliability and consistency of accounting data. To further strengthen these efforts, the Company has established an Audit, Risk Management and Ethics Committee, responsible for overseeing internal audits and periodic evaluations to ensure compliance with the highest standards. The Company has engaged Walker Chandiok & Co. LLP, Chartered Accountants, and O P Bagla & Co. LLP Chartered Accountants, as the joint statutory auditors to assess the financial controls of the Company. The Audit, Risk Management and Ethics Committee of the Board of Directors inter-alia monitors and reviews the risk management plan. We have a robust Risk Management Policy to identify and evaluate business risks and opportunities and to guide the Company in effectively mitigating the various business and operational risks, through strategic actions.

Summarized below are the key risk factors that are identified as well as the proposed mitigation strategies.
Risk Factor	Description	Mitigation Strategies
Business Risk	Demand slowdown due to external environment	• Company has a tiered menu structure for its Brands with products across a wide range of price points, thus appealing to a large population of customers.
		• With continuous product and menu innovation, Company has been able to provide value offerings in a cost-effective manner, thereby limiting the impact of input cost inflation.
	Sales variation on account of seasonality/ festivals	• Based on analysis of historical trends and close monitoring of market dynamics, Company is able to estimate nearterm demand trends.
		• These estimates are used to formulate operational strategy to ensure business is able to capitalize on demand surge and also be adequately prepared to mitigate demand downturn.
	Risks arising out of planning, reporting or day-to-day management process.	• Company has a well-defined and articulated organization structure. This enables clear and quick communication & information flow.
		• Company has also worked on creation adequate management depth within functions to allow uninterrupted operations even in case of non-availability of functional heads.
Market & Industry Risk	Supply Risk	• Develop regional vendor base through identification and due empanelment with Franchisor (Yum! Or Costa).
		• Long-term contracts to lock-in favorable prices and insulate business from transient pricing issues.
		• Strong inventory controls to allow real-time visibility of raw material and help in better demand forecasting.
Human Capital	Ensuring business has a talented pool of employees	• The Company has a proper recruitment policy for hiring of employees at various levels in the organization coupled with an objective appraisal system.
		• Regular training and development programs reinforcing our internal talent development strategy, development of women leaders and enhancing the skills and capabilities of our store-level employees.
		• Undertaking welfare activities to promote a healthy lifestyle for all employees by organizing events i.e. Yoga Day, Sports meets etc.
		• The Company has a performance-based reward and recognition policy for retaining and motivating employees.
IT Risk	Ensuring our systems are scalable and operate reliably	• Regular assessment of system capacity and design by continuous performance monitoring, upgradation and optimization of storage.
		• Security of information through access control and strong password policy along with firewalls, end-point protection strategy and use of licensed software in the systems.