KFC’s India operator Devyani posts quarterly loss as demand stays muted

Devyani International which operates KFC and Pizza Hut restaurants in India, reported a quarterly loss on Thursday, as demand across its portfolio remained under pressure.

The company, which is one of Yum Brands two franchisees in India, said that Yum’s strategic review of its struggling Pizza Hut chain will not affect Devyani’s business.

“All of our agreements are well-protected,” an executive said in a post-earnings call with analysts.

Popular fast-food chains have been struggling to grow their same-store sales in India, as they deal with stiff competition from local restaurants at a time when urban demand is in early stages of recovery after a long lull.

The pressure has been particularly acute for Pizza Hut, where same-store sales have either fallen or seen muted growth for several quarters.

Devyani is in discussions with Yum about slowing Pizza Hut store expansion, it said in the call, weeks after peer Sapphire Foods said it has halted Pizza Hut expansion.

The company reported a net loss of 219 million rupees ($2.49 million) in the three months to September end, compared with a profit of 170,000 rupees a year ago.

At its KFC outlets, same-store sales fell 4.2%, while for Pizza Hut, they declined 4.1% from a year earlier.

“The moment you withdraw (promotional intensity) demand falls back,” a company executive said in the call.

The company’s revenue from operations rose 12.6% to 13.77 billion rupees in the quarter, as it added 263 stores from a year earlier, taking its store count to 2,184 units.

The Indian government’s sweeping goods and services tax cuts have had “a very minimal” impact on the quick-service restaurant category, it added.

Its EBITDA margin declined to 14.1% in the second quarter from 16.3% a year ago.

Peer Sapphire has reported a wider second-quarter loss, with same-store sales in Pizza Hut falling 8%.