Biryani by Kilo acquisition

On 19 April, Devyani International, the operator of international brands such as KFC, Pizza Hut, and Costa Coffee, informed stock exchanges that it would acquire a controlling equity stake in Sky Gate Hospitality - Biryani by Kilo (BBK), along with other brands. 

Advantage BBK 

One of the things which gives BBK the edge over other players is its differentiated biryani offering. "It is the only full-fresh (cook-to-order meals) and pan-India D2C biryani brand,” 

Today on, 24 April, the Devyani's board will meet to consider the acquisition (and as of the time of publishing this piece, the board has approved the acquisition of up to 80.72% equity stake in Sky Gate Hospitality Private Limited, including its subsidiaries). While the exact financial details of the acquisition have not yet been made public, a note by the founders of Sky Gate Hospitality – Kaushik Roy & Vishal Jindal, to its investors, it pegs the deal at around Rs 420 crore. 

Q. BBK has garnered quite a name in the market and specifically its category, so why did this situation arise ?

In a note to their Investors, the founders have noted the financial difficulties BBK has been facing. I have summarized them below:

• Since 2024 - 25, there has been a general slowdown in consumer demand, impacting the overall fundraising activity for Indian startups.

• Financial investors have been wary to invest in Sky Gate, which operates at 10 to 15 per cent EBITDA.

• Investors are concerned with the continued increase of competition in food delivery and the lack of scaling up for biryani brands.

• The company only had a cash runway for the next 3-4 months, indicating weak operating financials.

Q. And what I think could have been some of the causes ? 

While not refuting the note by founders, I believe there could have been some other causes. 

With both founders holding a 14.26 percent stake, there are insider reports that the decision taking process and guidance became arbitrary pointing to questionable marketing spends, brand dilution through unrelated forays, such as acquisitions in the healthy low calorie ice cream segment, and missed opportunities to take BBK international at the right time.

There have also been concerns as to how the day to day operations were held. Also accelerated store openings could also have been another major reason.

Here's the interesting part…

Notably, the founders' equity is not part of the current transaction, a detail for obvious reasons that hasn’t gone down well with several early investors. Interestingly, two other brands under Sky Gate – Krazy Kebab Company and Get-Away Desserts which have been described as strategically misaligned acquisition by investors, are not part of this deal.

Q. What happens next ? 

With Devyani’s acquisition likely to bring operational discipline and scale advantages, investors believe the business could see a turnaround, potentially leading to a significant upside in valuation.

Q. What's in it for Devyani ? 

The acquisition by Devyani is strategic, with multiple synergies across its existing businesses. Devyani's current portfolio is heavily focused on international fast-food brands. Acquiring BBK allows Devyani to diversify into the Indian cuisine segment, tapping into the popularity of biryani and related dishes. Devyani’s acquisition of Sky Gate means it can fill its cloud kitchens and food courts with BBK, Goila Butter Chicken and The Bhojan outlets. 

The Indian biryani market is large yet fragmented. By acquiring BBK, Devyani positions itself to consolidate and lead in this segment, potentially capturing a significant market share. As per industry estimates, the biryani market in India is estimated to be approximately Rs 1,500 crore in the organized sector and Rs 15,000 crore in the unorganized market.

Behrouz Biryani, BBK, Charcoal Biryani, and Biryani Blues are among some which have scaled well. Rebel Foods' Behrouz Biryani is the most successful brand, with 380+ kitchens worldwide. BBK commenced operations in FY16 in Delhi NCR and has now expanded to about 100 stores in nearly 45 cities. It has reported a revenue CAGR of 55 per cent between FY19 and FY24, reaching Rs 300 crore.

I believe in a market where consumer demand is cooling, margins are tight, and food delivery is fiercely contested, turning around a loss-making Indian cuisine brand won’t be easy, even with Devyani’s muscle. But if BBK can ride out the burn and find its flavor in Devyani’s ecosystem, this might just go down as one of the most unexpected turnarounds in India’s QSR playbook.

Disclaimer: My article is based on a wide research across multiple resources, and extreme care has been taken to avoid any sort of misinterpretation.