In today’s Finshots, we tell you why Devyani International, the largest franchisee of KFC and Pizza Hut in India, wants to scoop up Sky Gate Hospitality, the company that runs Biryani By Kilo.

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The Story

If you’ve been keeping up with the news, you might’ve seen Devyani International Limited (let’s just call it DIL) making headlines. They’re about to pick up a majority stake in a company called Sky Gate Hospitality. In fact, DIL’s board is meeting tomorrow to seal the deal. But if you’ve missed the buzz, here’s a quick primer.

DIL is the largest franchisee for Yum! Brands in India — the folks who own Pizza Hut and KFC. It also runs these brands in Thailand, Nepal and Nigeria. On top of that, they’re the sole franchisee for Costa Coffee in India. And they’ve got their own homegrown brand, Vaango, which serves South Indian vegetarian cuisine.

Sky Gate Hospitality, on the other hand, runs restaurants under the brand Biryani By Kilo (BBK), along with Goila Butter Chicken, The Bhojan and Get-A-Way. It began in 2015 as a delivery-first biryani brand known for its earthen pot biryanis and a quirky mini stove that comes with every order so you can warm it up just the way you like it. Cut to today, BBK has expanded to over 100 outlets (including dine-in) across 45 cities.

Now, if you’re wondering why we’re talking so much about BBK, that’s because it’s the star of this deal. See, DIL’s acquisition of Sky Gate means it can fill its cloud kitchens and food courts with BBK, Goila Butter Chicken and The Bhojan outlets. But if there’s one thing Indians absolutely love, it’s biryani!

No, seriously. In 2024 alone, Swiggy and Zomato delivered a staggering 17 crore biryanis. That’s 330 biryanis a minute, easily making it India’s most-ordered dish! So for DIL, this isn’t just about adding another brand. It’s about grabbing a huge slice of India’s favourite comfort food. And that, right there, is reason enough for this acquisition.

But that’s not the only thing cooking here. The Indian biryani market is worth around ₹20,000 crores. And the best part is that most of it is still unorganised. The organised space led by names like BBK and Behrouz Biryani, makes up barely 15% of that massive pie. Which means there’s a massive opportunity waiting to be tapped.

That’s probably what DIL’s chasing. For context, for the nine months ending FY25, DIL’s revenue has crept up by 7% year on year. But with Sky Gate under its wing, it could push those growth numbers into double digit territory. Especially since Sky Gate’s revenue has been growing at a sweet 55% CAGR (compound annual growth rate) over the last five years, hitting ₹272 crores in FY24.

But, if you’ve been reading up on the deal, you probably know this already. So here’s a little more behind why DIL’s so keen on Sky Gate.

See, DIL’s always played the role of a franchise partner for global giants. While that sounds great, it means they have little say in product innovation because they mostly follow the parent brand’s playbook. But with a homegrown business like Sky Gate, DIL could finally call the shots. They could also have a say in new ideas and can fine tune everything for Indian tastes. And that kind of control could translate into better profit margins too.

Then there’s another angle. In India’s listed market, none of DIL’s peers — Jubilant FoodWorks (the folks behind Domino’s Pizza) or Sapphire Foods (another Yum! Brands franchisee), has ventured into biryani yet. And that’s surprising, because biryani isn’t just food, it’s an emotion. It’s easy to order. And unlike dosas or sandwiches that go soggy, or rotis and pizzas that can turn chewy, biryani just needs a quick warm up. Heck, it tastes even better the next day! Plus, it’s super versatile. Veg, non-veg, spicy, subtle, you name it. All of this makes biryani a growing category.

Which means adding Indian food brands like BBK gives DIL a chance to diversify beyond what its competitors are doing, and position itself as a unique, first mover in this space. That’s the kind of story that can grab investor attention and lift its market capitalisation as well.

But it isn’t a one way street. Sky Gate has plenty to gain too. Its early investors — Alpha Wave and IvyCap, are exiting. Which means Sky Gate gets the fresh capital it needs for its next growth phase.

What’s even better is that it’s not just about money. Sky Gate also lands the backing of a franchise powerhouse like DIL, which runs 1,500 stores across India, more than half of which are in non-metros. That kind of network gives Sky Gate the perfect springboard to take its biryani and butter chicken deeper into the market.

It’s also a smart move because it puts Sky Gate in a stronger position to go head-to-head with Rebel Foods, the folks behind Behrouz Biryani, who, by the way, are gearing up for their own IPO soon. Taking on a player like that with just VC money would’ve been tough. But now, Sky Gate isn’t just getting capital, it’s getting the scale, experience and operational muscle that DIL brings to the table.

But hey, that’s the best-case scenario. This story though, could spiral in the other direction if things don’t go according to plan.

See, while biryani’s been a fan favourite, food preferences are fickle. The proof is in the pudding. On Zomato, biryani was the most ordered dish for eight straight years. But last year, total biryani orders dropped by nearly 1 crore, slipping to 9 crores. Over at Swiggy, it was a similar story. In 2023, there were close to 8 crore biryani orders. And in 2024, that number barely moved, growing by just a measly 1.5%.

Now, if people’s discretionary spending tightens, which several reports suggest it might, folks could think twice before splurging on biryani deliveries or eating out. If that happens, it could slow down growth in a category DIL’s betting big on.

Then there’s the financial reality. Sure, Sky Gate’s expanding fast, but it’s still bleeding money. Its revenues have jumped but so have its losses — up 63% year on year over the last five years, touching ₹74 crores in FY24. Thanks to rising operational expenses, especially pricier raw materials. Yes, they’ve managed to trim losses by 30% in FY24 compared to the year before, but unless they turn profitable soon or keep up this pace, it could weigh down DIL’s numbers. And that’s not something investors would be thrilled about.

And finally, for Sky Gate, there’s one more thing to watch. Whenever a homegrown brand gets acquired by a big, listed company, things tend to change. The decisions and the pace can feel very different from the original, founder-led setup. With the added pressure of delivering quarterly results, there’s always the risk of compromising on how products are placed, priced or distributed. For now, the founders of Sky Gate are expected to stay on and continue running the show, which should ease integration worries and help preserve the brand’s identity.

So yeah, we’ll just have to wait and see if DIL can truly grab its seat at the biryani banquet or if it’ll be left out of the feast.

Until then…

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