Yum! Separates India Div - Analyst Blog

Yum! Brands Inc. ( YUM ) recently rearranged its international division and split India into a separate reporting segment. Now onward the standalone division will be called Yum! Restaurant India. We believe the decision was backed by the immense growth opportunity in that market as well as the success of Yum! China, which appears as a role model for the company's expansion plan for India.

Riding on solid same-store sales growth and new unit expansion in India, Yum! Brands expects its profits from the Indian market to reach $100 million by 2015. Around 70% of India's one billion population is the youth, who are inclined more toward fast food. The company sees this as a strong rationale for its expansion in the market. Yum! Restaurant India will operate under Niren Chaudhary under whose leadership the company's system sales in India has grown 42% since 2007.

Kentucky-based Yum! remains on the track to finish 2011 with 1,500 new units outside the U.S. Notably, a significant share of its revenues comes from non-U.S. locations. Hence, the company's growth strategy thrives on emerging markets like China, India, Indonesia, Malaysia, Russia, Vietnam and Brazil as well as developed markets like France and Germany. In its recently concluded third quarter 2011, same-store sales at the China and International divisions clocked a respective 19% and 3% while it dipped 3% in the U.S.

In 2010, KFC touched the 100 mark in its Indian business, with strong unit growth and excellent unit margins while Pizza Hut spread to 34 cities with 175 restaurants. The country also has two Taco Bell units till date. According to management, the overall numbers for KFC, Pizza Hut and Taco Bell will likely hit 1000 units by 2015.

Two years back, Yum!'s head of Indian operations commented that the company would invest about $150 million to quadruple the number of restaurants, expand its footprint to about 60 cities and increase staff levels by five times to about 50,000.

However, we are concerned about the presence of Yum! Brands' strong competitor McDonald's Corp. ( MCD ) in the Indian market. Yum! currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

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YUM! BRANDS INC ( YUM ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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