Corrects headline to fix typo in company name

By Surbhi Misra

May 15 (Reuters) - Devyani International DEVY.NS, the Indian franchisee of U.S.-based Yum Brands YUM.N, posted a narrower quarterly loss on Friday, as strong same-store sales growth at KFC outlets offset a rise in costs.

India's quick-service restaurant sector is battling weak urban demand, prompting companies to rely on discounts, promotions, and value meals to drive traffic.

Devyani, which operates KFC and Pizza Hut outlets, said value-led offerings and marketing campaigns boosted sales at KFC, while a cooking-gas shortage due to the Middle East conflict had a minimal impact on operations.

The company is optimistic about demand conditions despite "fluid" external and seasonal factors, CEO Manish Dawar said in a post-earnings call.

The KFC sales recovery was driven primarily by stronger dine-in traffic after the company reduced online discounting and introduced more attractive in-store pricing and offers, Dawar said.

KFC India's same-store sales growth quickened to a 14-quarter high of 4.9% in the three months ended March. Revenue from the brand rose 14.6% year on year.

The positive sales trend has continued into the early part of the current quarter, the CEO said.

Devyani added 217 net new stores in the last fiscal year across brands including KFC, Costa Coffee, Vaango and Biryani By Kilo, taking its total store count to 2,256 at the end of March.

The company aims to add 200-225 more outlets this fiscal year, including about 100-120 KFC ones, but won't expand its Pizza Hut footprint, as it shutters loss-making stores and focuses on improving unit economics, the CEO said.

Pizza Hut India's revenue dropped 3.5% year-on-year, highlighting persistent pressure on the sector.

Overall, Devyani International posted a consolidated net loss of 100.4 million rupees ($1.05 million), compared with a loss of 147.4 million rupees a year ago.

Revenue from operations rose 18.5% to 14.37 billion rupees.

($1 = 95.8800 Indian rupees)