In a landmark consolidation move within India's Quick Service Restaurant (QSR) sector, two major franchise operators, Devyani International Limited and Sapphire Foods India Limited, have agreed to merge. The strategic combination, structured as a share-swap deal valued at approximately $933 million, is set to create one of the largest and most diversified QSR platforms in the country.
The Merger Blueprint: Share Swap and Strategic Rationale
The Boards of both companies approved the scheme of arrangement, where Sapphire Foods will merge into Devyani International. The transaction unifies the operations of global fast-food giants KFC and Pizza Hut in India under a single, powerful operator, both backed by Yum! Brands. Previously, the two companies ran parallel, separate operations for these popular chains across the nation.
Under the agreed share-swap ratio, shareholders of Sapphire Foods will receive 177 shares of Devyani International for every 100 shares they hold. Analysts from Jefferies noted this ratio is closely aligned with the stock prices as of January 1, indicating no major price adjustment from the deal itself. Furthermore, Devyani's group company, Arctic International, will acquire about 18.5% of Sapphire's equity from its existing promoters. Upon completion, Sapphire Foods will be dissolved.
Financial Implications and Synergy Benefits
The merger timeline is extensive, with the deal expected to become effective in 12 to 15 months. The first year of combined operations is likely to be FY28, with full synergy benefits of an estimated ₹210-225 crore materialising by FY29. Analysts at Emkay Global highlighted that these projected savings represent a substantial ~15% of the combined EBITDA estimate for the two entities.
A critical part of the transaction involves revised commercial terms with Yum! Brands. Devyani will acquire 19 KFC stores from Yum! India for ₹90 crore and make a one-time payment of ₹320 crore for merger approval and additional territory rights. The company has also secured favourable terms, including certain cost waivers and a phased transition of technology, supply-chain management rights for both brands, and marketing rights specifically for Pizza Hut.
Market Reaction and Brokerage Views
The market reacted with volatility to the announcement. Shares of Devyani International initially jumped 8%, while Sapphire Foods cracked 6%. By the end of the trading day, Devyani's shares had flattened, and Sapphire's stock closed down 4%.
Brokerages have largely decoded the merger as a positive, long-term strategic move. Emkay Global pointed out that the combined entity will have a 50-60% higher revenue and EBITDA scale compared to current standalone levels. They reiterated a 'BUY' rating on Devyani, citing improved decision-making, innovation potential, and sourcing efficiencies. JM Financial analysts estimated the combined equity value at ₹38,700 crore, suggesting an upside of roughly 45% over the current combined market capitalisation.
The proposed merger is still subject to various regulatory and statutory approvals, including nods from stock exchanges, the Competition Commission of India (CCI), the National Company Law Tribunal (NCLT), and the shareholders and creditors of both companies. The record date to determine eligible Sapphire Foods shareholders for the share swap is yet to be announced.
