Devyani International-Sapphire Foods merger news
D-Street analysts have, largely, maintained their positive view on Devyani International, following its Board’s approval to merge the operations of the company with Sapphire Foods.
On Thursday, Devyani Foods said Sapphire Foods will merge into the company via a share swap deal. As part of the agreement, Sapphire Foods shareholders will receive 177 shares of Devyani International for every 100 Sapphire shares.
The merger will consolidate KFC and Pizza Hut operations in India under a single operator, which has been approved by the American-parent Yum! Brands.
Analysts see the Devyani-Sapphire merger creating one of the largest and most diversified QSR platforms in India.
The merger, JM Financial Institutional Securities said, is structured to unlock scale benefits, improve unit economics through operating leverage and revised commercial terms, and strengthen execution across brands and geographies.
On the bourses, Devyani International share price jumped 7.7 per cent intraday to hit a high of ₹159.45 on the BSE. The stock pared all the gains later to trade flat by 12:28 PM.
Sapphire Foods shares, which fell 5.5 per cent intraday to a low of ₹246.80 per share, were down 3.5 per cent at the time of writing this report. BSE Sensex, meanwhile, was up 0.56 per cent.
Devyani-Sapphire merger fine-print
As part of the transaction, DIL will acquire 19 KFC stores from Yum! India for ₹90 crore and will make a one-time payment of ₹320 crore toward merger approval and additional territory rights.
However, prior to the scheme becoming effective, Sapphire Foods’ promoter Sapphire Foods Mauritius Limited will have to sell its 18.5 per cent equity stake in Sapphire Foods to Devyani International’s group company Arctic International.
At present, Devyani International has approximately 1,233 million outstanding shares and Sapphire Foods has 321 million shares. Post-merger, the combined entity will have roughly 1,802 million shares outstanding.
The merger is subject to regulatory and shareholder approvals and is expected to be completed over a 12–15 month period.
Nonetheless, simplification of the operating structure would reduce overheads, synchronise sales and service channels, and improve operational efficiency.
Amendments to development and commercial agreements with Yum! Brands, including certain waivers and cost rationalisation, analysts opine, should support better unit economics and sustainable brand development.
That apart, integration of Sapphire’s strong regional presence in southern and western India, and Sri Lanka with Devyani’s pan-India and international footprint will expand geographic reach, they said.
According to Devyani, financial year 2027-28 (FY28) would likely be the first year of combined operations, while FY29 would see full synergy benefit of ₹210-225 crore.
“The highlighted savings are significant, at around 15 per cent of the combined Ebitda estimate for the two companies,” said analysts at Emkay Global Financial Services.
The combined entity, it said, will have a 50-60 per cent higher revenue/Ebitda scale (vs current levels), and agreement negotiations with Yum! provide synergies in terms of improved decision-making, new innovations, use of tech, and better sourcing efficiencies.
“Based on FY25 financials, the combined entity has a scale of ₹7,800 crore, with potential revenue CAGR of 15 per cent over FY25-28 (similar to Domino’s-operator Jubilant FoodWorks). Also, Sapphire operates at a lower gross margin (50-70bps across the Pizza Hut/KFC formats) than Devyani International, the merged entity could see margins on an improving trend,” Emkay said.
Add to it, the combined network would rise to 1,200 stores for KFC and ~1,000 stores for Pizza Hut in India, leading to cost synergies.
Besides, the merger should enable faster decision-making in terms of go-to-market and new product innovations which, analysts feel, was being delayed due to the involvement of tripartite decision makers – Devyani, Sapphire, and Yum!.
“We believe the merged entity could deliver 15 per cent revenue CAGR and around 24 per cent Ebitda, and 26 per cent net profit CAGR over FY25–28, translating into FY28 revenue estimate of ₹12,200 crore, and a pre-Ind AS Ebitda margin of ~11.7 per cent and pre-Ind AS Ebitda of ₹1,420 crore,” JM Financial noted.
Factoring-in benefits from unit economics, overhead rationalisation, and productivity gains, the brokerage expects pre-Ind AS Ebitda to increase to ₹1,520 crore, and FY29 Ebitda to rise to ₹1,950 crore.
JM Financial, Emkay Global, and UBS maintained their ‘Buy’ ratings on Devyani with share price targets of ₹180, ₹190, and ₹190, respectively.
Antique Stock Broking, however, has a ‘Hold’ rating on Devyani with a target price of ₹142.