Devyani to Absorb Sapphire Foods in a 1:1.77 Share Swap Deal

A New QSR Giant Emerges in India

In a landmark move set to reshape India's quick-service restaurant (QSR) landscape, Devyani International Limited has announced its merger with Sapphire Foods India Limited. The deal, confirmed in an exchange filing, will consolidate the operations of two of the country's largest franchisees for Yum Brands, primarily KFC and Pizza Hut. The merger will be executed through a share swap, with Sapphire Foods amalgamating into Devyani International, which will remain the sole listed entity. This strategic consolidation is poised to create a dominant player with a combined network of nearly 3,000 stores, aiming to leverage scale for greater efficiency and profitability.

Details of the Merger Agreement

The boards of both companies have approved the scheme of arrangement, setting the stage for a full integration. Under the terms of the deal, shareholders of Sapphire Foods will receive 177 equity shares of Devyani International for every 100 equity shares they hold. This translates to an exchange ratio of 1.77, a crucial point of agreement that unlocked the deal after earlier negotiations had stalled. The appointed date for the merger has been fixed as April 1, 2026. However, the transaction is contingent upon receiving a series of approvals from shareholders, creditors, stock exchanges, the Competition Commission of India (CCI), and the National Company Law Tribunal (NCLT). The companies estimate this regulatory process could take between 12 to 15 months to complete. Upon the merger becoming effective, Sapphire Foods will be dissolved without winding up.

Strategic Rationale and Synergies

The merger is reportedly driven by Yum Brands, the parent company of KFC and Pizza Hut, which has been encouraging a unified structure to strengthen its presence in the competitive Indian market. The primary objective is to create a single, powerful platform that can unlock significant operational synergies. By combining their networks, the new entity expects to gain stronger bargaining power in key areas such as real estate rentals, supply chain management, logistics, and procurement. The consolidation also merges complementary geographical strengths. Devyani has a robust pan-India presence and international operations in Nepal, Nigeria, and Thailand, while Sapphire brings a strong foothold in western and southern India, as well as Sri Lanka. This expanded footprint is expected to facilitate more efficient expansion and marketing efforts.

A Look at the Financials

Despite the optimistic outlook, both companies are currently navigating financial challenges. For the quarter ending in September 2025, Devyani International reported a net loss of ₹23.9 crore. During the same period, Sapphire Foods posted a net loss of ₹12.8 crore. Analysts believe that while the near-term financials reflect the pressures of a competitive market, the merger is a strategic response to these challenges. The combined scale is expected to generate meaningful cost savings and create a clearer path to profitability that would be difficult for either company to achieve independently. The ability to streamline operations and reduce overheads is central to the long-term financial goals of the merged entity.

Pre-Merger Company Snapshot

To understand the scale of this consolidation, it is useful to compare the two entities as they currently stand.

Structural and Promoter-Level Changes

The deal also involves specific arrangements at the promoter level. A promoter entity, Sapphire Foods Mauritius, will sell an approximate 18.5% stake in Sapphire to Arctic International, a company within the Devyani group. Furthermore, the board has approved a binding term sheet with Yum India to revise the development and commercial terms for KFC and Pizza Hut to align with the new, consolidated structure. Following the merger's completion, the promoters of Sapphire Foods will be reclassified as public shareholders of Devyani International. In a related administrative move, Sapphire Foods has also approved shifting its registered office from Maharashtra to Haryana, subject to statutory approvals.

Path to the Final Agreement

The final agreement on the 1:1.77 swap ratio marks a significant breakthrough. Earlier reports from December 2025 indicated that merger talks were in an advanced stage but faced a major hurdle over valuation. At the time, Devyani had reportedly proposed a 1:3 ratio, while Sapphire was pushing for a more favorable 1:2 ratio. The successful negotiation to reach the final figure demonstrates a commitment from both sides to realize the long-term strategic benefits of the consolidation.

Conclusion and Future Outlook

The merger of Devyani International and Sapphire Foods is a transformative event for India's QSR industry. It creates a formidable entity with unparalleled scale in the KFC and Pizza Hut network, positioning it to compete more effectively and drive towards sustainable growth. The immediate focus for both companies will be on navigating the complex regulatory approval process over the next 12 to 15 months. For investors and the market, the key metric to watch will be how effectively the combined management team integrates operations and translates its newfound scale into tangible cost savings and, ultimately, profitability.