Devyani International shares surged 8% to hit an intraday high of ₹159.66 while Sapphire Foods declined 4% following the announcement of their transformative merger that will create one of India's largest quick-service restaurant platforms with over 3,000 restaurants and consolidated revenue exceeding ₹7,800.00 crore.

Market Response and Trading Activity

Devyani International was trading at ₹149.25, up ₹1.82 or 1.23% from its previous close of ₹147.43, with heavy volumes of 330.24 lakh shares traded valued at ₹508.24 crore. In contrast, Sapphire Foods was trading at ₹251.70, down ₹11.00 or 4.19% from its previous close of ₹262.70, with 53.92 lakh shares changing hands worth ₹137.74 crore.

Merger Structure and Valuation

The boards of both companies approved the scheme of arrangement with a 177:100 share swap ratio, meaning Sapphire Foods shareholders will receive 177 shares of Devyani International for every 100 shares they hold. JM Financial has valued the combined entity at ₹387.00 billion based on 28 times estimated pre-Ind AS EV/EBITDA, implying a 45% upside over the current combined market capitalization of ₹266.00 billion.

Expert Analysis on Profitability Focus

Akshay D'Souza, an independent consumer business consultant, emphasized that profitability will be the key factor to track after the merger, as cost savings and scale benefits start flowing through the combined entity. D'Souza noted that the merged entity has guided for a 2.50% improvement in profitability within a couple of years, stating that even achieving half of that target would position the company well.

D'Souza highlighted that profitability plays a critical role in how QSR companies raise capital, expand store networks, and manage supply chains. He pointed out that improved profitability can reduce the cost of capital, supporting faster expansion over time.

Financial Synergies and Integration Benefits

The combined entity expects annual synergy benefits of ₹210.00 to ₹225.00 crore on a steady-state basis from the second full year of operations, driven by lower royalty costs, reduced corporate overheads, and procurement efficiencies. Management has guided for EBITDA benefits of ₹100.00 to ₹150.00 crore in the first integration year.

D'Souza noted that operating as a single entity improves negotiating power with suppliers, especially at a time when input costs remain elevated. He believes these supply-chain benefits will be among the first gains to reflect in the bottom line, even before the merger is fully completed.

Strategic Positioning and Competitive Dynamics

The merger transforms Devyani into a pan-India QSR platform with operations across multiple brands including KFC, Pizza Hut, Costa Coffee, and owned brands like Biryani By Kilo. D'Souza observed that profitability also depends on whether consumption is on-premise or off-premise, noting that KFC has a higher share of on-premise dining which supports margins, while Pizza Hut relies more on off-premise orders where profitability faces greater pressure.

Implementation Timeline and Market Impact

The appointed date for the merger is April 1, 2026, with completion expected in 12-15 months subject to regulatory approvals. D'Souza expects the merger to change competitive dynamics in the QSR space, particularly in procurement, and put pressure on other QSR players as scale and cost efficiencies become more important for profitability.