Sapphire Foods India Limited and Devyani International Limited have received board approval for their merger scheme on January 1, marking what could be the year's first major M&A deal in the quick service restaurant sector. The boards of both companies approved the scheme of arrangement which will bring popular brands like KFC and Pizza Hut under one operational umbrella, creating one of India's largest QSR operators with over 3,000 stores.

Board Approved Merger Framework

The merger scheme involves Sapphire Foods India Limited as the transferor company and Devyani International Limited as the transferee company. The transaction will be effective from April 1, 2026, subject to obtaining necessary regulatory approvals from multiple authorities.

Under the approved terms, shareholders of Sapphire Foods will receive 177 equity shares of ₹1.00 each of Devyani International for every 100 equity shares of ₹2.00 each held in Sapphire Foods. Arctic International, a group company, will acquire approximately 18.50% of Sapphire Foods' paid-up equity share capital with an option to assign to a mutually agreed financial investor.

Financial Performance and Operational Scale

Both companies continue to report losses despite their extensive operations. Latest financial disclosures reveal the operational challenges facing the QSR sector.

Analysts tracking the sector indicate that despite near-term losses, the combined scale could unlock meaningful cost synergies that neither company can achieve independently. The merged network would rank among the largest quick service restaurant platforms in the country, potentially providing stronger bargaining power on store rentals, supply chains, logistics and procurement costs.

Regulatory Approvals and Documentation

The scheme documentation will be made available on Sapphire Foods' website after submission to stock exchanges. The filing includes comprehensive annexures detailing the merger terms and Yum India term sheet provisions.

Yum! Brands Approval and Strategic Benefits

Yum! Brands has granted approval for the consolidation through a binding term sheet, demonstrating renewed confidence in Devyani International as its largest franchise partner in India. The merger combines Sapphire's strong presence in western and southern India with Devyani's pan-India network and international operations.

The transaction brings most KFC and Pizza Hut restaurants in India under a single listed company, excluding outlets at airports and railway stations. Post-merger, Sapphire's promoters will be reclassified as public shareholders of Devyani International. The companies expect the merger to deliver scale benefits, operational efficiencies and stronger access to capital as competition intensifies in India's fast-growing fast-food market.

Sapphire Foods India Limited has disclosed receiving a significant GST demand order worth ₹203.25 crores from tax authorities, marking a major regulatory development for the quick service restaurant operator. The company made this disclosure under Regulation 30 of SEBI listing regulations on January 1, 2026.

GST Demand Order Details

The demand order was issued by the Office of Principal Commissioner, Central Goods & Services Tax Commissionerate, Rohtak, Haryana, dated December 31, 2025. This follows a show cause cum demand notice that the company had initially received on June 26, 2025, under Section 74 of the CGST Act 2017.

Nature of Alleged Violations

The tax authorities have alleged that Sapphire Foods availed excess Input Tax Credit (ITC) when compared to GSTR2A returns. Additionally, the authorities claimed that the company incorrectly utilized ITC against GST liability on outward supply during the specified period.

Despite the company's submissions and explanations provided during the proceedings, the authorities confirmed their original proposal from the show cause notice and proceeded to issue the formal demand order.

Company's Response and Impact Assessment

Sapphire Foods has maintained a firm stance against the demand order, stating that the claim made by the authority is not maintainable. The company has emphasized that there is no material impact on its financial, operational, or other activities due to the issuance of this order.

The company is currently in the process of evaluating the demand order and has indicated that it will take necessary steps to respond appropriately. This suggests that Sapphire Foods may challenge the order through available legal remedies.

Regulatory Compliance

The disclosure was made by Company Secretary and Compliance Officer Sachin Dudam, ensuring compliance with SEBI's Listing Obligations and Disclosure Requirements Regulations, 2015. This transparency reflects the company's commitment to keeping stakeholders informed about significant regulatory developments that could potentially impact the business.