The merger ratio offers near-perfect parity, implying approximately a 1% discount for Sapphire shareholders based on current market prices, according to multiple brokerages. The swap leaves virtually no arbitrage opportunity, a rarity in merger transactions. Devyani shares were trading 1% higher at Rs 149.55 while Sapphire shares fell 1.6% to Rs 257.15 during the day.
“The merger ratio is very close to where the stock prices closed yesterday (1 Jan-26) and hence, there is no major price arbitrage (or likely adjustment) arising out of this ratio,” Jefferies noted, adding that shareholders of both companies would enjoy potential synergy benefits equally.
The real prize lies in the synergies. Management has guided for steady-state savings of ₹200 crore to ₹225 crore annually starting from the second year of integration—likely FY29. JM Financial highlighted that this translates to an estimated EBITDA benefit of ₹100 crore to ₹150 crore in the first integration year (FY28), with Pre-Ind AS EBITDA potentially reaching ₹1520 crore in FY28 and ₹1950 crore in FY29 when synergies are factored in.
“The highlighted savings are significant, at ~15% of our combined EBITDA estimate for the two companies,” one brokerage noted. These savings will come primarily from lower royalty costs, reduction in corporate overheads, and multiple scale benefits.
Devyani has secured favorable terms from Yum! Brands, which has approved the consolidation. The agreement includes certain cost waivers, along with phased transition of technology and supply-chain management rights for both Pizza Hut and KFC, as well as marketing rights for Pizza Hut only.
“The transaction will transform DIL into a pan-India QSR play, comparable with JUBI,” Jefferies said, referring to rival Jubilant FoodWorks. “Synergy benefits expected to add 2.5% to Ebitda margin.”Emkay echoed this view: “In our view, the combined entity will have a 50-60% 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.” The firm maintained its Buy rating on Devyani with a September 2026 target price of ₹190.
As part of the transaction structure, Devyani will acquire 19 KFC stores from Yum! India for approximately ₹90 crore and make a one-time payment of around ₹320 crore towards merger approval and additional territory rights. Additionally, Sapphire Foods’ promoter Sapphire Foods Mauritius Limited will sell its approximately 18.5% equity stake in Sapphire Foods to Devyani’s group company Arctic International prior to the scheme becoming effective. This stake can then be sold to a mutually agreed financial investor.
The timeline is lengthy: the merger is subject to regulatory and statutory approvals that could take 12-15 months, with FY28 likely being the first year of combined operations. Sapphire Foods will be amalgamated into Devyani with effect from April 1, 2026, though full integration and realization of synergy benefits are expected within 15-18 months from the effective date.
JM Financial emphasized the strategic rationale: “The combined entity will become one of the largest QSR companies in India; it will also be a multi-brand, multi-cuisine and multi-country QSR platform, and will potentially offer superior growth visibility, improved resilience across demand cycles and a structurally stronger business model.”
Current valuations show Devyani and Sapphire trading at approximately 34x and 27x FY2027 attributable EBITDA (pre-Ind AS 116) respectively. Kotak’s fair values of ₹170 for Devyani and ₹325 for Sapphire are based on 33x and 27x December 2027 pre-Ind AS EBITDA.
“Encouragingly, the merged entity will have a similar topline scale and EBITDA growth profile as that of JUBI, though margins are currently weaker; margins, albeit, should maintain the improving trend,” Emkay noted.
Management’s focus post-merger will be on accelerated KFC expansion, Pizza Hut revitalization, and emerging brands growth, according to Jefferies. For shareholders, the message is clear: buckle up for a 12-15 month wait, but the combined entity promises to emerge as a QSR powerhouse capable of going toe-to-toe with Jubilant FoodWorks on scale, with meaningful margin expansion on the horizon.
