The making of a Giant - merger between DIL and SFIL

So how do you create a giant in the food business? 

Come FY26-27, we'll have more than 3,000 KFC and Pizza Hut outlets across five countries along with other brands of Vaango!, Costa coffee and The food Street with consolidated operations under one management and balance sheet. 

The merger is projected to achieve a turnover of approximately ₹.8000 crores with projected revenue trajectory is around ₹12,200 Cr by FY28. The combined entity is also aiming at an estimated EBITDA/PAT CAGR of 24% to 26% for the same period.

Now that's a Giant. 

The merger 

The board of Devyani International Limited and Sapphire Foods India Limited have approved an amalgamation that will combine the two largest franchise operators of Yum! Brands in India into a single listed entity.  

As part of the agreement, which has received approval from Yum! Brands, Devyani International will make a one-time payment of ₹.320 crore to Yum!. Additionally, DIL will acquire 19 KFC restaurants in Hyderabad currently operated by Yum! India. The entire merger process, from securing regulatory approvals to full integration, is projected to take between 13 to 18 months. 

The transaction is subject to customary approvals from stock exchanges, the CCI, NCLT, and shareholders and creditors.

As part of the transaction, Artic International, a Devyani group company, will acquire ~18.5% of Sapphire Foods’ equity from existing promoters, with an option to assign this stake to a mutually agreed financial investor. 

The question is - Why

When two different companies (DIL and SFIL) ran the same brands, the markets started overlapping. 

And in addition, over the past few years, the QSR sector has faced a couple of concerns as : 

• Rising food, packaging and logistics costs 

• Higher rentals and wage inflations 

• Slower SSSG (same-store sales growth)

• Increased reliance on discounting 

Despite aggressive store expansion, profitability has remained under pressure. Both Devyani and Sapphire have reported losses in recent quarters, underscoring the limits of scale without operating leverage. 

Instead of growing the pie, these stores started eating into each other’s sales. In H1 FY26, for instance, Devyani’s KFC stores saw SSSG of -2%, and Pizza Hut -4%. Similarly, Sapphire’s KFC stores were flat at 0%, while Pizza Hut fell -8%.

In H1 FY26, Devyani and Sapphire posted a net loss of ₹22 crore and ₹15 crore respectively.

The merger aims to improve efficiency, cost discipline and long-term sustainability. 

At a basic level, Sapphire Foods will be folded into Devyani International. For every 100 shares Sapphire shareholders hold, they’ll receive 177 shares of Devyani.

Following the merger, Devyani International will take over the marketing, innovation, technology, and supply chain functions of Pizza Hut from Yum! Brands, while for KFC, Divyani International will only take over the technology and supply chain, while marketing and innovation will continue to be run by Yum under the current agreement. 

DIL management expects synergy benefits of about ₹.210–225 crore, explicitly described as net of the additional costs of new functions and integration.

The perks of being a Giant 

By bringing together both franchisees under one roof, the merged entity expects the benefits as: 

• Centralised procurement and stronger purchasing power.

• A unified supply chain and technology platform. 

• Better bargaining power with landlords and vendors. 

• Streamlined expansion and capital allocation decisions.

Put together, this gives Devyani immediate access to more stores, a larger footprint, and potentially tighter supply chains. Over time, that alone could lift profitability by about 2.5%.

The objective of this merger is to create a dominant player in the Indian QSR market. By combining operations, the new entity aims to accelerate the expansion of KFC, revitalise the Pizza Hut brand for sustainable growth, and scale Devyani's emerging brands portfolio. Leadership from both companies has emphasized the potential for significant value creation through operational efficiencies and a unified strategic vision.

Everyone's happy 

From an investor perspective, the merger is favourable for DIL. 

Post merger, Devyani will emerge as the sole listed franchisee of Yum! Brands in India, with nationwide rights of KFC and Pizza Hut. This simplifies the business structure and an improved strategic and operational control. 

And Sapphire’s private equity backers get a clean exit. 

A few more things we learn 

Behind the merger and the lessons we pick above, there are few key points to learn and perhaps continue to do so. 

India’s food and beverage market is large, becoming formalized, and expanding rapidly, with independent estimates placing the broader food services market at over $100 billion and the QSR segment alone at more than $25 billion.

Building a Brand matters, not operated on personal connections but with a larger scale social acceptability. 

In emerging times, every section of business be it Marketing, Innovation, Technology and Supply chain plays an important role.  

The merger is a clear indication of where the market is expected to head, what the leaders think and the opportunities that lie in front. 

The question is Who understands this and decides to act.