Devyani, SFIL merger: Recipe for growth?

The two Indian franchises of Yum! Brands have joined hands to revive growth, beat competition

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The merger of two leading brands — Sapphire Foods India Ltd (SFIL) and Devyani International Ltd (DIL) — is all set to create a fast-food major with more than 3,000 stores, a consolidated turnover of more than 27,800 crore and operations in markets such as India, Nigeria, Nepal, Thailand and Sri Lanka.

Besides retailing the American multinational fast-food corporation Yum! Brands’ offerings such as KFC, Pizza Hut and Taco Bell, the merged entity will also hold licences for other global QSR brands, including Costa Coffee, Tea Live, New York Fries, and Sanook Kitchen, in their respective markets. Sapphire will merge with Devyani, consolidating the Indian franchise operations of Yum! Brands-owned chains under one listed entity. As part of the deal, DIL will issue 177 shares for every 100 shares held in SFIL.

Once the merger is complete, Sapphire shareholders will cease to hold SFIL shares and will instead receive Devyani International shares in the specified swap ratio.

Rationale for joining hands

The merger is happening at a time when QSR chains in India are witnessing sluggish growth, lower margins, and almost flat demand growth as consumers are holding on to discretionary spending. QSR sales are down also due to intense competition (cloud kitchens, food delivery apps like Zomato/Swiggy) and evolving consumer tastes.