India's KFC and Pizza Hut operators announce $934 mn merger

Sapphire Foods International Limited (SFIL) and Devyani International Limited (DIL), operators of KFC and Pizza Hut restaurants in India, announced their merger in a $934 million deal on Thursday.

Under the agreement, DIL will issue 177 shares for every 100 shares of SFIL. The combined company expects annual synergies of Rs 2.1 billion to Rs 2.25 billion ($23.34 million to $25.01 million) from the second full year of operations.

The merger comes as India's fast-food franchisees face higher costs, slowing same-store sales and margin pressure. The companies also compete with operators of McDonald's and Domino's Pizza in a market where consumers have reduced spending on non-essential items.

Both companies are partners of Yum Brands and together operate more than 3,000 outlets across India and overseas, including KFC and Pizza Hut dine-in restaurants. Their competitors include Westlife Foodworld and Jubilant Foodworks, which operate McDonald's and Domino's Pizza chains in India.

In the quarter ended September, SFIL’s consolidated total costs rose 10% year-over-year to 7.68 billion rupees, while DIL’s spending increased 14.4% to 14.08 billion rupees.

DIL reported a net loss of 219 million rupees for the quarter ended September 30, reversing a profit of 170,000 rupees from a year earlier. Sapphire posted a consolidated net loss of 127.7 million rupees, compared with a loss of 30.4 million rupees a year ago.

Commenting on the merger, Ravi Jaipuria, Non-Executive Chairman, Devyani International Limited, said, “The consolidation of Devyani International Limited and Sapphire Foods India Limited marks a significant milestone and a decisive leap forward in our growth journey, resulting in DIL holding franchise rights across the entire Indian market for KFC and Pizza Hut brands. The merger also adds a strong international presence in Sri Lanka, which complements our existing overseas operations. This combination will allow us to realize meaningful economies of scale, leverage a unified technology platform, and strengthen our supply-chain capabilities. Together, these advantages will help unlock sustained value creation and long-term growth for our shareholders, customers, employees, and partners. We are grateful to Yum! Brands and its management team for placing their confidence in DIL as the sole, long-term partner for the future growth of KFC and Pizza Hut in India and for their support of this transformative merger.”

Sumeet Narang, Nominee Director at SFIL and Founder of Samara Capital, added, “Sapphire Foods was conceptualised in 2015 through the consolidation of multiple Yum! Brands franchisees, with a clear vision of building a scaled, institutionally strong QSR platform over time. We are extremely excited about this development, which brings together a single, unified franchisee for KFC and Pizza Hut in India through the merger with Devyani International Limited. This transaction reflects the shared long-term vision and strong partnership between Samara Capital Group and RJ Corp. We are confident that, under RJ Corp’s leadership, these iconic brands will continue to grow from strength to strength in the years ahead. India has the potential to become a true crown jewel within Yum!’s global markets, and this announcement represents a significant step in that journey.”

Ranjith Roy, CFO, Yum! Brands said, “Devyani International Limited and Sapphire Foods India Limited have been outstanding partners to Yum! for many years. India is a high-priority market for us with an abundance of white space for further growth and strong consumer reception for our brands. We are pleased to support this proposed merger to unlock a new phase of accelerated growth in the region and to advance supply chain operations, leading to a stronger, more resilient partner in India and greater value for both shareholder bases. We look forward to our continued partnership.”