Sapphire Foods merger: Here is fresh target price for Devyani International

Devyani International Ltd (DIL) and Sapphire Foods India Ltd (SFIL) have announced their merger through a share-swap arrangement, a move that Emkay Global said is broadly value-neutral for shareholders and offers meaningful synergy potential. Under the proposed terms, SFIL shareholders will receive 1.77 Devyani shares for every Sapphire share held, a ratio that Emkay Global said is largely in line with the prevailing market price.

Emkay Global said the merger is expected to take 12 to 15 months to complete, with FY28 likely to be the first year of combined operations and FY29 expected to see the full benefit of synergies. Devyani has indicated potential synergy gains of about Rs 210 crore to Rs 225 crore, which Emkay Global said are significant and amount to around 15 per cent of its combined Ebitda estimate for the two companies.

The brokerage said Devyani has also negotiated favourable agreement terms with Yum! Brands, including certain cost waivers and a phased transition of technology and supply-chain management rights for both Pizza Hut and KFC, along with marketing rights for Pizza Hut. Emkay Global viewed these changes as positive, noting that the combined entity is expected to have a 50–60 per cent higher revenue and Ebitda scale compared with current levels. It added that improved agreement terms with Yum! should support better decision-making, faster innovation, increased use of technology and improved sourcing efficiencies.

Emkay Global said the merged entity is expected to have a topline scale and Ebitda growth profile similar to Jubilant FoodWorks, although margins are currently weaker. Margins, however, are expected to continue on an improving trajectory. 

The brokerage reiterated its 'Buy' rating on Devyani International, with a September 2026 target price of Rs 190, valuing the stock at 33 times September 2027E Ebitda.

Based on FY25 reported numbers, Emkay Global said the combined entity has a revenue scale of about Rs 7,800 crore, with potential revenue CAGR of around 15 per cent over FY25–28, broadly in line with Jubilant FoodWorks. The combined store network stands at around 1,200 KFC outlets and about 1,000 Pizza Hut stores in India. The brokerage highlighted clear cost synergy opportunities, with optimisation of head-office costs—currently around 4.5–5.0 per cent of sales—seen as the lowest-hanging fruit. It also noted that Sapphire operates at a lower gross margin than Devyani by around 50–70 basis points across Pizza Hut and KFC formats.

On the operational front, Emkay Global said the merger should resolve overlapping Pizza Hut expansion rights in common territories and enable faster go-to-market decisions and product innovation, which were earlier delayed due to the involvement of multiple stakeholders.

Separately, as part of the broader transaction framework, Devyani will acquire 19 KFC restaurants currently operated by Yum! India in Hyderabad for a lump-sum consideration of Rs 90 crore. Devyani will also pay a one-time charge of Rs 320 crore to Yum! India towards merger approval and the grant of additional territory rights. Yum! Brands, Emkay Global said, has agreed to continue supporting the growth of both KFC and Pizza Hut in India through enhanced waivers and commercial arrangements aimed at accelerating store expansion and supporting the long-term growth of the combined platform.