Buy, Sell, Or Hold? Devyani International's Merger With Sapphire Gets Contrasting Views From Brokerages

Brokerages have offered mixed views on Devyani International Ltd., (DIL), one of India’s largest and fastest-growing quick service restaurant (QSR) operators, as the merger with Sapphire Foods promise significant scale and synergies.

The merger between Sapphire Foods and Devyani International Ltd will be effective from April 1, and will be executed through a share-swap arrangement.

Under the agreed swap ratio, Devyani International will issue 177 shares for every 100 shares of Sapphire Foods. Devyani will also pay a one-time fee to Yum! towards merger-related expenses.

The reason behind the merger is to achieve potential synergies of approximately 2.5% at the Ebitda level, translating into benefits worth Rs 210–225 crore. The full realisation of these synergies is anticipated within two years of the merger.

The integration aims to create one of India’s largest QSR companies, strengthening its position in the market. A stronger balance sheet post-merger will enable accelerated expansion and improved operational efficiencies, further enhancing growth prospects.

Brokerage Axis Capital said the proposed synergies from the Devyani–Sapphire merger imply nearly 45% upside from current levels, assigning a proforma target price of Rs 213. However, the deal will entail 46% dilution in Devyani’s existing shareholding.

JPMorgan welcomed the merger as a strategic move, saying that synergistic benefits will accrue with a lag. The brokerage expects economies of scale, a simplified structure, cost savings, and faster decision-making to help Devyani compete more effectively.

UBS feels Devyani will emerge as a major beneficiary from the merger.

Brokerage firm Emkay Global has maintained its 'Buy' rating with a target price of Rs 190, citing that the proposed merger could create an entity comparable in scale and growth prospects to Jubilant FoodWorks.

The brokerage believes that the swap ratio is largely aligned with current market prices, which ensures equitable benefits for shareholders of both companies. Emkay also notes the potential cost savings of around 15% of the combined Ebitda estimate, which could substantially enhance profitability.

Meanwhile, Antique Stock Broking has retained a 'Hold' stance with a target price of Rs 142 for Devyani, projecting Rs 151 for the merged entity.

Antique believes the merger will unlock synergies but stresses that KFC remains the primary profit driver for the company. It also anticipates a quicker revival for Pizza Hut and sees the non-Yum portfolio as an additional lever for growth.

The contrasting recommendations underscore optimism about operational efficiencies and brand consolidation, though valuation concerns persist. With Devyani’s aggressive expansion and strategic partnerships, the merger could reshape India’s QSR landscape, offering shareholders a slice of a rapidly growing market.