The merger will be executed through a share-swap arrangement, under which Devyani International will issue 177 equity shares for every 100 shares held in Sapphire Foods. Post-merger, Devyani’s promoters will continue to hold a majority stake in the merged entity. The transaction is expected to be completed within 12–15 months, subject to regulatory, shareholder, and statutory approvals.

Strategically, the merger is aimed at unlocking annual cost and operating synergies of approximately Rs 210–225 crore, starting from the second full year after completion. These efficiencies are expected to come from supply chain integration, procurement leverage, backend consolidation, store-level productivity improvements, and stronger negotiating power with landlords and vendors. At a time when the QSR industry is grappling with input cost inflation, margin pressure, and moderation in same-store sales growth, scale has become a critical lever for sustaining profitability.

The consolidation also reflects a broader shift in India’s foodservice market, where large franchise operators are prioritising operational efficiency, balance sheet strength, and disciplined expansion over aggressive store rollouts. Investor sentiment mirrored this outlook, with Devyani International’s shares reacting positively following the announcement, underscoring market confidence in the long-term strategic rationale of the deal.

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The company posted a consolidated net loss of Rs 21.9 crore for Q2 FY26, compared to a marginal profit of Rs 0.17 lakh in the same period last year. Revenue from operations, however, rose 12.6% year-on-year to Rs 1,377 crore, driven by continued network expansion. During the quarter, Devyani added 263 new stores, taking its total outlet count to 2,184.

Operational metrics reflected sustained headwinds. Same-store sales fell 4.2% for KFC and 4.1% for Pizza Hut, underscoring weak discretionary spending and heightened competition in the QSR segment. EBITDA margin contracted to 14.1%, compared to 16.3% in the previous year, impacted by elevated input costs, increased promotional expenditure, and softer sales momentum.

Management noted that the recent GST rate cuts had a “very minimal” impact on consumer demand within the category. Industry analysts attributed the subdued results to a slowdown in urban consumption, rising operational expenses, and competitive discounting across quick-service formats.

While the company continues to pursue footprint expansion, analysts highlight the need for sharper cost discipline, improved same-store performance, and a calibrated approach to promotional spending to sustain profitability in an increasingly competitive market environment.

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The growth was driven primarily by network expansion, with the number of outlets increasing from 179 in FY24 to 220 in FY25.

However, key operating metrics saw pressure. Gross margins declined slightly from 76.8% to 75.4% due to rising input costs, including coffee beans. Brand contribution margin dipped to 16.1% from 17%, while average daily sales (ADS) per store dropped from Rs. 33,000 to Rs. 27,000. This led to a slowdown in same-store sales growth (SSSG) from 8.7% to 4.1%.

Despite these challenges, DIL emphasized its commitment to aggressive expansion, targeting 40–50 new stores annually. Costa Coffee is currently among the brand’s top 10 global markets and is aiming to enter the top five within five years.

The company highlighted the rising demand for premium coffee in India, especially among millennials and Gen Z, as a key growth driver. The Indian café market is growing at 10–12% annually—twice the global average—with Costa focusing on high-traffic areas like airports and multiplexes to strengthen its presence.

Costa Coffee competes in India with other global players such as Starbucks, Tim Hortons, McCafé, and Dunkin’.

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