Devyani–Sapphire merger success hinges on margins, not just size: Consumer consultant

Akshay D'Souza, an independent consumer business consultant, said profitability will be the key factor to track after the merger of Devyani and Sapphire Foods, as cost savings and scale benefits start flowing through the combined entity.

D’Souza said profitability plays a critical role in how quick service restaurant (QSR) companies raise capital, expand store networks, and manage supply chains. He noted that the merged entity has guided for a 2.5% improvement in profitability within a couple of years.

“Even if they achieve half of that, they are in a good space,” he said, adding that synergies across corporate costs, brand spends, and procurement could support margins. He also pointed out that improved profitability can reduce the cost of capital, supporting faster expansion over time.

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On timelines, D’Souza said it could take at least two to three quarters after the merger for margins to show consistent improvement. He said the QSR sector has faced challenges in opening new stores this year, making operational efficiency more important.

He said the combined business is currently operating at around 17% earnings before interest, tax, depreciation and amortisation (EBITDA) margin, which could improve modestly as synergies are realised.

D’Souza said profitability also depends on whether consumption is on-premise or off-premise. He noted that KFC has a higher share of on-premise dining, which supports margins, while Pizza Hut relies more on off-premise orders, where profitability is under greater pressure.

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He added that both brands are currently facing demand and cost challenges, making scale benefits from the merger more relevant.

D’Souza said the merger is likely to change competitive dynamics in the QSR space, particularly in procurement. He said operating as a single entity improves negotiating power with suppliers, especially at a time when input costs remain elevated.

“They can now go to market as one entity,” he said, adding that higher volumes could lower unit costs and support margins. He believes these supply-chain benefits will be among the first gains to reflect in the bottom line, even before the merger is fully completed.

D’Souza said the merger is expected to put pressure on other QSR players, as scale and cost efficiencies become more important for profitability. He added that while the merger process may take more than a year to complete, some benefits could start emerging earlier.

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