Why Rivals Just Merged
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No jargon, no drama, just stuff that actually makes sense!
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In this week’s newsletter, we will be learning:
The merger of Sapphire Foods with Devyani International.
My advice on using your learnings to connect what happens in comapnies.
What is Greater Fool Theory.
Market Kya Keh Raha Hai Sir?
2026 started with a unique deal.
On 1st January, Devyani International and Sapphire Foods, India’s two largest KFC and Pizza Hut operators, agreed to merge.
Now, what makes this unique is that both are competitors, but their businesses are almost identical.
Devyani operated Pizza Hut and KFC in some states, while Sapphire operated in others.
So same pizza and fried chicken, but two different companies.
And now this is about to change as they are getting merged, but what led to this, and why is this happening now?
Before we jump into anything, we will be
Starting from the Basics
Most of us have at least one favourite among KFC, McDonald’s, or Domino’s.
But have you ever wondered how these brands operate?
Understanding the Business
These companies run in a franchise model
It has two components:
- The parent company that owns the brand, the recipes, and the operating standards.
- The Franchisees that own the actual restaurants and handle day-to-day operations.
In this, the parent gets royalty fees, and the franchisee gets to use the brand.
Companies franchise because it enables rapid expansion without needing to build every store themselves.
In India, Domino’s does it with Jubilant Foodworks, McDonald’s with Westlife Development.
Now here’s where Yum! (owner of Pizza Hut and KFC) India’s structure is different.
Instead of appointing one franchise for all of India, they have two in the form of Devyani International and Sapphire Foods.
And when two people run the same thing, there can be a coordination failure.
Same Food, Different Restaurant
For Yum! Brands, every decision required coordinating with two separate companies.
If they wanted to launch a new menu, they had to negotiate with both franchisees.
If they wanted to change certain prices, both had to agree to it.
And there can be differences at times.
Last year, Sapphire Foods mentioned that they could not advertise as there were differences between the two franchisees, and as a result, this impacted their business.
McDonald’s and Domino’s in India don’t face these coordination costs as they work with single primary franchisees.
Moreover, the Same Store Sales Growth (SSSG) of these franchisees has been declining lately.
Same Store Sales Growth (SSSG) simply shows whether the restaurants that already exist are selling more or less than before, without counting new outlets.
A declining SSSG is difficult for them, as a large part of their costs are fixed in salaries, store rent, and technology.
And no matter how fast the business grows, these payments must go out.
In their Q2 FY26 results, both Devyani and Sapphire reported a loss of ₹24 and ₹13 crore, respectively.
Now, to tackle these problems, they have come up with a solution.
Unity is Strength
The management of both companies agreed upon merging Sapphire Foods India Limited (SFIL) with and into Devyani International Limited (DIL).
This merger can create one of the largest QSR companies in India, and the management hopes to benefit from the economies of scale.
The Deal
The merger is happening through a share swap where Devyani International will issue 177 shares for every 100 equity shares of Sapphire Foods.
In simple terms, if you owned 100 Sapphire shares, you would receive 177 Devyani shares in exchange.
Post-merger, Sapphire dissolves as a company and merges into Devyani.
The combined entity will operate approximately 3,000 stores across India, Thailand, Sri Lanka, Nigeria, and Nepal.
In addition, Devyani will acquire 19 KFC restaurants in Hyderabad, currently operated directly by Yum! India for approximately ₹90 crore, and also pay an additional ₹320 crore one-time charge to Yum! India for merger approval and additional territory license fees.
And as we speak about the deal, the management is expecting to have synergy benefits of around ₹210-225 Crore.
Now what’s that?
The Synergy Effect
When two companies come together, they expect to earn more or save more together than they could have done separately.
That extra benefit is called synergy.
Think of it like this:
1 + 1 > 2
The management of Devyani projects ₹210-225 crore in annual cost savings starting FY28
This includes benefits arising from reduced costs of corporate overheads.
Since the entities will merge into one, they will operate with one CFO instead of two, one IT team instead of two and even one headquarters instead of two.
Moreover, a centralised procurement process will help them reduce costs.
Earlier, the entities were purchasing raw materials separately and now merging as one, they will enjoy the benefits of scale.
From the perspective of Mr Ravi Jaipuria, the Chairman of Devyani International, this merger is also about long-term growth.
All this is great, but you may ask why this could be happening now?
The Broader Context
The Indian QSR market is estimated at around $27.8 billion as of 2025 and is expected to grow to over $47 billion by 2031.
This growth is driven by increasing disposable incomes in metropolitan and tier-1 cities, as well as the widespread adoption of food delivery applications.
The competitive landscape also remains moderately consolidated, with no single player dominating, and Devyani is among the top players.
While this growth opportunity seems tempting, the QSR market is becoming more expensive and competitive.
With high rental costs, raw material inflation, and rising competition from cloud kitchens, it is becoming challenging to take part in the growth.
This is where scale comes into play, and the merger makes more sense.
Large operators can negotiate better rents with developers and absorb commodity inflation through bulk purchasing power.
Also, travel hubs, such as airports, metro stations, and railways, are expected to grow at around 13-14% CAGR, making them one of the fastest-growing formats in the market.
These locations require significant capital and operational scale because of high rental premiums and controlled access.
After the merger, Devyani gets a revenue base of ₹8000 crore and the scale it needs to operate in this market.
Right now, the merger has only been announced, and it still has pending approvals to complete, and it may take about 12-15 months.
It is too early to say how this merger will turn out in this competitive market.
With time, we will get to know whether the synergy works in their favour or if it just gets more expensive to run 3000+ stores.
If breakdowns like this help you see businesses more clearly, you might enjoy what comes next.
Kaam Ki Baat!
“Sir, how do I connect what I study with what happens in real companies?”
Here’s what I told them:
This gap exists for almost everyone initially.
In class, concepts feel clean. In real companies, things look messy.
The connection comes when you stop treating theory as something to remember and start using it as something to observe.
Here’s a simple way to build that bridge:
- Start with one company, not the whole market.
Pick a company you already know. Read its annual report and ask basic questions:
What does it sell? Where does the money come from? What costs keep rising?
Suddenly, the concepts you studied have a place to sit.- Follow the numbers over time.
Look at how revenue, costs, and cash flows move over a few years.
Patterns over time make concepts feel real, not abstract.- Tie every concept to a reason.
Instead of just noticing that ROCE is high, ask what the company is doing differently.
When you look for reasons, understanding deepens naturally.
Theory starts making sense when you use it to explain real things, not when you try to memorise it.
So ask yourself:
Can I take one company and explain what’s happening using just two or three concepts I’ve learned?
Dalal Street Dictionary
Imagine you buy something not because you believe it is worth the price, but because you believe you will be able to sell it to someone else at a higher price. Your decision is based less on value and more on the expectation of a future buyer.
This idea is known as the Greater Fool Theory.
In finance, the Greater Fool Theory explains situations where assets are bought at high prices even when they appear overvalued, simply because investors believe there will be another buyer willing to pay more later. The logic shifts from “What is this asset worth?” to “Who will buy this from me next?”
This behaviour is often seen during speculative phases, when prices are driven more by momentum, narratives, or excitement than by fundamentals like earnings, cash flows, or intrinsic value.
You may see prices rising rapidly without a corresponding improvement in fundamentals, with investors justifying purchases based on short-term price movements, or conversations focused more on exit prices than on long-term value.
During the late 1990s dot-com boom, companies saw their stock prices rise sharply despite having weak business models and heavy losses. Many investors bought these stocks not because the companies were profitable, but because they believed they could sell them to someone else at a higher price. When buyers disappeared, prices collapsed.
Understanding the Greater Fool Theory helps students recognise the difference between investing and speculating. It explains why prices can rise far beyond fair value and why corrections can be sudden when buyers disappear. It also reminds us that relying on the presence of a “greater fool” is not a strategy, but a risk.
MEME OF THE WEEK
What Else Caught My Eye?
The US is planning to impose 500% tarrifs on India.
Bajaj Finserv ends 24-year JV with Allianz.
RBI published the financial stability report of banks.
5 new judges coming to Shark Tank India season 5.
The IPO of Bharat Coking Coal is coming.
Recommendations
This week’s video is a powerful TEDx talk by William Green, author of Richer, Wiser, Happier, where he provides lessons from 25 years of interviewing the world’s greatest investors.
For finance students, this is a must watch, not because it teaches you about which stock to buy but because it shows you how top investors actually think.
Green talks about the power of simplicity, the art of subtraction (doing less, but better), Charlie Munger’s idea of avoiding standard stupidities, and why surviving and staying in the game matters more than chasing quick gains.
If you’re serious about a long-term career in investing or finance, this 17-minute video will quietly reset your definition of what it means to “win” in markets and in life.
Song of the Week
This is Parth Verma,
Signing off.
Restart ❤️
Wonderfull insight sir. thank you.