The stock market saw a surge of activity following media reports about the merger plans of two major companies. After the news broke, there was a significant increase in buying of both companies' stocks, as investors anticipated synergy benefits and business expansion from the potential merger.
On Friday's trading day, the stock market witnessed considerable activity from two companies linked to a specific sector. These two companies are Sapphire Foods India Limited and Devyani International Limited, who are franchise partners in India for the American brands KFC and Pizza Hut.
According to media reports, the two companies are in merger talks. Speculation surrounding the merger led to increased buying of the shares of both companies. Investors are optimistic that if the merger materializes, it could pave the way for new growth opportunities.
What the Report Revealed
According to a report published in the Economic Times, Yum! Brands, the owner of KFC and Pizza Hut, is planning to consolidate its two largest franchise partners in India.
The news indicates that Devyani International may acquire all the franchise rights for KFC and Pizza Hut in India from Sapphire Foods. Another option suggested is that all stores could be operated under the Devyani brand.
However, there has been no official confirmation of this news yet. The report also stated, citing sources, that if the merger happens, it could be based on a share swap ratio of 1:3. This means that one share of Devyani International would be given for every three shares of Sapphire Foods.
Significant Surge in the Stock Market
Shortly after the news broke, there was a surge in the shares of both companies.
Sapphire Foods' share price rose by more than 10 percent during the day's trading, reaching ₹355. This is its highest level in the last six months. The closing price on Thursday was ₹320.35.
Devyani International's share also went up by nearly 3 percent, reaching close to ₹175. Prior to this, the stock had been trading within a limited range for quite some time.
Company Profiles in Brief
Devyani International Limited (DIL) is considered the largest franchise partner of Yum! Brands in India. The company not only operates outlets of KFC and Pizza Hut brands but is also working with brands like Costa Coffee, along with KFC.
Sapphire Foods is also a major franchise of KFC and Pizza Hut in India, and its network is spread across several cities. The company focuses on continuously improving retail format, technology, and customer experience.
Brokerage Houses Continue to Observe
Even though the news is not yet official, brokerage firms have already adopted a positive outlook on both stocks.
In early May, MK Global recommended a buy for Sapphire Foods with a target price of ₹370. Meanwhile, Motilal Oswal had set a target of ₹415 for it in February.
On the other hand, MK Global recommended investment in Devyani International in April, with a target price of ₹200.
Considering these targets, there is still potential for further upside in both stocks, especially if the merger speculation turns into reality.
Why Investors are Showing Interest
Investors in the stock market often get attracted to businesses with growth and scalability. The food service sector, particularly the QSR (Quick Service Restaurant) segment, has grown rapidly in recent years. The growing young population in India, urbanization, and changing lifestyles are driving this sector forward.
If Sapphire Foods and Devyani International merge, it could further strengthen the presence of KFC and Pizza Hut in India. This could also lead to benefits in operational efficiency, branding, supply chain, and customer service levels.
Merger Could Change the Game
If the proposed merger happens, it could be the biggest change in the QSR industry. The joining of two major franchise partners could further strengthen Yum! Brands' position in India. Also, it will increase pressure on competitors.
For now, investors and the market are watching Yum! Brands, Devyani International, and Sapphire Foods closely. Everyone is waiting to see whether these reports will be confirmed. Until then, these stocks are expected to remain in the spotlight.
