India’s KFC, Pizza Hut operators to merge in $1.2 billion deal
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Both the KFC and Pizza Hut franchisees in India operate at a net loss.
PHOTO: REUTERS
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GURGAON – India’s KFC and Pizza Hut operators Sapphire Foods and Devyani International said on Jan 1 they will merge in a US$934 million (S$1.2 billion) deal, creating a fast-food franchisee powerhouse in the world’s most populous country.
The deal comes as India’s fast-food franchisees grapple with higher costs, slowing same-store sales and margin pressure, while facing stiff competition from McDonald’s and Domino’s Pizza operators in a market where consumers are cutting back on non-essential spending.
Devyani will issue 177 shares for every 100 shares of Sapphire as part of the deal and it expects annual synergies of 2.1 billion rupees (S$30 million) to 2.25 billion rupees from the second full year of operations of the combined entity.
The companies, partners of Yum Brands, run more than 3,000 outlets across India and overseas, including KFC and Pizza Hut dine-in restaurants and compete with the Indian operators of McDonald’s and Domino’s Pizza chains – Westlife Foodworld and Jubilant Foodworks.
Both the KFC and Pizza Hut franchisees in India operate at a net loss, making scalability a challenge, said independent consumer goods consultant Akshay D’Souza.
“With the single entity, if they are able to unlock even half of the expected synergies, we will be seeing a profitable enterprise... where they can control costs better.”
In the quarter ended September, Sapphire’s consolidated total costs rose 10 per cent on year to 7.68 billion rupees, while Devyani’s spends rose 14.4 per cent to 14.08 billion rupees.
Devyani reported a net loss of 219 million rupees for the quarter ended Sept 30, reversing a profit of 170,000 rupees a year earlier, while Sapphire posted a wider consolidated net loss of 127.7 million rupees, compared with a loss of 30.4 million rupees a year ago. REUTERS
