The proposed merger of Sapphire Foods India with Devyani International marks a major consolidation in India’s quick-service restaurant (QSR) space. Beyond the business rationale, the transaction has important implications for shareholders of both companies—especially around shareholding changes, taxation, holding period continuity, and future exit planning.
What happens to Sapphire Foods shares after the merger
Once the merger becomes effective, Sapphire Foods India will cease to exist as a separate listed entity. Shareholders of Sapphire Foods will automatically receive Devyani International shares in a fixed swap ratio of 177 shares of Devyani for every 100 shares of Sapphire Foods held.
From that point onward, investors will no longer hold Sapphire Foods shares. Their entire investment exposure will shift to Devyani International, which will become the consolidated listed vehicle housing the combined Yum! Brands franchise operations, including KFC and Pizza Hut.
No immediate tax impact for shareholders
The merger has been structured as a tax-neutral transaction under the Income Tax Act. This means no capital gains tax will be payable at the time of the share swap. The exchange of Sapphire shares for Devyani shares does not trigger a taxable event.
Tax liability arises only when investors sell the Devyani International shares received under the merger.
How cost of acquisition will be recalculated
For future capital gains calculation, the original purchase cost of Sapphire Foods shares will be apportioned across the Devyani shares received.
For example, if an investor purchased 100 Sapphire Foods shares for a total cost of Rs 30,000, and receives 177 Devyani shares under the merger, the effective cost per Devyani share will be Rs 169.49. Capital gains will be computed based on the difference between the eventual sale price and this adjusted cost.
Holding period will be carried forward
The holding period of Sapphire Foods shares will be carried over to the Devyani International shares. This is significant for tax classification:
- If Sapphire shares were held for over 12 months, gains on selling Devyani shares will qualify as long-term capital gains (LTCG)
- LTCG will be taxed at 12.5% on gains exceeding Rs 1.25 lakh per financial year
- Short-term gains will be taxed at 20%
Timeline and regulatory approvals
The merger is subject to approvals from stock exchanges, the Competition Commission of India, the National Company Law Tribunal, and shareholders and creditors of both companies. The approval and integration process is expected to take 12–15 months, following which the merger will formally take effect.
What shareholders should do now
Investors should retain records of their Sapphire Foods purchase price and acquisition date, as these details will be essential for future capital gains calculations. While the merger does not create an immediate tax obligation, clarity on cost allocation and holding period ensures smoother compliance when exiting the investment.
For shareholders, the post-merger phase represents a shift from two listed QSR players to a single, larger platform, with the investment outcome ultimately depending on execution, synergies, and operating performance of the combined entity.
