Escalating geopolitical tensions in the Middle East have begun disrupting global energy supply chains, raising concerns about LPG availability in India.
India sources most of its LPG and two-thirds of its liquefied natural gas from the Middle East, where the US-Israeli war against Iran is showing no signs of de-escalation. As fuel and oil shipments remain stuck at the Strait of Hormuz, India is now extending measures to protect the more than 300 million households that use LPG.
Commercial LPG supplies have reportedly been disrupted across several major cities, including Mumbai and Bengaluru, affecting restaurants, hotels and food courts, which rely heavily on cylinder-based cooking fuel.
The LPG supply disruption highlights a hidden operational risk in India’s food service ecosystem. While independent restaurants face the most immediate risk of closures, large quick service restaurant (QSR) chains could also experience margin pressure and operational disruptions in certain micro markets, warned experts.
The signs are already visible. Most QSR stocks are currently trading close to their 52-week low levels. Sapphire Foods shares lost over 2% to hit their lowest level in a year at ₹169.45. The KFC, Pizza Hut, and Taco Bell operators’ stock has crashed 16% this month so far.
Meanwhile, Devyani International‘s share price is down 12% this month. The stock ended 1% higher, rebounding from a 52-week low of ₹108.90 hit on Tuesday, March 10.
Similarly, Burger King operator Restaurant Brands Asia (RBA) and Westlife FoodWorld, the company behind McDonald’s chain in India, have lost 2-3% this month, with the latter hitting a 52-week low of ₹456.90 in today’s session.
Impact of LPG shortage on QSRs
Major QSR chains use LPG cylinders for 60–65% of their overall cooking, according to JM Financial’s channel checks, having a buffer for one-two weeks.
If the LPG supply chain issue persists beyond that, their operations are likely to be hampered, cautioned the brokerage.
Any disruption to cylinder supply can result in reduced operating hours, limited menu availability, and temporary shutdown of outlets.
Quarterly profitability is expected to be severely hit due to higher energy costs and potential revenue losses from reduced operations, said Kruttika Prabhudesai, Research Analyst, Mirae Asset ShareKhan. Further, the crisis may also slow down the new store opening plans for many chains, she said.
JM Financial estimated that a closure for five days amid LPG supply disruption can result in a revenue decline of ~6% per store for the quarter and a higher decline of 14–20% on restaurant-level EBITDA versus the normalised level of operations.
Apart from supply disruption, QSR companies also face cost pressures. The price of one commercial LPG cylinder has already increased by 8% MoM this month amid the supply disruption.
For QSR companies, this can increase kitchen operating costs, compress restaurant-level EBITDA margins and raise delivery pricing or menu prices. Additional fuel cost inflation may further pressure margins, the brokerage added.
High-speed commercial kitchen appliances, including deep fryers essential for fries and fried chicken, as well as heavy-duty grills and specialised ovens, predominantly operate on gas.
Transitioning entirely to electric or induction alternatives in a short timeframe is practically unfeasible at this scale of operation, said Vipul Bhowar, Senior Director, Head of Equities, Waterfield Advisors.
“Although the extensive scale of QSRs provides a marginally longer adaptation period compared to local establishments – owing to some buffer stocks – their substantial dependence on deep fryers and grills renders them highly susceptible in the event of ongoing supply chain disruptions,” he added.
Among the worst-impacted stocks, Bhowar lists KFC (Sapphire/Devyani), Westlife Foods, and Burger King (RBA), given their heavy dependence on deep fryers and flame grills.
Should you avoid QSR stocks?
Analysts, however, see this as a temporary supply-related shock.
For short-term traders/risk-averse investors, trimming the position may be a defensive move, said Prabhudesai. However, for investors with a 2-3 year outlook, selling now might mean exiting at the bottom of a temporary panic, she said.
“Should the crisis intensify, small, unorganised restaurants are most likely to be significantly affected and may face the risk of permanent closure. Once the crisis subsides, larger entities are likely to capture the customer base that has been displaced,” Bhowar opined.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
