In a major decision, the government on Thursday announced that 20% of the average monthly commercial LPG requirement will be allocated by OMCs, in coordination with the State Governments, so that there is no hoarding or black marketing.

India was previously importing approximately 60% of its LPG requirements from Gulf countries such as Qatar, UAE, Saudi Arabia, and Kuwait, and 40% is produced domestically.

Amid supply shortages, key players such as Sapphire Foods, Devyani International (KFC, Pizza Hut), and Westlife Foodworld (McDonald's) are encountering operational challenges and potential pressure on profit margins, with certain stocks declining by as much as 7%.

Westlife Foodworld and Sapphire Foods stocks touched their 52-week lows, while Devyani International stock was around its 52-week low.

Investors are concerned that the disruption in cylinder supply may lead to decreased operating hours, restricted menu options, and potentially temporary closures of outlets, as quick-service restaurant kitchens rely heavily on a steady and large volume of LPG for their ovens, fryers, grills, and rapid cooking lines.

What should investors do?

Based on reports, analysts are keeping a close eye on the situation but advise against hasty sell-offs. While this development has created uncertainty for QSR companies, they anticipate that the government's proactive measures will help mitigate the risks.

According to a news report, Vinod Nair, the research head at Geojit Investments, indicated that a continued delay in the restoration of LPG supply could have an impact on earnings for the fourth quarter (January-March/Q4) of 2025-26 to a degree. Nevertheless, considering the government's active steps to ensure supplies, the availability of LPG might be reinstated soon.

Investors ought to avoid panic selling and maintain their holdings in QSR stocks, he noted.

Analysts from JM Financial Institutional Securities suggest that the effects on major quick-service restaurant chains such as McDonald's, Burger King, and KFC will be less significant than on independent eateries, although they are not completely insulated from the disruptions.

As the costs of commercial LPG cylinders have already risen by 8% month-over-month in March, we anticipate an increase in kitchen operating expenses, squeezed restaurant-level earnings before interest, tax, depreciation, and amortisation (Ebitda) margins, and possible hikes in delivery or menu prices for QSR companies, said JM Financial.

Large quick-service restaurant chains generally have centralised procurement processes, contracts with multiple cylinder suppliers, and contingency fuel arrangements. However, analysts caution that a decline in cylinder availability across the system could pose difficulties even for major chains, given their high daily cylinder usage in numerous locations.

JM Financial predicts that Westlife FoodWorld, the operator of McDonald's, may experience a revenue impact of ₹8 lakh, while Restaurant Brands Asia (RBA), which operates Burger King, and Sapphire Foods, which manages KFC outlets, could both encounter revenue losses of ₹5 lakh each.

Devyani International, which owns KFC stores, might face a sales decline of ₹4 lakh, while Pizza Hut locations run by Sapphire Foods could see a revenue hit of ₹2 lakh.

Technical Views

Anshul Jain, Head of Research at Lakshmishree, quick service restaurant counters Sapphire Foods India Limited, and Devyani International Limited, are showing clear relative weakness against the broader market. During the recent upmove in equities, all three stocks underperformed, indicating lack of institutional sponsorship.

Now, in the current market pullback, these counters are accelerating on the downside, confirming sector-wide fragility rather than stock-specific noise.

"Price structures across daily charts show declining momentum and rallies failing to sustain above short-term averages. Volume behaviour also suggests distribution rather than accumulation. This relative weakness during both rising and falling markets highlights a deteriorating trend profile for the QSR space. Given the current setup, a further downside of around 5% in the coming sessions appears highly probable unless strong demand emerges," said Jain.

Disclaimer: 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.