Sapphire to Westlife FoodWorld: QSR Stocks Remain Volatile Amid LPG Supply Concerns

Quick-Service Restaurant Stocks Decline Amid Commercial LPG Shortage

Key Points:

• Shares of quick-service restaurants (QSRs) are trading near their 52-week lows due to a shortage of commercial LPG caused by supply chain issues in the Strait of Hormuz.
• Sapphire Foods, Jubilant Foodworks, Devyani International (KFC, Pizza Hut), and Westlife Foodworld (McDonald's) are facing operational challenges and potential pressure on profit margins.

Market Impact:

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• Westlife Foodworld and Sapphire Foods stocks have reached their 52-week low, while Jubilant Foodworks and Devyani International are close to their 52-week low.
• Investors are concerned about the potential impact on operating hours, menu options, and temporary closures of outlets.
• Analysts advise against hasty sell-offs, citing the government's proactive measures to mitigate risks.

Earnings Impact:

• A continued delay in LPG supply restoration may impact earnings for the fourth quarter (January-March/Q4) of 2025-26.
• Vinod Nair, research head at Geojit Investments, suggests that the availability of LPG might be reinstated soon, minimizing the impact on earnings.

Recommendation:

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• Investors are advised to avoid panic selling and maintain their holdings in QSR stocks.
• JM Financial Institutional Securities suggests that major quick-service restaurant chains will be less affected than independent eateries.

Forecast:

• JM Financial predicts:

• Westlife FoodWorld: revenue impact of ₹8 lakh
• Restaurant Brands Asia (RBA): revenue loss of ₹5 lakh
• Sapphire Foods: revenue loss of ₹5 lakh
• Devyani International: sales decline of ₹4 lakh
• Pizza Hut locations run by Sapphire Foods: revenue hit of ₹2 lakh

Technical Views:

• Anshul Jain, Head of Research at Lakshmishree, suggests that QSR counters are showing clear relative weakness against the broader market.
• A further downside of around 5% in the coming sessions appears highly probable unless strong demand emerges.