QSR chains face margin pressure, not demand shock: Karan Taurani on fuel and LPG impact

The recent spike in fuel and LPG prices is beginning to ripple across India’s consumption landscape, but the impact is far from uniform. While some sectors are seeing direct margin compression, others are relatively insulated due to pricing power, cost structure, or operational adjustments, according to Karan Taurani, EVP, Elara Securities in a conversation with ET Now.

At the heart of the concern is the second-order impact of geopolitical tensions in West Asia, which has filtered into fuel costs and supply chains, especially LPG availability and pricing.

LPG shock hits QSR margins hardestConsumer discretionary segments are experiencing sharply different outcomes depending on their dependence on fuel-linked inputs.Karan Taurani explained: “So, if you look at the impact on consumer discretionary as a segment, it is different for each of the segments. So, certain segments are seeing a severe negative impact of this LPG crisis and the fuel crisis. One stock to name for that is Jubilant FoodWorks. They have got a high dependence on LPG, close to 80% of their outlets are LPG dependent and with the 50% inflation that we saw in LPG, there is a negative impact of 120 bps on their margin.”

While price hikes have been taken to offset pressure, Taurani cautioned that food inflation may still weigh on profitability going ahead.He added that other QSR players are relatively better placed due to lower LPG dependence in the 20–40% range, limiting margin damage.Alco-bev: glass costs and input divergence drive performance splitIn the alco-beverage space, cost structures are creating a sharp divergence between companies. Taurani noted that beer companies face significant pressure due to glass and crude-linked inputs:

“In the case of beer, the impact is quite a big negative because 50% of their cogs is from glass, which is crude linked and CNG linked. There are inflationary pressures of 20% on glass.”

This, he said, could lead to continued margin disappointment for United Breweries. However, the outlook is more favourable for select spirits players:

“UNSP on the other hand there is a tailwind in the form of ENA, so because of ENA deflation which is a large chunk of their COGS is coming off and their contribution from glass in terms of cogs is only 15 odd percent.”

Retail: limited fuel impact, but fabric costs matterRetail players such as Trent are relatively insulated from fuel shocks, but input costs in apparel remain a concern.

“If you look at companies like Trent, their impact because of fuel that way is not very big. The bigger impact there is apparel. The fabric cost. So, fabric cost will have close to 100-200 bps negative impact after offsetting the margin levers that the company has.”

Platforms and quick commerce: partial insulation, ad revenue key monitorablePlatform-based businesses such as food delivery and quick commerce operators are relatively protected from direct fuel shocks due to fee adjustments.

However, the indirect impact on restaurant partners and ad revenues remains a key risk.

Taurani explained: “If you look at the platform companies, fuel cost is not a big headwind for them. They have taken hikes in the form of platform fee, they have taken hike in the form of the handling charges in the last couple of quarters or last couple of months rather, so they are well protected as far as margins is concerned.”

But he flagged a secondary risk: “If restaurants are not expanding aggressively, if they are seeing a struggle in terms of their business on ground, there is a potential for lower ad revenue spends coming from that perspective because ad revenue drives 80-90% of EBITDA for most of the platform companies.”

Electrification in QSR: possible, but structural limits remainOn whether rising LPG costs could accelerate electrification in QSR operations, Taurani believes transition is possible but limited.

“So, first point of electrification, in the past QSR companies have not gone for electrification because there are certain equipments which require LPG… But after this LPG hike, the costs have largely come on par or maybe at a slight higher premium.”

However, he added structural constraints:

“But can it go down to 30%, it seems highly unlikely as of now.”

Pricing power vs margins: demand stable, profitability under pressureDespite cost inflation, pricing transmission may not be the biggest challenge for global QSR chains. Instead, margins remain the pressure point.

“In terms of passing on the price, I think that should not be a big issue as such because if you look at the global QSR chains, they have been cutting prices since the last two years.”

He added that competitive dynamics actually support demand for large chains, but margin expansion remains difficult.

Near-term margin ceiling likely for QSRLooking ahead, Taurani sees limited margin upside in the near term.

“Yes, absolutely. At least for the next coming two or three quarters because of food inflation pressures, cheese, oil all these will start to come on the food companies, the QSR companies.”

Impact on Zomato, Swiggy and Eternal remains mutedFuel hikes are expected to have a limited direct impact on food delivery platforms, with most of the burden shared across stakeholders.

“So, as I said, the fuel price hike on Zomato, Swiggy is not a huge negative impact.”

Even under a worst-case scenario, the impact is relatively contained: “The negative impact for someone like Eternal is only about 5% of their EBITDA.”

Quick commerce: Discount wars cooling, but Zepto burn remains highOn quick commerce, competitive intensity is the key variable driving discount trends and profitability outlook. “Zepto as per our assessment is burning close to 4000 crores EBITDA in the QC business on an annualised basis.”

While larger players are shifting toward profitability, Zepto’s aggressive expansion strategy could keep pressure elevated in the near term.

Taurani added that eventual rationalisation is likely: “But yes, even a lower number in terms of discounts or in terms of the losses could be a very big positive trigger for the quick commerce business.”

Swiggy QC valuation pressure rises amid execution concernsA key concern emerging in the market is valuation pressure in Swiggy’s quick commerce business, driven by execution gaps and slowing growth clarity.

“So obviously, their Q1 FY27 contribution breakeven guidance is maintained, but the confidence of street on that seems to be quite low for now.”

He further highlighted the growth-profitability trade-off:

“They are not able to blend growth and profitability which is why they have guided for no store additions in the next two to three quarters and their growth rates in the QC business could even fall towards 30-35 odd percent which means they will lose market share.”

Outlook: selective resilience amid broad cost pressureOverall, the consumption sector is navigating a complex mix of fuel inflation, input cost pressure, and competitive intensity. While some players retain resilience through pricing power and cost diversification, margin pressure appears to be the dominant near-term theme.

Selective stock preferences remain in focus, with Taurani highlighting names such as Trent, Eternal, and Nykaa as preferred plays in the current environment.