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Second wave restrictions lead to temporary overhang

Structural opportunity intact

* Amid the rising second wave of COVID cases, Maharashtra has imposed stringent restrictions from 5th to 30th Apr’21. Accordingly, restaurant players have been directed to stop dine-ins, though deliveries are permitted 24x7. This offers some respite, especially for QSR players, which depend heavily on the channel.

* On account of the high delivery salience and best practices in hygiene and safety, QSRs are better placed vis-à-vis other formats. 50% of Westlife Development (WLDL)’s sales come from convenience channels (delivery, drive-thru, and on-the-go).

* Of the count of 304 stores as of Dec’20, we estimate ~140 of WLDL’s stores in Maharashtra (46% of total stores). Hence, the state-wide restrictions could put pressure on a significant portion of WLDL’s store network.

* We estimate the restrictions in Maharashtra to impact WLDL’s FY22E sales by 1.1–1.8%. We cut our FY22E sales estimates by 1.5% which leads to a ~12% cut in our PAT estimates for the year. We maintain our FY23E estimates.

* Further risks cannot be ruled out yet in case the curve of COVID cases isn’t flattened. These include: a) restrictions being imposed in other states, and b) restrictions being extended beyond 30th Apr’21.

* The vaccination drive offers hope that the situation may not extend beyond 30th Apr’21.

* While the current scenario poses short-term pain, the attractive structural opportunity for WLDL remains intact. We had indicated our caution on WLDL in our initiating coverage note in Dec’20 – due to near-term uncertainties and delayed recovery in the dine-in channel. Maintain Neutral.

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