IGI Logo

Activating most growth levers

Although dine-in was again impacted (in 1Q) across its core markets, strengthened convenience formats (delivery, drive-thru, takeaway and OTG) continued to perform well, driving an in-line revenue print. Besides, consistent cost optimization underpinned operating profit amidst the disruption (ROM of 3.0%). We believe Westlife’s ramp-up of delivery adoption has been impressive and should certainly see higher base-level demand when the situation normalizes.

Besides, with continued focus on growing McCafé, the intent to again get aggressive in the fried chicken market is certainly a positive (will not be an easy one though, in our opinion). After adding 20-25 stores in FY22E, the plan is to accelerate store expansion to 35-40 stores in FY23E (much awaited by consensus, including us). Long-term benefits from expansion of food service market remain intact. Retain ADD with an unchanged TP of Rs550.

* Convenience platform drives a good quarter: WLDL reported a broadly in-line revenue print, down 28% QoQ to Rs2.6bn (1QFY21: Rs939mn). Management highlighted that (1) sales in the month of June-21 was similar to June-19 level (except for the state of Maharashtra), (2) McDelivery saw strong traction, 3X YoY and +36% QoQ with highest ever revenue numbers in June 2021, (3) with easing operating restrictions in July-21, MDS continued to perform well (+70% compared to July-19), (4) convenience platforms of OTG and Drive Thrus also performed well.

* Looking to accelerate store expansion: Westlife maintained its store count of 305 (in 43 cities) at the end of Q1FY22. A key positive is the company looks to accelerate store expansion to 35-40 stores next year following this year’s target of 20-25 stores; some long-term real estate deals are likely to have become more attractive for Westlife. It added 7 McCafé stores in Q1FY22 (after adding just 4 in entire FY21). Management highlighted that five stores were ready to open of which two have already been opened in July-21.

* Benefit of leaner cost structure seen in the disrupted quarter: Better sourcing and cost optimisation led to Westlife report its good gross margin print of 65.4% (lower than highest-ever print of 66.5% in Q4) even as we believe performance of margin-accretive McCafé would have been slightly weak. ROM print came in at 3.0%. We believe while eventual recovery in dine-in and McCafé will be marginaccretive, the benefit will be partly negated by inflationary RM pressure for the year.

* Valuation and risks: We cut our FY22 revenue estimates by 8%; modelling revenue / EBITDA CAGR of 40 / 136 (%) over FY21-23E. Retain ADD with DCF-based target price unchanged at Rs550. Improved execution engine and accelerated share-gain potential (preference for hygiene) keep us positive. Key downside risks include sustained weak consumer sentiment impacting restaurant throughput and likely higher competitive intensity in near term.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer