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Strong consecutive beat boosts confidence; maintain Buy

* Q4 is the second consecutive quarter where WLDL’s operating performance is 30-50% higher than street estimates and ~20% higher than our estimates. The strong performance was led by a stronger recovery in dine-in sales and better-than-expected margin gains.

* Despite challenges in Q4, dine-in sales recovered fully and convenience sales doubled, leading to 35% growth vs. Q4FY20. Growth was driven by filling portfolio gaps in the meals category with gourmet burgers/fried chicken, as well as omni-channel capabilities.

* EBITDA margins were up 200bps despite a 150bps gross margin decline due to the RM spike. WLDL expects to beat inflation with small price hikes, supply-chain efficiencies and a better mix. It added 10 new stores in Q4 and expects to add 200+ in the next 3-4 years.

* We largely maintain our FY24E EBITDA. WLDL has the potential to deliver a relatively better performance upon unlocking, and consistent H2 performance should boost street confidence. Maintain Buy with a revised TP of Rs650 (based on 28x Jun’24E EBITDA vs. 32x earlier). Multiple cut is led by a 25bps increase in WACC and 3M rollover.

Strong performance with best-ever Q4 revenue/PAT: WLDL reported ~27% growth in revenues, led by 23% SSG and new store additions (up 7% to 326 stores). Compared to Q4FY20, revenue growth was ~35%, led by a complete recovery in the dine-in channel and doubling of convenience sales (48% mix now vs. 32% in Q4FY20). WLDL highlighted that the addition of gourmet burgers/fried chicken has premiumized its portfolio and improved its offerings in the meals category of the Indian informal eating out (IEO) market, while it already has leadership positions in the snack/late-night categories. Upon the full reopening, WLDL has the potential to offer a relatively higher upside, led by incremental contributions from convenience and full dine-in recovery, in our view. While gourmet burgers have been rolled out to the entire network, fried chicken is currently in the southern market with few pilots in the western region. Store additions were robust with 10 net additions in Q4. WLDL expects 35-40 store additions in FY23E and 200+ store additions in the next 3-4 years.

Consistent delivery should boost Street confidence: Pre-IndAS EBITDA margins improved 260bps to 11.8% (vs. ~9% in FY20), despite a RM spike, which affected gross margin by ~150bps. Reported EBITDA margins improved ~200bps to ~16%. WLDL took a relatively smaller hike of 4-5% but expects to maintain its gross margins through other levers such as supply-chain efficiencies and product/channel mix. We believe consistent margin delivery in H2FY22 should build the Street’s confidence for continued margin gains.

Attractive valuations vs. peers; maintain Buy: We forecast healthy sales/EBITDA CAGRs of 13%/24% in FY20-25E. The large penetration opportunity, an increased pace of expansion and margin gains keep us optimistic. Valuations at a hefty 25-30% discount to peers make it an attractive long-term bet. Maintain Buy with a revised TP of Rs650 (vs. Rs700 earlier), led by a revised multiple of 28x Pre-IndAS EBITDA (vs. 32x earlier) and 3M rollover to Jun’24E EBITDA. Multiple reduction is driven by 25bps higher WACC.

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