IGI Logo

Stronger recovery; stepping up expansion pace

* WLDL’s revenue recovery at 97% in Q2 was strong and ahead of our/street expectations of 90%. EBITDA margins, however, came in lower at 12% vs. expectations of 13-14%, due to higher other expenses, while gross margins were in line at 65%, despite RM inflation.

* Sep’21 trends were even better at 103%. The recovery is strong, despite delayed opening in Maharashtra, where WLDL has higher store salience of 40%+, led by continued traction in the convenience channel (up ~7% QoQ) and 60-65% recovery in the dine-in channel.

* WLDL presents strong medium-term growth prospects, driven by healthy traction for fried chicken in southern markets (+10% contribution to store sales) and more aggression in store openings. WLDL expects to double its network in the next 3-5 years.

* Faster expansion, traction in fried chicken and margin gains improve our outlook slightly. WLDL should also see more unlocking benefits with higher salience in the more-impacted regions. Maintain Buy with a revised TP of Rs680 (34x Dec’23E EBITDA vs. 32x Sep’23E).

Strong recovery with Sep’21 sales surpassing pre-Covid level: WLDL reported a ~97% recovery compared to pre-Covid levels, led by a ~95% recovery in per store revenues and ~2% growth in the store count. Growth recovery is strong, in our view, given delayed opening in Maharashtra, where WLDL has a relatively higher store salience at 40%+. Post openingup, Sep’21 saw a healthy 103% recovery vs. Sep’19. Better recovery has been led by strong 70% growth in the convenience channel, while dine-in recovery was 60-65% (both compared to Q2FY20 levels). WLDL highlighted its focus on menu-innovation, network expansion and digital/omni channels to capitalize on the Covid-19-led accelerated shift toward organized players. WLDL indicated that new innovations like fried chicken (currently rolled out in south markets) are adding ~10% to store revenues (Rs5mn/store). It has raised its expansion targets and now expects to double its store network in the next 3-5 years with a capital investment of Rs8-10bn. Capex/store should remain at Rs30-35mn.

Margin miss in Q2 but Sep’21 trends encouraging: Despite an inflationary environment, WLDL was able to maintain its gross margins at ~65% through changes in the product mix. However, higher other expenses led to lower store EBITDA margins of 17.4% (vs. 20-21% in H2FY21). Sep’21 margin trends were encouraging with store EBITDA margins at 22.4%. WLDL maintained its guidance of low-to-mid teen Pre-IndAS EBITDA margin by FY23E.

Attractive valuations vs. peers; maintain Buy: We forecast healthy sales/EBITDA growth of 10%/20% in FY20-24. The large penetration opportunity, increased pace of expansion and margin gains keep us optimistic. Valuations at a discount to peers make it an attractive longterm bet. Maintain Buy with a revised TP of Rs680 (vs. Rs630 earlier), based on rollover to Dec’23E EBITDA and higher multiple of 34x Pre-IndAS EBITDA vs. 32x earlier, on improved long-term EBIT growth outlook.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

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