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Guidance appears conservative; Maintain Buy on strong execution

With our estimated top-line of Rs23bn (~15% CAGR over FY16-23E) and 13.4% EBITDA margin in FY23E (vs. 6% in FY16), WLDL has delivered towards the mid-point of its 2022 vision statement, which was presented in 2016. While growth in Rev/Store at 8.5% CAGR has been better than its expectations of 6-7%, annual store additions have been lower at 18 stores vs. targeted addition of ~30 stores. Going ahead (FY23-28), WLDL expects annual addition of 45-55 stores (10-12% CAGR), which suggests a significant pick-up vs. the past trends. Increased confidence is driven by healthy improvement in profitability of South India stores (fried chicken/wings launch) and stronger traction in Tier-2 markets, which will see 50-60% of new store additions vs. 30-40% historically. However, revenue guidance of Rs40-45bn for FY28 (12-14% CAGR) implies a low Rev/ Store CAGR of 0%-3%. While SSG expectations remain healthy at high single digits, lower Rev/Store expectations were attributed to higher new store additions, which generally see a lower throughput initially vs. mature stores. We align our estimates towards the higher end of WLDL’s guided Rev/EBITDA bands for FY28, which leads to a 5-8% cut to our FY23-25E EBITDA estimates. Given its best-in-class execution in the recent past and further ramp-up potential of chicken/meals/café/dessert categories, we see scope of upward revision of revenue guidance. We maintain our Buy rating with a revised TP of Rs840 (vs. Rs910) on an unchanged multiple of 29x Dec-24 EBITDA

Larger store sizes allow strong SSG to continue for a relatively longer period: WLDL has delivered a best-in-class rev/store CAGR of 8.5% over FY16-23E. A stronger performance has been aided by the introduction of complementary categories like café/ chicken/gourmet burgers, which have incrementally added ~200bps to its CAGR, in our view. Further potential for ramp-up of chicken/meals/café/desserts remains, as WLDL expects to further widen its menu in each of these categories and increase traction in the meals category with higher marketing spends during lunch and dinner dayparts. The addition of bone-in chicken (fried chicken/wings) has helped southern stores to see a higher CAGR (vs. western stores) and has led to a significant improvement in their profitability. For café, WLDL expects revenue contribution to increase further to 15-18% by FY28 vs. 9%/12% in FY16/FY23E.

Focus remains on increasing consumer touchpoints: Off-premise sales for WLDL have picked up significantly with its contribution increasing from 11% in FY16 to 44% in LTM ending Sep-22, partially aided by the pandemic. However, WLDL continues to target a healthy mix of ~40% from the off-premise channel over the medium to long term. WLDL also expects to convert 100% of its stores into EOTF stores (with self-ordering kiosks) by FY28 vs. ~48% currently, as EOTF stores generate 30-35% return on incremental capital, on higher walk-ins and increased check sizes. Even the mix of drive-through (DT) stores is expected to increase, with 30-35% of the new stores being added in DT format vs. ~20% DT store mix currently.

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