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In line with expectations, WLDL reported a robust 22% revenue growth in Q4, led by best-in-class SSG at 14% and 16 store additions (vs. the 5-6 quarterly average). Despite weak macros, WLDL is targeting 40-45 store additions (vs. 35 in FY23) and has guided for a strong 8% SSG in FY24 (vs. our expectation of 6% SSG). WLDL believes the format provides potential to add/scale new brand extensions, which should help it deliver a sturdy SSG in a weak environment as well. Gross margin exit at 68.2% (+320bps) was strong, though higher HO costs restricted EBITDA margin gains to 50bps (vs. likely decline for peers). WLDL expects sustaining such levels in FY24 (vs. 66.2% in FY23) which, combined with a better SSG outlook, drive a 4-7% raise to our FY25/26 estimates. A 3M rollover drives a higher increase in TP to Rs915/sh (29x EBITDA vs. 30x earlier). Reduction in the multiple is led by 3M rollover.

Should outperform peers, on 14% SSG; 16 net additions boost confidence for FY24 WLDL reported 3Y revenue CAGR of 13% in Q4, led by 8% CAGR in revenue/store and 4% CAGR in store additions. SSG was best-in-class at 14% in Q4, and Management provided a strong outlook of 8% SSG for FY24, despite the weak consumption trends. Among channels, ‘on-premise’ grew 38%, while ‘off-premise’ saw slower growth at 5% in Q4, leading to a 700bps increase of ‘on-premise’ in the mix to 59%. WLDL has added 16/31 net stores in Q4/FY23, and expects healthy gross store addition of 40-45 in FY24. WLDL expects to expand its network to 580-630 stores by FY28 (CY2027), implying annual addition of 45-60 stores beyond FY24. McCafé’s/EOTF penetration further improved to ~87%/60% of its network at FY23-end vs. 80%/36% at FY22-end. Restaurant margins improved by 210bps to 20% (Pre-IndAS), led by gross-margin gains of 320bps and increase of ~90bps in employee costs. Higher variable payouts and teambuilding activities restricted EBITDA-margin gains to 50bps (12% in Q3, pre-IndAS). Gross-margin gains were supported by stable RM (Palm oil) prices, 7-8% price hikes, one-time volume delivery incentive, and cost savings.

Earnings-call KTAs: 1) For Q1FY24, WLDL will see benefit of the 6-7% price hike and expects 2-3% hike in FY24. 2) Focus remains on driving growth via burger, chicken and coffee categories, which should help achieve its targeted top-line of Rs40-45bn by FY28. 3) WLDL believes McCafé/EOTF have just scratched the surface, as there is much room for growth. 4) Gross margin reporting change: WLDL has regrouped processing charges from COGS to ‘other expenses’, while EBITDA/margin will remain unchanged. 5) Higher variable pay and the Pattaya convention led to rise in employee expenses (+90bps) and G&A costs (+170bps) in Q4. 6) WLDL incurred capex of Rs2.7bn, which includes 60-70% towards new-store openings, McCafé/EOTF in existing stores and IT investments. WLDL expects capex ahead to be in the Rs2-2.5bn range. 7) WLDL is the only western QSR that offers breakfast at ~35% of its store network. Breakfast eating-out frequency is currently low, but WLDL believes its early entry entails long-term benefits. 8) Business is generating healthy amount of cash; so WLDL has refreshed its dividend distribution policy, per which it will try upholding the 25% dividend payout ratio.

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