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Superior execution to continue

Over the past 5-6 years, Westlife sharpened its execution, with focus on driving ADS and margins, resulting in outperformance across key metrics (SSSG/ADS) compared to QSR peers along with uptick in profitability over FY19-23. In our view, the key differentiator has been Westlife’s a) ability to create and successfully scale up newer revenue drivers; b) well laddered portfolio ensuring value for money proposition remains intact and c) calibrated store expansion rather than just focusing on store density. The construct & opportunity of Indian QSR space remains extremely attractive. Westlife through its multi-channel/multi-day-part and multi-brand offerings has presence in fast growing segments with large addressable opportunity (TAM of INR >200 bn). With execution machinery in place, we believe it is well placed to achieve its Vision 2027 (Exhibit 7) and given the superior execution, we expect premium valuations to sustain. We remain constructive on the stock. Maintain BUY.

* Superior execution within QSR space: One of the key reasons for its underperformance over FY12-17 (Exhibit1/2) was rapid store expansion (store count almost doubled over that period), increased competitive intensity from food tech companies and weak macro. This led to formulation of ROP2.0 & Vision 2022, wherein the focus was on driving market share along with profitability. The underlying strategy was to grow baseline sales (improve ADS through brand extensions & working on menu architecture) and broaden brand accessibility (create sound & sustainable unit economics to grow restaurant base). The results are visible in solid execution - Over FY19-23, Westlife’s SSSG/ADS has grown at a CAGR of 9%/8% (Exhibit 4/5), highest among the listed QSR space (which saw SSSG CAGR of 0% to 7%/ADS CAGR of -2% to 2%). In fact, in FY23, which has been a challenging year in terms of demand along with input cost headwinds for QSR players; Westlife has significantly outperformed peers in terms of SSSG/ADS as well as profitability. Further, we have seen competition too replicating similar strategy to launch brand extensions (RBA started BK Café, BK breakfast menu) and focus on improving value proposition (value portfolio launched by all the major QSR players).

* ADS drivers & unit economics in place, achieving Vision 2027 should not be a challenge: Westlife has guided towards accelerated store expansion (40-55 stores over next 5 years vs 20-25 store additions pre-covid). The store additions look lower when compared to peers (store additions in the range of 130-250 store p.a). This is primarily on account of Westlife’s strategy to a) focus on driving SSSG (targeting high-single-digit SSSG vs midsingle-digits for peers) and b) expand through large format dine-in focused omni-channel stores (Mcdonald’s store size is 3,000 sqft vs 1000-1500 sqft stores for peers). Further, ADS potential remains strong (ADS of top 10% of stores is INR 11mn vs system avg of INR 63mn) and ADS drivers are in place - scale up of stores & range addition in McCafe, scale up of breakfast (currently in 40% of stores) & meal offerings (Gourmet burger/chicken offerings), increase drive thru stores (ADS is 1.5x sys avg) & price hikes. Sound unit economics is key to scalability in QSR business and with that in place, we believe, Westlife is well placed to execute its Vision 2027.

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