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Westlife management in its 2022 Investor Day presented its Vision 2027 and laid out key levers to achieve the same. It is targeting to scale up restaurant network to 580-630 stores by 2027 (vs 337 currently) and has a revenue aspiration of INR 40-45 bn, which implies a 3% CAGR growth in AUV (i.e. revenue per restaurant) to c.INR 80mn (vs INR c.67 mn for 1HFY23) over the same period. The latter along with premiumisation, ability to drive savings through cost optimisation program, scale benefit and progressive increase in royalty rate will help lift EBITDA margin (Pre-IND AS) to c.15-17% vs 12.8% currently. In all fairness, the store expansion targets are inline with our assumption & provide enough runaway for future growth (potential for 1,000 stores). Revenue aspiration is c.6% below our expectation, due to lower AUV growth which management attributed to gestation period in scale up of new stores. However, the EBITDA margin target is higher by 200-400bps vs our estimate largely on expectation of a more gradual increase (c.50-75bps p.a) in royalty (vs step up change in FY27) and higher cost savings. We note that baring store expansion target, Westlife has achieved or is outperforming on its Vision 2022 targets outlined in 2018. We remain believers in Westlife’s capabilities to capitalise on QSR opportunity and maintain our BUY rating on the stock

* Focus on building leadership position across day parts, strengthening omni-channel capabilities and faster store expansion to drive c.12-14% revenue CAGR: As per its stated Vision 2027, Westlife aspires to achieve revenue of INR 40-45bn by 2028 (CY27), which implies c.12-14% CAGR over FY23-28E, driven by faster store expansion and uptick in AUV (average turnover per store). With its value accretive unit economics & real estate capabilities, management envisages to scale up store network to 580-630 stores (250-300 stores over next 5 years) with focus on a) accelerated penetration in south (success seen in chicken category) and b) expansion in smaller towns. This implies that each of McDonald’s stores would achieve an average sales per store of c.INR 80 mn - a c.3% CAGR (high single digit SSSG) over FY23-28E, lower than our expectation given that newer stores take time to ramp up. We note that over FY16 to 1HFY23, growth in AUV (from INR 39mn to INR 63 mn) was primarily driven by delivery channel. Going ahead AUV growth will be led by focus on a) building meals leadership, further scale up in chicken portfolio in south & increase in McCafe contribution (15-18% from current levels of 12%) and b) strengthening omni-channel capabilities – 100% EoTF stores (from 48%) by 2027, scale up of drive-thru format & sustaining c.40% sales contribution from off-premise channels.

? Improved price/mix, cost savings, scale benefit to drive 200-400bps EBITDA (pre-IND AS) margin expansion: On the operating front, increase in royalty rate (although likely to be progressive) & gestation period for scale up of new stores is likely to have negative impact on margins. However, management expects to offset the same led by better price/mix (premiumisation, strengthening position in meals along with continued scale up in chicken/McCafe), cost optimisation and scale benefit. Company envisages to further strengthen its profitability targeting 15-17% EBITDA (pre-IND AS) margin & 8-10% PAT margin by 2027, which should help driving ROE/ROCE of 25%+/40%+ respectively.

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