Neutral Westlife Foodworld Ltd For Target Rs 800 - Motilal Oswal Financial Services
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* WLDL (Westlife Foodworld) reported a broadly in-line operating performance, supported by 14% SSSG and 10% store adds. While the operating performance was robust, a slight miss in revenue and EBITDA resulted in an 11% miss in PAT.
* The management anticipates a high single-digit SSSG and the addition of 40-45 new restaurants in FY24. The easing commodity pressures and the company’s focus on growing average unit volume are the key positive factors. This could be partly offset by an increase in royalty. We reiterate our Neutral rating on the stock.
Sales and EBITDA in line; store add continues
* WLDL reported a sales growth of 22% YoY to INR5.6b (in line). SSSG stood at 14% YoY (est. INR18%).
* In 4QFY23, WLDL opened a net of 16 McDonald’s stores, taking the total number to 357 stores at the end of the quarter (with the closure of two stores).
* Gross margins were up 320bp YoY (up 130bp QoQ) at 68.2% (est. 66.5%).
* Restaurant Operating Margins (ROM) stood at 24.5%, as against 23.8% in 3QFY22 and 22.3% in 4QFY22.
* EBITDA grew 40.8% YoY to INR886m (4% below our est).
* EBITDA margin came in at 15.9% v/s 13.8% YoY and 16.7% QoQ (est. 16.2%)
* The company declared a PAT of INR201m (INR225m est) v/s INR153m in 4QFY22.
* Average sales per store came in at INR66.7m in FY23 v/s INR50m in FY22 and INR65.2m in 4QFY23 v/s INR57.7m in 4QFY22.
* FY23 sales/EBITDA grew 44.5%/2x YoY to INR22.8b/3.7b. PAT came in at INR1.1b in FY23 v/s a net loss of INR17m in FY22.
Key takeaways from the management commentary
* McDonald's is receiving a positive response in the smaller cities and towns, as a result of its aspirations. Non-Metro towns continue to grow at over 1.3x on the pre-covid base.
* The company typically raises prices by 2-3% annually. It did not raise prices in 4QFY23 (it raised by 7% in CY22).
* The GM (excluding processing fees) improved 320bp, as a result of the onetime volume delivery incentive, cost savings, and prior-price increases. The management does not anticipate significantly increased pressure on commodity prices.
* The management anticipates a high single-digit SSSG and plans to add 40- 45 new restaurants in FY24, with a target to reach 580–630 new restaurants by 2027.
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