Accumulate Westlife Foodworld Ltd for Target Rs.750 by Elara Capitals
Focus on value drives recovery
Westlife Foodworld (WESTLIFE IN) delivered in-line Q4, with slightly positive same store sales growth (SSSG) of 0.7% YoY, aided by value offerings-led footfalls. WESTLIFE launched a new Korean range of burgers and MangoBurst. Menu innovation and store growth shall support growth, going ahead. Expect store count CAGR at 8.4% through FY25-28E. Monitor cost control measures to improve EBITDA margin. WESTLIFE shall grow in low-single digit SSSG (3-4%) in FY25-28E. With EBITDA estimates largely unchanged and a 5% correction in the stock price in the past three months, we upgrade WESTLIFE to Accumulate (from Reduce) with TP unchanged at INR 750 (on 34x Jun-28E EV/EBITDA-pre IndAS). We also introduce FY28 estimates.
Positive SSSG maintained, supported by value offerings: In Q4, SSSG was slightly positive at 0.7% YoY (1.7% adjusted for the leap year), largely on a low base of last year (5.0% dip in Q4FY24). Since the past few quarters, focus on value offerings has yielded results (per WESTLIFE, volumes were a major growth driver than pricing). The TTM average unit volume was down 5.9% YoY to INR 59mn on significant store additions. WESTLIFE, on net basis, has added 17 stores in Q4, taking the store count to 438 (up 10.3% YoY). It has maintained CY27 store count target of 580-630, focusing on the South cluster (Hyderabad and Bengaluru). We estimate WESTLIFE to reach 558 stores by FY28E, at a CAGR of 8.4% in FY25-28E. Channelwise, the revenue share of off-premise increased to 43%, up 7.3% YoY. Off-premise revenue contribution for the full year was at 42% (up 100bps YoY). As regards menu innovation, WESTLIFE launched its new Korean range and MangoBurst (Oreo and McSwirl), starting at INR 45. Mccafe’s penetration was steady QoQ at 95% of stores. WESTLIFE expanded its presence by five cities to 69 YoY.
Gross margin steady; EBITDA down on higher expenses: Gross margin in Q4 was largely stable at 70.0%, but the pressure on EBITDA margin (12.8%; down 93bps YoY) was due to operating deleverage, partially offset by selective cost efficiencies, and sequentially lower marketing spends. Per ‘Vision 2027’, WESTLIFE seeks to achieve EBITDA margin guidance of 18-20% (by CY27). While focus on value offerings could cap gross margin gains, we believe significant control over corporate overheads would be needed to achieve the targeted margin, which we would monitor in the near term. Increasing store footfalls and McCafé’s salience are key levers for EBITDA. We expect EBITDAM to reach 15.0% by FY28E.
Upgrade to Accumulate; TP unchanged at INR 750: Store addition guidance for Westside implies 45-47 store additions each year. We expect store addition CAGR of 8.4% in FY25-28E, to support growth. The SSSG recovery was on a low base which shall support in H1. We expect low single-digit SSSG (3-4%) in FY25-28E, which shall be driven by continued focus on value offerings, rising footfall and omni channel strategy. With gross margin largely at 70%, monitor cost control for EBITDA margin. Our EBITDA estimates are largely unchanged. We upgrade WESTLIFE to Accumulate (from Reduce), as we expect it to recover in line with the QSR industry. The stock has shed ~5% in the past three months. We introduce FY28 and maintain our TP at INR 750, based on 34x Jun-28E EV/EBITDA (pre-IndAS).
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