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Westlife’s Q2 performance was weak but on expected lines. Revenue was flat in Q2 with 6.5% SSG decline. Negative leverage and one-off spike in RM led to ~350bps dip in EBITDA margin to 12.8%. Among channels, off-premise (includes delivery) grew 5% while on-premise declined 2% due to higher rainfalls and prolonged community-specific challenges. Encouragingly, Westlife has exited the quarter (Sep-24) with flat SSTG and remains confident of growth revival with strong value platform (McSaver+), new McCrispy innovation, and cost governance. Westlife remains committed to growth, with FY25 outlook of 45-50 additions being intact despite a slow start in H1 (8-10 additions). Coming over the RM one-off in Q2, Westlife expects gross-margin to bounce back to >70% in H2 and has also retained its 2027 guidance of 18-20% EBITDA margin. We continue to like Westlife’s omni-channel focus, better dine-in experience, and successful plug-in of portfolio gaps. We maintain ADD with a TP of Rs925 (33x Sep-26E EBITDA).

Weak SSG on expected lines; favorable base to drive turnaround in H2: Westlife reported flat topline in Q2 – in line with our estimates. The flattish print was due to a 6.5% decline in SSG, offset by the ~10% network expansion. Among channels, ‘Onpremise’ declined 2%, whereas ‘Off-premise’ channel delivered better growth at 5%. However, the exit has been encouraging with Sep-24 reporting a flat SSTG and Westlife expecting its focus on value platform, new McCrispy innovation, and cost governance to helping it deliver a growth turnaround in H2. Westlife has added 5 net stores in Q2, and pace of expansion is expected to accelerate as the FY25 guidance to add 45-50 stores was maintained. McCafé’s/EOTF penetration improved to 94%/79% of its network at Q1- end vs 88%/64% YoY. Gross margin dipped by 40bps to 69.7%, owing to short term demand-supply mismatch for lettuce in Q2. Lower fixed-cost absorption, higher royalty, and muted trends caused a 410bps dip in EBITDA margin to 7.8% (pre-IndAS). However, Westlife expressed confidence of returning to >70% gross margin and has also retained its 2027 guidance of 18-20% post-IndAS EBITDA margin (vs 12.8% in Q2).

Earnings-call KTAs: i) Q2 saw continued demand challenges, owing to weak macros and impact of external factors; Westlife expects better traction in H2 with further strengthening of its value platform and new product innovation ‘McCrispy’. ii) Dine-in channel was impacted in Jul-24 due to heavy rains; however, trends remained stable in Aug/Sep-24. Initial trends for McCrispy offerings are encouraging as the range is aimed to providing indulgence with better buns/crispy patty/exotic ingredients. iii) Digital sales mix account for 3/4th of sales with 3mn active monthly users of the mobile app. iv) Westlife maintained its ‘Vision 2027’ guidance for store expansion (45-50 annual additions) and EBITDA margin band of 18-20%. Capex guidance for FY25 was maintained at Rs2.2-2.5bn. v) Margin is expected to continue tracking an improving trajectory with pickup in SSG and cost controls. vi) Westlife recognized improving relations with NorthEast franchisee and collaboration in terms of product offering, pricing, and advertisement. vii) Westlife has ~12 stores operational with Oil Alliance partners (HPCL/BPCL/Oil India) and expects further expansion given suitable opportunity in city/highways. It has master agreement already in place with HPCL/BPCL and is in talks with Oil India to enter into the same. viii) ABV for WESTLIFE is in line with market average of Rs300-350. 9) Westlife remained content with brand growth on aggregator platforms and recognized the recent pressure in these channels for organic growth.

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