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Improving SSSG print; better margin delivery

* Westlife Foodworld (WESTLIFE) reported 16% YoY revenue growth to INR7.6b in 2QFY27 (in line), its highest growth in the last 13 quarters. SSSG came in at 10.1% YoY (est. 6.5%, +4.3% in 1QFY27), the strongest in 13 quarters, driven by double-digit guest count growth in each month of the quarter. Growth was led by the everyday value platform. Momentum remained broad-based, with on-premise sales growing 17% YoY and offpremise sales increasing 15% YoY. The South market continued to recover, with performance now converging with the West. October momentum was similar to 2Q, with management indicating high-single-digit SSSG as the floor for the festive season.

* The company added 10 net restaurants during the quarter, taking the total network to 492 restaurants across 80 cities. Management reiterated its guidance of 60-65 restaurant additions in FY27 and remains on track to achieve its target of 580+ restaurants by Mar'28. Capex for FY27 is guided at INR2.5-3b.

* Gross margin remained flat YoY/QoQ at 67.6% (in line), as inflationary pressures across commodities, particularly oil and chicken, utilities, and wages persisted. Despite ~190bp inflation, pre-IND AS EBITDA margin expanded 150bp YoY to 7.8%, supported by strong revenue growth and operating leverage. The company has not taken any major price hikes so far in FY27, with discount rationalization helping absorb inflation. Management reiterated its guidance of 100-150bp annual improvement in pre-Ind AS EBITDA margin, supported by operating leverage and cost optimization. We model 8.7%/9.6% pre-Ind AS EBITDA margins for FY27/FY28E, respectively (7.7% in FY26).

* Improved throughput from new store addition over the last few years is expected to improve overall store unit economics and drive operating margin expansion in the coming years. We increase our EBITDA estimates by 6-7% for FY27/FY28. We value the stock at 25x Sept’28 EV/EBITDA (pre-IND AS) to arrive at a TP of INR600. We reiterate our Neutral rating.

SSSG print improving; beat on operating profitability

* Strong SSSG at 10%: Sales grew 16% YoY to INR7.6b (est. INR7.4b), driven by strong SSSG, 9% store additions, and broad-based momentum across channels and regions. Same store sales grew 10.1% YoY in 2QFY27 (est. 6.5%, +4.3% in 1QFY27, -2.8% in 2QFY26), led by double-digit guest count growth and continued recovery in the South market. The company opened net 10 stores (opened 11, closed one), taking the total store count to 492 stores across 80 cities. Average sales per store grew 1% YoY to INR62m (annualized).

* Beat on operating profitability: Gross margin was flat YoY/QoQ at 67.6% (est. 67.2%), as cost pressures persisted across commodities and utilities, particularly oil and chicken. EBITDA grew 29% YoY to INR980m (est. INR883m), with EBITDA margin expanding 130bp YoY to 13.1% (est. 12%, 11.8% in 2QFY26). EBITDA (pre Ind AS) increased 45% YoY to INR579m (est. INR468m), against a weak base (- 16% YoY), with EBITDA margin (pre Ind AS) expanding 150bp YoY to 7.8%. RoM was flat YoY at 19.3% post-Ind AS (est. 18.7%), while pre-Ind AS RoM expanded 30bp YoY to 13.9% (est. 13.1%). Higher minimum wages in Karnataka added to employee cost pressures, limiting restaurant-level margin expansion despite strong revenue growth.

* In 1HFY27, revenue and reported EBITDA grew 14% and 19%, respectively.

Valuation and view

* We raised our EBITDA estimates by 7%-8% for FY27 and FY28.

* Management guided for ~67% gross margin in FY27 amid ongoing inflationary environment. Demand trajectory has shown improvement in 1HFY27, with positive footfall growth across months. WESTLIFE has become more aggressive in store additions (60 per year vs earlier 45-50) and targets over 580 restaurants by Mar’28 (492 as on Sept’26).

* We believe regional demand will see a gradual improvement and, therefore, expect a gradual ADS recovery in the near future. We value the stock at 25x Sept’28 EV/EBITDA (pre-IND AS) to arrive at a TP of INR600. We reiterate our Neutral rating.

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