Neutral Westlife Foodworld Ltd For Target Rs.800 by Motilal Oswal Financial Services Ltd
Steady performance; signs of dine-in recovery
*Westlife Foodworld (WLDL) reported revenue growth of 9% YoY to INR6.5b in 3QFY25, with same-store sales growth (SSSG) of 2.8% YoY (est. 4%) on a favorable base (-9% in 3QFY24). Average sales per store declined 7% YoY to INR60m (annually). Growth was broad-based, with both on-premise and off-premise up 9%.
*WLDL added net 13 new stores (+11% YoY) in 3Q (24 stores in 9MFY25). Its store expansion spree will continue as the company maintains its target of opening 45-50 new stores in FY25, with a focus on South India, smaller towns, and drive-thru stores.
*GM contracted marginally by 20bp YoY but expanded 40bp QoQ to 70.1% (est. 70.3%). EBITDA margin contracted 200bp YoY to 14.0% (est. 14.4%). Restaurant operating margin (pre-IND-AS) contracted 230bp YoY to 15.7% (est. 16%) due to operating deleverage and higher A&P spends. EBITDA (pre-IND-AS) declined by 13% YoY, margin down by 230bp to 9.1%.
*QSR industry has seen massive earnings pressure during the last two years, affected by weak ADS/SSSG. Dine-in format has seen more pressure than delivery format. Recent trends in dine-in are encouraging and we need to see if they are sustained. Weak urban consumption can be an overhang on the recovery. We are watchful for ADS recovery, which can quickly lead to an improvement in unit economics. We reiterate our Neutral rating with a TP of INR800, based on 35x Dec’26E EV/EBITDA (pre-IND-AS).
In-line performance; same-store sales grow on weak base
*Positive SSSG: Sales grew 9% YoY to INR6.5b (est. INR6.3b), led by store addition of 11% YoY. Same-store sales grew 2.8% YoY (est. +4%, -6.5% in 2QFY25, -9.1% in 3QFY24). WLDL opened net 13 stores (opened 15 stores, closed 2 stores), taking the count to 421 stores in 67 cities. Average sales per store declined 7% YoY to INR60m (ann.).
*Operating margin pressure persists: GM contracted marginally by 20bp YoY to 70.1% (est.70.3%) due to a temporary increase in RM prices, but it expanded 40bp YoY on cost initiatives. WLDL had taken a price hike of 50bp at the portfolio level in 3Q. EBITDA margin contracted 200bp YoY to 14.0% (est. 14.4%) and EBITDA (pre-Ind-As) declined 230bp YoY to 9.1% (est. 9.8%). ROM pre-IND-AS was down 230bp YoY at 15.7% (est. 16%)
* Decline in EBITDA/PBT/APAT: EBITDA declined 8% YoY to INR914m (est. INR946m) due to unfavorable operating leverage and higher A&P spends. PBT dipped 72% YoY to INR65m (est. INR168m). PAT declined 59% YoY to INR71m (est. INR126m).
*In 9MFY25, net sales were up 3% YoY, while EBITDA/PAT declined 17%/84% YoY.
Key takeaways from the management commentary
*Consumption trends remain soft, though the company expects a gradual recovery in dining-out frequency. Stability in retail inflation and budgetary measures to boost disposable income and purchasing power could provide nearterm support to consumption.
*WLDL follows a pricing strategy of taking small annual price hikes, typically in the range of 2-4% per year, to offset inflation. It aims to pass on at least 50% of inflation through price adjustments to maintain competitiveness.
* Despite RM inflation, GP improved sequentially owing to efficient supply chain and cost initiatives. WLDL expects gross margin to rise to over 70% in the near term.
*McCrispy campaign, #ShordaarCrunch, gained strong traction during the quarter, driving premiumization and increasing sales of McCrispy burgers.
Valuation and view
* We maintain our EBITDA (pre-IND-AS) estimates for FY25 and FY26.
*Demand improved marginally in 3Q, with volume-led SSSG improvement. WLDL has been aggressive in store additions, which was not the case historically. The current demand environment is not conducive to aggressive expansion. Therefore, the benefits of the same can be back-ended.
*The revenue gap between dine-in and delivery has narrowed, with improvement in dine-in footfall. Weak underlying growth will continue to impact operating margin, leading to pressure on restaurant margins and EBITDA margins.
*We reiterate our Neutral rating with a TP of INR800, based on 35x Dec’26E EV/EBITDA (pre-IND-AS).
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