Neutral Westlife Foodworld Ltd for the Target Rs.750 by Motilal Oswal Financial Services Ltd
Similar weak print; strengthening presence in South
* Westlife Foodworld (WESTLIFE) reported revenue growth of 7% YoY to INR6.5b in 1QFY26, with same-store sales growth (SSSG) of 0.5% YoY (est. 1.5%) on a favorable base (-6.7% in 1QFY25). Average sales per store rose 1% YoY to INR62m (annually) in 1QFY26. Growth was broad-based, with on-premise sales growing 8% YoY and off-premise sales growing 4% YoY.
* Consumption trends remain stable, and WESTLIFE expects eating-out frequency to gradually pick up in FY26. This improvement is likely to be supported by lower inflation and government stimulus. That said, while performance remains strong in the West, the company’s focus on strengthening presence in the South will remain a key focus area.
* The company has added net six new stores (+10% YoY) in 1Q. It plans to maintain its store expansion pace, targeting 45-50 new stores annually. It aims to grow its network to 580-630 restaurants by 2027, with a focus on South India, smaller towns, and drive-thru stores.
* GM expanded 100bp YoY to 71.6% (est. 70.3%). EBITDA margin was flat YoY at 13.0%. EBITDA margin (pre-IND AS) contracted 50bp YoY to 7.7%. Restaurant operating margin (pre-IND AS) expanded 35bp YoY to 14.6%, led by a strong focus on operational excellence.
* The dine-in format, which was under pressure for the past two years, has witnessed positive growth momentum over the last 2-3 quarters, albeit on a lower base. While further recovery is expected in the segment, soft urban consumption could weigh on recovery. We remain watchful of demand improvement and ADS recovery, which could support better unit economics. In addition, the performance in the Southern market and implementation of initiatives under Horizon 2 will be key monitorables. We reiterate our Neutral rating with a TP of INR750, based on 35x Jun’27E EV/EBITDA (pre-IND AS).
In-line performance; no improvement in growth metrics
* Flattish reported SSSG: Sales grew 7% YoY to INR6.5b (est. INR6.7b), led by store addition of 10% YoY. Same store sales growth was 0.5% YoY in 1QFY26 (est. +1.5%, 0.7% in 4QFY25, -6.7% in 1QFY25). WESTLIFE opened net six stores (opened nine stores, closed three stores), taking the count to 444 stores in 71 cities. Average sales per store rose 1% YoY to INR62m (annually).
* In-line margins: Gross margin expanded 100bp YoY and 160bp sequentially to 71.6% (est. 70.3%), driven by significant enhancements in supply chain efficiencies. EBITDA grew 7% YoY to INR855m (est. INR856m), led by a strong focus on operational excellence. EBITDA margin was flat YoY at 13.0%. (est. 12.8%). EBITDA margin (pre-IND AS) contracted 50bp YoY to 7.7% (est. 8.2%), while EBITDA (pre-IND AS) rose 1% YoY. ROM pre-IND AS increased 35bp YoY to 14.6% (est. 14.1%).
* APAT witnessed a decline: APAT declined 65% YoY to INR11m (est. INR67m).
Key takeaways from the management commentary
* Consumption trends remained stable, and the company expects eating-out frequency to gradually pick up in FY26. This improvement is likely to be supported by lower inflation and government stimulus.
* While performance remains strong in the West, the company is focused on strengthening its team and rolling out initiatives to boost its presence in South India.
* Over the next couple of years, the company expects to reach mid- to highsingle-digit SSSG level.
* WESTLIFE is on track to achieve its target of 580-630 restaurants by 2027.
* The company’s gross margin expanded 100bp YoY and 160bp sequentially to 71.6%, driven by significant enhancements in supply chain efficiencies. It expects gross margin to remain in the +70% range in the near term.
* To enable sustained growth in the long-term, the company has established a new vertical focused solely on long-term initiatives, ‘Horizon 2 projects’.
Valuation and view
* We maintain our EBITDA (pre-IND AS) estimates for FY26 and FY27.
* Demand remained stable in 1Q, with flattish SSSG YoY on a low base. WESTLIFE has been aggressive in store additions, which was not the case historically. However, the current demand environment is not conducive to such rapid expansion, and performance in South India remains a challenge. Therefore, the benefits of its various initiatives may take longer to materialize than initially expected.
* The revenue gap between dine-in and delivery has narrowed, supported by improved dine-in footfalls. However, weak underlying growth, coupled with rising costs related to strategic initiatives, could weigh on the operating margin, exerting pressure on restaurant margins and EBITDA margins.
* We reiterate our Neutral rating with a TP of INR750, based on 35x Jun’27E EV/EBITDA (pre-IND AS)
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