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Westlife Development - Q4FY22 Result Update - Approaching the tipping point; Buy for LT Gains

Posted On: 2022-06-28 21:43:46 (Time Zone: IST)

Mr. Amnish Aggarwal, Director - Research Analyst at Prabhudas Lilladher Pvt. Ltd.

Quick Pointers:

- Pre IND AS EBIDTA Margin at 11.6% (+250bps), PAT at Rs231mn

- Convenience channel sales grew 42% v/s 15% for Dine in

- WDL to add 40 stores in FY23 and 500 stores over next 3-4 years.

WDL posted encouraging numbers with SSSG of 23%, 42% sales growth of Convenience channel and 250bps EBIDTA margin expansion Pre IND AS despite Omicron impact in Jan22. We believe WDL's menu innovations - Fried Chicken (South India), Gourmet Burgers, Meal options will continue to power growth in coming years.

We remain positive on the long term story for Westlife and expect it to emerge stronger given 1) Renewed aggression with aim of adding ~200 stores in 3-4 years 2) Increased focus on fried chicken yielding additional Rs 5mn of AUV/store (mainly in South India) 3) Pilot of fried chicken in western markets and potential launch of gourmet burgers in south markets. 5) Fading impact of COVID will drive dine in and café sales which are margin accretive 6) Additional gains in convenience channel even in post covid scenario. We estimate Sales CAGR of 25.0% over FY22-24 with an EPS of Rs6.4 and Rs9.2 in FY23/24. We assign DCF based target price of Rs653 (Rs645 earlier). Buy for LT Gains given huge scope to scale up and strong brand.

Revenue grew by 27.3%, SSSG at 23%: Revenues grew by 27.3% YoY to Rs4.6bn (PLe: Rs4.6bn). Dine-in/Convenience channels grew by 15%/ 42%. Gross margins contracted by 147bps YoY to 65% (Ple: 66.0%). EBITDA grew by 27.7% YoY to Rs629mn (PLe: Rs732mn); Margins expanded by 5bps YoY to 13.8% (PLe: 16.0%). Restaurant EBITDA margins expanded by 110bps YoY to 22.3%. Adjusted PAT grew to Rs153mn vs loss of 39mn YoY (PLe: Rs133mn); Pre-IND AS EBIDTA at Rs526mn, YoY margins expand 250bps to 11.6%. Adj PAT at Rs231mn.

Concall Takeaways: 1) Growth momentum from 3Q carried into 4Q22, however Jan'22 was lost due to Omicron impact. 2) Convenience channels grew by 42% YoY versus 15% growth in Dine in 3) Omni channel strategy has helped provide increased business predictability 4) Metros/T2-3 contribution at 70:30, may change to 65:35 in coming few years. 6) Presence in 44 cities; 60 more cities yet to be penetrated. Company to aggressively expand presence in smaller cities. 7) Price hike in the range of 3-5% taken during 1Q23 to mitigate the impact of inflation 8) WDL confident of mitigating inflation through product mix, pricing and sourcing efficiencies 9) All south stores (130) offer fried chicken which can add incremental sales of Rs5mn/store. 10) Pace of store expansion to increase over the years as WDL targets to cross 500 stores over next 3-4 years. 11) Royalty rate for FY23 would be 4%. 12) WDL aims to become leaders in meals & maintain leadership in snacking. 13) Gourmet burgers has helped to recruit new customers towards the brand 14) EOTF increased to 118 (36% of stores) and 80% of stores have café's.

Shares of Westlife Development Ltd was last trading in BSE at Rs. 476.90 as compared to the previous close of Rs. 473.40. The total number of shares traded during the day was 3005 in over 401 trades.

The stock hit an intraday high of Rs. 480.00 and intraday low of 467.05. The net turnover during the day was Rs. 1423012.00.

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