Sector Outlook: Positive
Subdued financial performance; Growth strategy in place for revival
In Q1FY25, Westlife Foodworld Limited faced low demand due to intense heat, affecting out-of-home consumption and revenue growth. Despite this, the company saw a slight 0.3% YoY revenue increase to Rs 6,163 million and a strong 9.6% QoQ growth. Same-store sales dropped by 6.7%, with a 3% decline in dine-in sales, but delivery and drive-thru channels grew by 6%. Digital initiatives like self-ordering kiosks and mobile apps boosted revenue, contributing 69% and growing 8% during the quarter.
Although demand improved slightly QoQ, full recovery is expected by H2FY25. Profitability was hit by higher operating costs and royalties, with EBITDA down 24.1% YoY to Rs 799 million, but up 3.7% QoQ, resulting in a 13.0% EBITDA margin. Gross profit rose 0.6% YoY to Rs 4,362 million, with a 70.8% gross margin. The company plans to improve EBITDA margins to 18-20% by 2027 by adjusting product mix and enhancing cost efficiencies. They opened six new locations in Q1 and aim to add 45-50 stores in FY25, focusing on South India and drive-thru formats. New products like the Chicken Surprise burger and expanded McCafé offerings are expected to contribute 15-18% to the business by 2027, supported by initiatives targeting Gen Z and collaborations to boost market engagement and brand appeal.
Key Concall Highlights
- Same-store sales growth (SSSG) fell by 6.7% YoY in Q1FY25, compared to a 7.4% increase in Q1FY24, mainly due to slow growth in store business.
- Off-premise business grew 6% YoY, driven by strong delivery and drive-thru sales, now making up 42% of total sales, while on-premise sales declined 3% YoY.
- Strategy focuses on increasing guest counts through value offerings and the meals platform.
- Digital sales increased 8% YoY, accounting for 69% of total sales, with 3 million Monthly Active Users and 34 million Cumulative App Downloads.
- Expanding McCafé offerings like cookies and brownies, aiming for these to contribute 15-18% of revenue by 2027.
- Launched Chicken Surprise burger in South India to attract more customers and expand product variety; new McFiesta range and mango desserts have been well-received.
- Management expects improved profitability with higher average unit volumes, targeting an 18-20% EBITDA margin by 2027.
- Plans to open 45-50 new stores in FY25, focusing on South India, smaller towns, and drive-thru formats, aiming for 580-630 locations by 2027. Currently operates 400 McDonald’s restaurants in 66 cities.
- Initiatives like integrating anime culture and collaborations with Chef Sanjeev Kapoor to enhance customer experience and brand appeal.
Valuation and Outlook
Despite current challenges like lower on-premise sales and external pressures, Westlife Foodworld Limited is well-positioned for medium-term growth. The company aims to double its revenue to Rs. 40-45 billion by 2027, expand its store network to 580-630 locations, and achieve an 18-20% EBITDA margin. Management expects a turnaround in the second half of FY25, with initiatives that could drive volume sales and mid-to-high single-digit same-store sales growth in the near future, creating long-term value for investors. However, due to current short-term challenges, we recommend holding onto Westlife Foodworld Limited shares.
