Westlife Foodworld Ltd. – Quarterly Results Update

Westlife Foodworld Ltd. reported a 14.2% YoY revenue growth to Rs. 614.5 crores in Q1FY24, marginally higher than market expectations of Rs. 614.2 crores. This was driven by a healthy 7% SSSG growth (on a high base) with an increase in guest count due to the company’s continued focus on product innovation and the McValue platform. To enhance its average sales per store, the company took various initiatives which included launching Piri Piri McSpicy range for a limited period, bolstering its chicken portfolio by roping in Jr. NTR as the brand ambassador, and introducing Jain friendly menu. 

On the margin front, GP margins expanded 235 bps to 70.6% in Q1FY24, led by overall stable prices and earlier price hikes. The EBITDA rose 14.4% to 105.3 crores in Q1FY24, slightly below market expectations of Rs. 105.6 crores. The EBITDA margins showcased a marginal 2 bps improvement to 17.1% in Q1FY24 as higher G&A costs (YoY comparison) and royalty expenses offset gains in GP margin expansion. The PAT grew 43.4% QoQ / 22.3% YoY to Rs. 28.8 crores in the quarter, below market expectations of Rs. 31.1 crores as one-time expenses on account of assets written-off and one-time ESOP charge. The company approved an interim dividend of Rs 3.45 per share which is around 173% of its face value, amounting to about Rs. 53.8 crores.

Key Concall Highlights

• On-Premise business registered an 18% YoY revenue growth led by improving dine-in channel mix, while Off-Premise business grew 9% YoY on the back of a high base of delivery.
• Average sales per store stood at Rs. 6.7 crores in Q1FY24 compared to Rs. 5.7 crores in Q1FY23.
• As on 31st June 2023, the company reported an EBITDA margin of 17.1% which it aims to be in the range of 18-20% by 2027.
• The company opened 4 new restaurants in the quarter, taking its total network to over 361 restaurants, 315 McCafes, 69 drive-thrus, and 224 EOTF restaurants across 58 cities. The business maintains its guidance of opening 40-45 new restaurants in FY24, re-emphasizing its aim to expand the total number of restaurants to 580-630 by 2027.
• With the above guidance in place, the company aims to maintain a sustainable SSSG growth in high single-digit and revenue growth in the range of 12-14% for the next 4-5 years.
• Continuing its trend, in FY24, the company plans on converting 30-50 stores in the EOTF format with its target of achieving a 100% EOTF conversion by 2027.
• The introduction of the Jain-friendly menu in Western India saw good traction on the Gujarat side, while in the south, the company roped in Jr NTR as its brand ambassador to promote its chicken segment which remains in the long-term building initiatives of the company.

Valuation and Outlook

In the QSR space, Westlife Foodworld Ltd. (WFL) continues to outpace its peers by reporting a healthy SSSG growth of 7% and increasing the dine-in mix. Despite the cost headwinds, the company’s continued focus on operational efficiency with earlier pricing actions and cost savings aided in GM margin expansion. The company foresees no major surprises in the future even after factoring in the spike in vegetable prices. We remain optimistic about the long-term trajectory of the company considering (1) Improving dine-in mix (2) Underpenetrated chicken category which provides a high headroom for growth (current focus on the Southern side) (3) Consistent product innovation and McValue platform offerings at Rs. 179 (widening its customer segment); and (4) Strengthening McCafe portfolio.