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Westlife Development - Good 4Q; retains store expansion target - ICICI Securities

Posted On: 2021-05-16 06:39:17 (Time Zone: UTC)

4Q performance was robust with revenues up 6.3% (SSSG: +10.5%) on the back of (1) strong recovery in dine-in (70% of pre-Covid in Jan-21) and (2) continued growth momentum in the convenience channel (+42% YoY). Consistent cost optimization (rental benefit, vendor-led benefits, variable staff costs, etc.), drove EBITDA margin print of 11% (adjusting for special bonus for employees). Although dine-in is again impacted (in 1Q) across its core markets, strengthened convenience formats (delivery, drive-thru, takeaway and OTG) continue to perform well this time. Despite near-term uncertainties, management sticks to store expansion target of 20-30 stores for FY22. Long-term benefits from expansion of food service market remain intact. Retain ADD with an unchanged TP of Rs450.

- Dine-in recovery drives a good quarter: In 4QFY21, revenue and EBITDA rose 6% and 76%, respectively with same store sales growth of 10.5%. On a sequential basis, revenue was up 10% with dine-in recovering and convenience platforms remaining resilient. MDS reported highest ever monthly sales in March-21 (up 26% YoY in Q4FY21) while other convenience channels of Drive-Thru (+80% YoY) and OTG (3X growth in last nine months) scaled-up well.

- Maintains FY22 store expansion target: Westlife added one store (T2 Terminal) in Q4 taking the total store count to 305 (42 cities). In FY2021, Westlife reduced its store-print by 14 stores on a net-basis (closed 19 and added 5) as part of its network optimisation initiative. A key positive is the company sticking to store expansion target of 20-30 store additions for FY22 with long-term real estate deals becoming more attractive for Westlife. It added just 4 McCafe stores in FY2021 as dine-in was impacted for most of the year.

- Benefit of leaner cost structure seen as revenues recover: Better sourcing and cost optimisation led to Westlife report its highest-ever gross margin print of 66.5% (up 92/79bps YoY/QoQ) despite subdued performance of margin-accretive McCafe. The quarter had an impact of special bonus for its employees, adjusting for which comparable EBITDA margin expanded to 11.0% (9.1% on reported basis); ROM print of 16.4% was the highest in the last five years. While eventual recovery in dine-in and McCafe will be margin-accretive, the benefit will be partly negated by inflationary RM pressure for the year.

- Valuation and risks: We cut our FY22-23 revenue estimates by 6-8%; modelling revenue / EBITDA CAGR of 40 / 145 (%) over FY21-23E. Retain ADD with DCF-based target price unchanged at Rs450. Improved execution engine and accelerated share-gain potential (preference for hygiene) keep us positive. Key downside risks include sustained weak consumer sentiment impacting restaurant throughput and food aggregators impacting economics and profitability in food delivery.

Shares of WESTLIFE DEVELOPMENT LTD. was last trading in BSE at Rs.427.5 as compared to the previous close of Rs. 421.8. The total number of shares traded during the day was 12303 in over 1130 trades.

The stock hit an intraday high of Rs. 430 and intraday low of 418.5. The net turnover during the day was Rs. 5218660.

Source: Equity Bulls

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