Accumulate Westlife Foodworld; target of Rs 800: Prabhudas Lilladher

Prabhudas Lilladher's research report on Westlife Foodworld

We cut our FY24/25 EPS estimates by 12.7%/8.4% and rating to Accumulate on account of 1) 9/14 lesser stores than estimates in FY24/25 2) 30bps lower margin expansion in FY24 and 3) 50/120bps higher tax rates in FY24/25. WFL’s reported strong 14% SSSG in a challenging operating environment for discretionary/QSR spends. Gross margins have moved up with pass through of price hikes (7% for 12 months) coupled with sourcing benefits. WFL continues to gain market share across territories with menu innovations like Fried Chicken (South India), Gourmet Burgers and limited time offerings like Big Mac, Piri Piri McSpicy range. On-Premise continues to gain momentum with 38% higher sales with off-premise holding up with 5% higher sales. We remain positive on the structural story for Westlife given 1) guidance of 580-630 stores by CY27 (40/45 in FY24) 2) excitement created with limited time launches (Big Mac, Piri Piri McSpicy range) 3) increased traction on fried chicken & new launches like chicken wings (additional Rs10mn of AUV/store) 4) strong start in Tier2/3 with growth being 1.5x than metros and 5) likelihood of gradual increase in royalty beyond 5% after FY26. We estimate Sales/EPS CAGR of 17.7%/33.3% over FY23-25.

Outlook

We rollover and assign DCF based target price of Rs800 (Rs806 earlier). Accumulate for LT Gains although near term upside seems capped post sharp run up recently.

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