JM Financial bullish on Westlife Development has recommended buy rating on the stock with a target price of Rs 445 in its research report dated June 13, 2018.
JM Financial's research report on Westlife Development
Management’s presentation in the 2018 Westlife Investor Day spells out rather clear and precise targets that the business seeks to achieve over the next 4-5 years. Expectedly, these paint a reasonably optimistic picture of the medium-to-long-term outlook for itself. In all fairness, the revenue aspiration of INR25bn seems quite reasonable and we see possibility of it being outdone if management’s mid-range store-count target is actualised. In fact, the 2022 financial targets are still broadly on similar lines of what was communicated back in 2016 in the previous Investor Day, despite Westlife’s financials in the intervening period (FY17-18) having turned out to be better than what was envisaged at that time. In a nutshell, the business’ vision is to increase store-count to 400-500 by 2022 (vs 277 at Mar’18) and grow AUV (average unit volumes, i.e. revenue per restaurant) by 7-9% p.a. over the next 5 years – the latter will help lift margin more than 2x to c.13%-15% level. Interestingly, store-count ramp-up to the targeted level would still leave c.40% of the potential untapped. Hitting the mid-teens margin range could need a lot more work, though - mix and cost-levers would need to blend well to deliver this, in our view.
The stock is a clear compounder (15-16% p.a. return) if business indeed shapes up this way. Our positive bias remains - we see 12M upside of 20% on the stock.
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