Emkay Global Financial's report on Westlife Development
Our interaction with management indicates strong traction in convenience channel sales, led by consumer shift to dominant brands & digital initiatives. Dine-in is currently impacted but faster recovery is expected vs. FY21 on easing restrictions and increasing vaccination. Expansion plans are intact at 25-30 store additions in FY22 despite second wave-led lockdowns. Ramp-up of Mc-Café network (present in 80% stores currently) and scale up of new products (fried chicken/gourmet burgers) ahead offer relatively better SSG outlook. WLDL was able to achieve pre-Covid margins in H2FY21 despite lower sales, driven by structural cost savings. It continues to work on further rental optimization and other cost efficiencies, and expects a much better margin profile upon full recovery.
Faster recovery in dine-in can drive stronger SSG and margin gains for WLDL. With improving profitability and inexpensive valuations vs peers, the stock offers attractive upside potential. Maintain Buy with TP of Rs630 (32x Sept-23E pre-INDAS EV/EBITDA).
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