Prabhudas Lilladher's research report on Westlife Development
We increase our EPS estimates by 28.1%/20.4% for FY23/24 and target price to 781 (Rs653 earlier) on the back of sharp recovery in sales and strong visibility of earnings following 3rd consecutive quarter of profitable growth. We believe WDL has reached a tipping point led by menu innovations - Fried Chicken (South India) and Gourmet Burgers, sustained traction in convenience channel (2x pre covid levels), full recovery in Dine-in sales priding operating leverage and McCafe recovery (mainly Dine in product). We believe success of pilots in Fried Chicken in West (5-10 stores in Mumbai) and Gourmet Burgers & Meal options in South will add to growth. We remain positive on the structural story for Westlife and expect it to emerge stronger given 1) enhanced aggression with aim of adding 200 stores in 3-4 years (35-40 in FY23) 2) increased focus on fried chicken yielding additional Rs5-7mn of AUV/store 3) strong start to stores in tier 2/3 with sales at par with older stores and 4) royalty reduction in FY23 and negotiation with parent for gradual increase in royalty beyond 5% after FY26. We estimate Sales CAGR of 30.7% over FY22-24 with an EPS of Rs8.2/Rs11.1 in FY23/24.
We assign DCF based target price of Rs781 (Rs653 earlier). Buy for LT Gains given huge scope to scale up a strong brand with clear focus & vision.
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