Prabhudas Lilladher's research report on Westlife Foodworld
We cut FY25/26 EPS estimates by 36.1%/29.8% following decline of 6.7% in SSG, pressure on margins and benign growth outlook in 1H25. Sales were affected by sustained poor sentiments in some geographies (70-80 stores) led by external issues (Geopolitical), improvement is happening at a slower rate. We expect WFL to return to positive SSG by fag end of 3Q only, which along with higher overheads on new stores and accelerated store openings will affect margins and profitability in 1H25. We note that sales/store/Qtr has declined to ~16mn from a peak of Rs18mn and recovery in it is key for margin reversal. WFL does not have any inflationary pressures; however, reversal in demand trends might take a tad longer due to competitive pressures. Long term growth drivers remain intact with focus on 1) Burger, chicken and Coffee combos and Mcsaver meals 2) guidance of 580-630 stores by CY27 (40/45 in FY25) 2) menu innovations in café & value burgers with limited edition launches and offers from time to time 3) increased traction in fried chicken and 4) flexibility of format with relevance across Metros, Tier 1, Midtier towns and Highways. We estimate EPS CAGR of 25.7% over FY24-26E.
Outlook
We assign DCF based target price of Rs791 (Rs815 earlier) Retain ‘Hold’, but expect back ended returns linked to sales recovery.
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