Neutral Westlife Foodworld; target of Rs 775 : Motilal Oswal

Motilal Oswal's research report on Westlife Foodworld

Westlife Foodworld (WLDL) reported a weak performance in 3QFY24 as growth metrics (SSSG, ADS) were under pressure owing to subdued demand. SSS declined 9% YoY as both dine-in and delivery businesses were hit. The floods in South India also added to the woes. Of the 9% SSS decline, 6% was due to external factors. Net revenue was down 2% YoY despite 11% YoY store growth. Led by subdued growth, restaurant operating margins (ROM; post-IND AS) contacted 130bp YoY and 40bp QoQ to 22.5%. PBT margin was at 4%, down 400bp YoY and 100bp QoQ. PBT saw a sharp 52% YoY decline during the quarter. The QSR industry has been witnessing weakness in growth metrics, leading to a sharp deceleration in the margin profile (typical trend in QSR during the downcycle).

Outlook

We do not foresee any near-term respite in demand. We model a 6% PBT margin in FY25E vs. 6.6% in FY23 and 4.3% in FY24E. We reiterate our Neutral rating on the stock.