Emkay Global
Target: ₹600
CMP: ₹507.35
Our bullish investment thesis on Westlife Development rests on three pillars: superior unit economics — 30-40 per cent higher revenue per store than peers; supported by value pricing and strategies aimed at increasing in-store visits; and offering complementing menus. Its recent initiatives on digital could provide a further fillip; comparison with Domino’s highlights a 3x store roll-out potential, offering a long visibility into penetration-led growth. We expect mid-teen revenue growth for several years with an upside risk; and our relative analysis of a peer at a similar scale throws a strong case for a 500 bps upside in EBDITA margins. Higher unit economics should lead to industry-leading ROEs as high upfront overheads get more corralled with scale. The pandemic has already reset the cost curve lower, commensurate with a 20 per cent lower revenue.
Net net, we expect revenue/EBDITA CAGRs of 10 per cent/20 per cent through FY24, and importantly, similar growth continuing well beyond that as well. The ROE should see a sharp improvement to mid-teens.
We are initiating coverage with a Buy rating and a June 2022 TP of ₹600, based on 32x Jun-23E EV/EBITDA (backed by our long-term DCF analysis).
Key risk : Delay in full unlocking may pose risk to our SSG recovery assumptions.