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Emkay Global
Westlife Development (Buy)
Target: ₹630
CMP: ₹505
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-Cafe network (present in 80 per cent stores currently) and scale up of new products (fried chicken/gourmet burgers) ahead offer relatively better SSG outlook. Newly introduced products such as fried chicken in South India and gourmet burgers in Maharashtra are gaining traction and will be extended to the remaining network, driving higher unit sales.
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 optimisation and other cost efficiencies, and expects a much better margin profile upon full recovery. Cost savings were broad-based, with employee and other occupancy costs falling nearly 30 per cent in FY21 (vs. 35 per cent sales decline).
Faster recovery in dine-in can drive stronger SSG and margin gains for WLDL. Large penetration opportunity, improving profitability and valuations at discount to peers make it an attractive long-term bet.
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