Buy Westlife Foodworld; target of Rs 840: Emkay Global Financial

Emkay Global Financial is bullish on Westlife Foodworld has recommended buy rating on the stock with a target price of Rs 840 in its research report dated December 02, 2022.

Broker Research

December 02, 2022 / 04:03 PM IST

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Emkay Global Financial's research report on Westlife Foodworld

With our estimated top-line of Rs23bn (~15% CAGR over FY16-23E) and 13.4% EBITDA margin in FY23E (vs. 6% in FY16), WLDL has delivered towards the mid-point of its 2022 vision statement, which was presented in 2016. While growth in Rev/Store at 8.5% CAGR has been better than its expectations of 6-7%, annual store additions have been lower at 18 stores vs. targeted addition of ~30 stores. Going ahead (FY23-28), WLDL expects annual addition of 45-55 stores (10-12% CAGR), which suggests a significant pick-up vs. the past trends. Increased confidence is driven by healthy improvement in profitability of South India stores (fried chicken/wings launch) and stronger traction in Tier-2 markets, which will see 50-60% of new store additions vs. 30-40% historically. However, revenue guidance of Rs40-45bn for FY28 (12-14% CAGR) implies a low Rev/ Store CAGR of 0%-3%. While SSG expectations remain healthy at high single digits, lower Rev/Store expectations were attributed to higher new store additions, which generally see a lower throughput initially vs. mature stores. We align our estimates towards the higher end of WLDL’s guided Rev/EBITDA bands for FY28, which leads to a 5-8% cut to our FY23-25E EBITDA estimates. Given its best-in-class execution in the recent past and further ramp-up potential of chicken/meals/café/dessert categories, we see scope of upward revision of revenue guidance.

Outlook

We maintain our Buy rating with a revised TP of Rs840 (vs. Rs910) on an unchanged multiple of 29x Dec-24 EBITDA.

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