Home >Markets >Mark To Market >As Covid bites into dine-in sales, cost cutting helps Westlife Development in Q3

Westlife Development Ltd is healing very slowing from the impact of the covid-19 pandemic. Westlife owns Hardcastle Restaurants Pvt. Ltd, the master franchisee of McDonald's restaurants in west and south India. True, revenue performance in the December quarter has understandably improved sequentially. Westlife’s revenues had declined by 75% and 48% year-on-year, respectively, during the June and September quarter. In the December quarter, while the drop in revenues was curtailed to nearly 25% year-on-year, it’s not too encouraging. Analysts from IIFL Securities Ltd said in a report on 21 January, “Factoring in these results, our sales estimates are downgraded by 8%/4%/4.5% for FY2021/2022/2023, respectively."

Westlife said sales recovery for the December quarter stood at 85-90% vis-à-vis pre-covid levels (February 2020). Growth was led by the convenience platform at 120% of pre-covid levels whereas recovery in dine-in stood at 75% of pre-covid levels. Although, recovery in the month of December improved to about 97% of pre-covid levels with dine-in and convenience channel recovery at 83% and 127%, respectively.

On the profitability front, Westlife has done better in the December quarter, helped by better cost control measures. It clocked an earnings before interest, tax, depreciation and amortization (Ebitda) margin of 10% even as revenues declined. Gross margin improvement, continued rent rebates and operating cost optimization are some factors that boosted margins.

Analysts are fairly enthused by the better margin performance. “Notably, benefits from operating leverage on complete recovery in sales (especially from dine-in segment) is still to be felt on margin," said analysts from JM Financial Institutional Securities Ltd in a report on 21 January. To be sure, operating margin for the month of December 2020 has already touched about 13% when sales were merely 3% lower than pre-covid levels. “This, in our view, indicates a significant sustainable uptick in margin profile to early-teens level over the next 2-3 years implying the operating margin target of early-to-mid teens as stated in vision 2022 could well be achieved," pointed out JM Financial.

Meanwhile, Westlife has added three new restaurants last quarter taking the total count to 304. Going ahead, faster recovery in sales would improve sentiments for the stock, which has declined by about 4% since December quarter results were announced last week. Westlife expects strong growth in dine-in and convenience formats in the coming quarters. “As the covid situation normalises, we believe that dine-in sales would steadily recover, and forecast FY23 to be a normal year," said IIFL analysts. As things stand, Westlife’s shares are almost 7% away from its pre-covid highs seen in February 2020.

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