Markets
Westlife sees lip-smacking growth
Summary
- The operator of McDonald’s chain of restaurants in west and south India, reported its highest ever quarterly revenues.
Westlife Foodworld Ltd has continued the strong growth momentum in the three months ended September (Q2FY23). The operator of McDonald’s chain of restaurants in west and south India, earlier known as Westlife Development Ltd, reported its highest ever quarterly revenues at ₹572 crore, which were up almost 49% year-on-year (y-o-y).
The strong revenue growth was led by better-than-expected sales per store. Further, good traction in the company’s enhanced offerings such as gourmet burgers and fried chicken aided growth. Also, non-metros are growing fast.
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The upshot is that same store sales growth last quarter came in at 40% y-o-y. Westlife’s gross margin rose to 65.5%, up from 64.3% in Q1.
The sequential rise in gross margin was helped by price hikes effected by the company earlier and product mix optimization.
The company believes prices of key commodities such as oil saw softening whereas milk and wheat continue to see pressure. In October, Westlife effected a 2% blended price hike, which should offer some comfort to margins.
In the half year that ended in September, the company added 11 new restaurants, taking the total count to 337. Around 81% of restaurants have McCafé outlets. There is ample scope for margin improvement in McCafé, according to Westlife. It is on track to add 35-40 new restaurants in FY23 and progress on this would remain key for investors.
In Q2, Westlife’s average annualized sales per store were ₹6.75 crore, which the management is confident of maintaining in this range in the coming quarters.
Meanwhile, ICICI Securities has downgraded the Westlife stock to ‘Add’ from ‘Buy’ with a revised target price of ₹850 because of the recent run-up in the share price. Over the last six months, Westlife’s shares have appreciated as much as around 80%, which could limit large upsides in the near-term. “We believe Westlife of today is a result of great execution, which is a real turnaround when compared to about 8 years ago. It was not in the top-tier of ‘great executor’ back then," ICICI Securities pointed out.
Some analysts are, however, cautious. “While Westlife’s prospects are improving, its medium-term earnings growth can still be weaker than its peers, given: a) the increase in royalty, and b) the limited room to improve gross margin, with over 80% of its stores already having McCafé outlets," said a report by Motilal Oswal Financial Services.
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