Westlife Develop Management Discussions

Global and Indian economic overview

The global economy was estimated to have grown at a slower 3.2% in 2022, compared to 6% in 2021.

The macroeconomic headwinds translated into moderated global capital, disrupted trade, increased energy costs and cautious consumer spending. Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, cascading inflation, cautionary government and a sluggish equity market.

India reported an estimated economic growth of 7.2% in FY 22-23, one of Asias best growth rates during the period.

By the close of FY 22-23, India had retained its position as the fifth largest global economy and was seen as a principal driver of the global economy (with China).

Indias fiscal deficit was estimated in nominal terms at ~ H17.55 lakh cr and 6.4% of GDP for the year ending March 31, 2023.

The countrys retail inflation, measured by the consumer price index (CPI), accelerated to 5.6% in March 2023.

Inflation data on the wholesale Price Index (calculates the overall prices of goods before selling at retail prices) eased to 4.73% during the period.

In 2022, CPI hit its highest of 7.79% in April 2022; WPI reached its highest of 15.88% in May 2022.

India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2020.

Per capita income almost doubled in nine years to H1.72 lakh during the year under review, reporting a rise of 15.8% over the previous year.

Driven by broad-based credit expansion, better capacity utilisation and improving trade deficits India is expected to grow 6.8% in FY 23-24, catalysed in no small measure by 35% capital expenditure growth by the government.

(Source: PWC report, EY report, IMF data, OECD data, Budget FY 23-24; Economy Projections, RBI projections)

Indian food services and quick service restaurant (QSR) sector

The Indian food services sector was valued at approximately H4 trn in 2022 owing to a number of factors such as growing urbanisation, an increase in the number of young professionals entering the workforce, increasing access to organised food chains, greater consumer awareness towards health and hygiene, and a rise in consumers preference for eating out and taking delivery. From 2022 to 2027, the Indian food services sector is expected to grow at an 10.4% CAGR and reach H6.6 trn. Furthermore, during the period of 2022-2027, the quick service market (QSR) in India is expected to grow faster than the overall market, growing at approximately 13% CAGR. Over the last two years, the annual spending of middle- class households on fast food restaurants, from tier-II and tier-III cities, has more than doubled from H2,500 to H5,400. The market size of the QSR industry in tier II and tier III towns was valued at US$ 134.3 mn. The widening presence of major food chains in the smaller cities, catering to a younger audience and an increase in disposable incomes will be tailwinds for the Indian QSR sector.

(Source: Euromonitor, Business Standard, Yourstory)

Growth drivers Population growth: In 2023, India has surpassed China as the worlds most populous country with a population of 141.7 cr at the end of 2022.

Demographic shift: In 2022, the average age of an Indian was 28.7 years. More than half of Indias population is under 25 years of age. The consumer market is largely driven by the millennial (15-34 years) population, which is more habituated to eating out/ ordering in, digitally advanced, and experimenting with their food, making them the ideal audience for the QSR format.

Growing middle-class income: The strength of the middle-class is expected to rise from 432 mn people

(31% of the population) in FY 20-21 to 715 mn (47% of the population) in FY 30-31. This means nearly 140 mn middle- income households will be added to Indias economy by 2030.

Traction in food services sector: The food services industry is expected to employ one crore people by 2025.

Popularity of food delivery and take-away: The hectic lifestyle of the population has widely contributed to the growth of food delivery services and takeaway. The online food delivery market is expected to grow to H990+ mn by the end of 2027, growing at a CAGR of 17% between 20222027.

Beyond metro cities:

Renowned food-tech players are now present in 500+ cities in India and aggressively expanding operations.

Popular delivery players have expanded themselves to tier- 3 cities and partnered with local restaurants and hotels to deliver food.

Localisation of menu: The Indian QSR industry has revolutionised the QSR format by introducing local flavours in their menu offering.

Indian cuisine is the fifth most favourite cuisine in the world, validating the menu glocalisation.

(Source:techsciresearch.in, Euromonitor, livemint, Business Standard, Financial Express, restaurant. indianretailer)

Business overview

One of the fastest growing players in Indias quick service restaurant (QSR) sector, Westlife Foodworld Limited (WFL), formerly known as Westlife Development Limited, owns and operates McDonalds restaurants across West and South India, through its wholly owned subsidiary Hardcastle Restaurants Private Limited (HRPL). To fuel the growth of McDonalds in India, Westlife Foodworld, set up a strong technology backbone and made big bold investments in the brand to ensure McDonalds remains a modern, relevant, and progressive brand for Indian consumers. With such well-defined business strategies clubbed with a strong financial foundation; the company has grown McDonalds India (W&S) to become one of the most loved food brands in the countrys western and southern regions. McDonalds India (W&S) had 357 restaurants as of March 31, 2023.

Brand positioning: Over the years, the Company has underlined McDonalds as an accessible brand

that offers hygienic and high-quality food in all its brand campaigns, making McDonalds the ultimate choice for all occasions and day-parts. We have engaged with celebrities for brand promotions like Chicken Big Mac with Virender Sehwag and McSpicy fried chicken with Rashmika Mandanna.

Network expansion: We are

on-track with our network expansion plan across metros, tier-I and tier-II cities, increasing the drive-thru portfolio and continuing the modernisation of stores. 35 new restaurants were added in FY 22-23 taking the total to 357 restaurants across 56 cities in western and southern India as of March 31, 2023.

Out of 357 restaurants, 68 are in the drive-thru format, 311 have McCafes and 220 are Experience of the Future (EOTF) restaurants.

Cost optimisation: We optimised our costs by identifying operating efficiencies and scaling development costs. The DNA of Westlife is about productive growth. Our goal is to continually take costs out of the system through several innovative interventions In terms of food and paper, we used technology and operational enablers to optimise food consumption. We optimised the specifications of packaging for many products. We follow a structured price discovery process and aggressive rent negotiations. We redesigned operating model by optimising electricity consumption through sensors. We hired our own delivery fleet for our McDelivery platform. Higher average sales per store helped improve operating leverage. As a result, EBITDA margin stood at 17.3% in FY 22-23 as against 13.1% in FY 21-22.

Convenience: We always work toward strengthening our robust omnichannel strategy which is premised on customer convenience.

We have been providing convenience-led digital experience to all our customers through self ordering kiosks and our mobile apps. We are creating globally consistent Experience of the Future (EOTF) restaurants with modern ambiance, table service, etc.

At the same time, we ensure that we cover alt the customer touchpoints to be omni present as per customers convenience such as takeout, On-the-go, Drive-Thru among others.

Menu innovation: A diverse menu offering that has something for everyone and every occasion. Over the years, we have consistently reinvented our menu to suit local palettes and the latest trends, while retaining our iconic dishes. We are establishing meal leadership through menu relevance in Burgers, Chicken, and Coffee.

Digital channels: Our digital channels are playing an active role in increasing our market share in the QSR industry.

56% of the systems total sales were made through digital channels, like our mobile app, self-ordering kiosks and McDelivery channel. Increasing consumer adoption of our digital channels added

to our in-store digital-led sales.

Sustainability: We have made significant efforts to lessen our carbon footprint by prohibiting single-use plastic, recycling used cooking oil into biodiesel (for use in vehicles), installing waterless urinals, utilising solar energy (in select restaurants), and switching to biodegradable cutlery.

Financial overview

Consolidated financial performance

Particulars For the year ended March 31, 2023 For the year ended March 31, 2022
Sales by company-operated restaurant 22,594 15,560.9
Other operating income 181.5 199.6
Net gain on fair value change in the value of investments 6.3 4.5
Total revenue 22,781.8 15,764.9
Operating costs and expenses
Restaurant operating cost and expenses
Food and paper 6,860.0 5,129.4
Payroll and employee benefits 2,033.9 1,438.6
Royalty 1,038.4 707.7
Occupancy and other operating expenses 7,564.7 5,471.4
Total operating costs and expenses 17,497.0 12,747.2
Restaurant operating margin (RoM) 5,284.8 3,017.7
General & administrative expenses 1,354.0 946.3
Operating EBITDA 3,930.8 2,071.5
Other (income)/expenses, (net) (141.1) (186.0)
Extraordinary expenses 127.9 87.2
Financial expense (interest & bank charges) 927.5 826.2
Depreciation 1,522.0 1,364.8
Profit / (loss) before tax 1,494.5 (20.7)
Taxes 378.7 (4.0)
Profit / (loss) after tax 1,115.8 (16.7)
Cash profit 2,543.2 1,291.1

Consolidated operating results

Total revenues: The Companys revenues comprised sales by Company- operated restaurants. In FY 2223, the Company recorded a revenue increase of 44% to H22,781.8 mn compared to H15,764.9 mn in FY 21-22. The increase in revenues was primarily on account of a full recovery in dine-in to pre-pandemic levels and robust growth of convenience channels.

Gross margins: During the review period, food, paper, and distribution costs (FPD) increased/decreased to H6,860.0 mn, compared to H5,129.4 mn in FY 21-22.

The quantum increase was primarily in line with the growth in revenue. The Company delivered a gross margin of 69.9%, a result of lower fixed costs.

Restaurant operating margin

(RoM): Restaurant operating margin represents total revenues from Company- operated restaurants less the operating cost of these restaurants (including royalty etc.) before depreciation and corporate overheads. In FY 2223, the Company reported a Restaurant Operating Margin of H5,284.8 mn compared to ?3,017.75 mn in the previous year. RoM was 23.2% in FY 22-

23 compared to 19.14% in the previous year.

General and administration (G&A) expenses: G&A, as a percentage of total revenues were 5.94% in FY 22-23 compared to 6% in FY 21-22. In FY 22-23, expenses increased to H1,354.0 mn compared to H946.3 mn in FY 21-22.

Operating EBITDA: Operating EBITDA by the Company stood at 3,930.8 mn in FY 2223 compared to H2,071.46 mn in FY 21-22. Operating EBITDA margin (operating EBITDA as a % of total revenues) was 17% in FY 22-23 compared to 13.14% in FY 21-22.

Financial position and capital resources: The

Company generated cash from operations to fund operating spending (capital expenditure), taxes, and general purposes. In addition to cash and equivalents on hand and cash generated by operations, the Company addressed capital requirements through attractive trade terms. As of March 31, 2023, at a consolidated level, the Company had cash and cash equivalents of H82.5 mn, comprising cash and balances with banks in India and investments in bank deposits.

Restaurant development and capital expenditure:

In FY 22-23, the Company invested H2,696.3 mn in capital expenditure through cash generated from operations.

SCOT analysis


¦ Renowned brand worldwide

¦ Wide omni-channel presence

¦ Presence across all day parts

¦ Superior technology infrastructure

¦ Sustainable supply chain management

¦ Personalised menu offerings for all occasions

¦ People-oriented approach

¦ Wide third-party cold storage channel

¦ Glocalisation of global cuisines


¦ Junk food image of QSR

¦ Constantly maintain high- quality standard

¦ Getting a property at a viable location at a reasonable price


¦ Growing demand from the unorganised sector

¦ Rising disposable income

¦ Growing preference for eating out/ordering in both metro and non-metro cities

¦ Increasing popularity of fusion food

¦ Growing consciousness about food hygiene

¦ Untapped digital market

¦ Growing home delivery sales

¦ Fast growth of food tech companies

¦ Advent of organised retail space


¦ Negligence could risk employee and customer health

¦ Natural disasters like earthquakes, floods etc.

Risks and concerns Economic risk: Inflationary pressures could affect customer appetite

Supply-chain risk:

Unanticipated hindrances in logistics could harm food quality

Technical risk: Technical glitches could impact service quality

Inflation risk: Higher inflation could increase the prices of raw materials

Competition risk: Entry of globally-backed food chains could enhance competition

Market risk: Venturing into new markets may not always generate the desired results

Regulatory risk: Changes in government regulations could affect operations

The effectiveness of internal control systems The Companys robust control systems ensure that all policies are followed, all procedures are carried out and all legislative obligations are met. In the rules, themselves, the processes for authorisations and approvals, including audits, are thoroughly laid out. Every facet of financial and operational control is covered by an all-inclusive internal audit framework. The internal audit team of the company is made up of seasoned experts from many departments, including senior management members of Westlife Foodworld Limited who actively oversee the evaluation and improvement of various services including restaurant operations and other support functions.
The adequacy of internal control systems The Companys internal control framework monitors the efficient use and protection of resources as well as compliance with all legal and policy requirements. Well-documented guidelines, form an essential part of the overall governance, covering all aspects of the business. The Internal Audit cell supports the Audit Committee, apart from independently reviewing procedures, operating systems, and internal controls by external auditors.
Human resources As on March 31, 2023, the Company employed over 11,596 employees. By enhancing the collective and individual talents of employees, Westlife Foodworld Limited worked to enhance the value proposition of its human capital. Various learning & development programs were conducted to upskill its people which in turn helped the Company in delivering quick and efficient service to its customers.