Q4FY23 Review: Westlife Foodworld: Unaffected by slowdown yet

10 May 2023 , 10:07 AM

Westlife Q4 results were slightly above estimates on Ebitda, due to gross margin beat led by cost savings and certain oneoffs. SSSG of 14% was healthy in a difficult consumption environment. FY23 performance was robust with strong 34% YoY increase in sales per store. However, stock at ~35x FY24 pre-IndAS Ebitda is expensive (10% premium to JUBI).

Ebitda above estimates: 

In Q4, Westlife delivered robust revenue growth of 22% YoY (3% below IIFLe) led by SSSG of 14%. However, Ebitda was above estimate, driven primarily by gross margin expansion of ~370bps YoY on one-time volume delivery incentive, cost savings and earlier pricing actions. Thus, Pre-IndAS Ebitda margin of 11.4% was above IIFLe of 10.6%. On net basis, 16 stores were added taking the number to 357 stores. Annualised sales per store of Rs.64mn was healthy, increasing by 12.4% YoY.

Robust growth going ahead: 

In FY23, Westlife was successful in increasing sales per store by 34% YoY to Rs.66.9mn, on the back of focus on key categories of burgers, chicken and coffee (McCafe). Going ahead, it is targeting high single-digit SSSG and to increase sales per store further. We believe that this is achievable given its strengthened portfolio and potential increase in contribution from McCafe. Moreover, driven by 10-11% expansion in stores, we are forecasting ~15% FY23-26 Cagr. Pre-IndAS Ebitda margin saw ~500bps YoY expansion to 12.3% in FY23 and we are factoring ~100bps expansion in FY24 on further cost efficiencies.

Ebitda upgrade of 2%:

Analysts at IIFL Capital Services upgrade their pre-IndAS Ebitda by ~2% for FY24/25, on sales upgrade due to higher store additions and SSSG. The stock has run up in the recent rally and is now trading at ~35x FY24 pre-IndAS Ebitda, 10% premium to JUBI. They do not see much upside from current level and maintain REDUCE rating on risks from demand slowdown and increase in competition. TP of Rs750.