Westlife Foodworld (erstwhile Westlife Development), which operates McDonald’s restaurants across West and South India, through its wholly owned subsidiary Hardcastle Restaurants, hosted its Strategy Day where it rolled out its Vision 2027 and updated analysts about its earlier Vision 2022.
Analysts attending the meeting suggested that the McDonald’s franchisee is targeting profit after tax margin of 8-10 per cent and is aiming to generate Rs 1,800 crore in cash from operations. It is looking to invest Rs 1,400 crore to expand the network and has plans to pay out 15-25 per cent of the profits as dividend.
Other targets include achieving return on equity (RoE) and return on capital employed of 25 per cent and 40 cent, respectively. Westlife Foodworld is also looking at 60 per cent free cash flow conversion rate.
Analysts largely have price targets in the Rs 800-850 for the stock, suggesting potential up to 9-15 per cent potential upside. The scrip is up 60 per cent in the last six months. That includes Friday’s 2 per cent rise on the counter.
“We believe Westlife has high probability to surpass Vision 2027, given strong growth momentum post covid. We estimate Sales CAGR of 27.3 per cent over FY22-25 with an EPS of Rs 8.3/11.5/15 in FY23/24/25. We assign DCF based target price of Rs 847. We maintain Buy and expect more calibrated returns incremental post sharp run up in past six months,” said Prabhudas Lilladher.
In the near term, said Nirmal Bang Institutional Equities, improved footfalls will benefit dine-in centric models like Westlife Foodworld , which has 35 per cent of its outlets in malls (including food courts) and also boasts of a strong drive-thru portfolio (20 per cent of total restaurants). The brokerage said Westlife Foodworld has been its top pick in consumer discretionary space and has yielded relatively healthy returns led by healthy performance.
“We change in estimates has led to minor revision in our FY23E/FY24E/FY25E PAT. Using the DCF-based valuation, we now get a target price of Rs 830 from (Rs 815 earlier), implying an EV/Ebitda multiple of 24 times on Sept’24 Ebitda. At CMP, the upside now stands at 15.5 per cent, we thus upgrade the stock to BUY from Accumulate earlier,” the brokerage said.
ICICI Securities said consensus including the brokerage would have appreciated more clarity on store throughput growth trajectory given the concerns around the same of other large QSRs.
“Westlife of today is a result of great execution (a real turnaround when compared to say 8 years back). Westlife Developmet was not in the top-tier of ‘great executor’ back then. The journey has been long and it’s all adding up now. Long-term benefits from expansion of food service market remain intact. We remain long-standing believers,” the brokerage said while cutting its target on Rs 800 from Rs 850 earlier.
Motilal Oswal said it has not not changed its estimates materially post the meet. “We maintain our Neutral rating, given fair valuations, scheduled increase in royalty rates to two times from its current levels eventually, and limited incremental gross margin levers. Our valuation at 30 times pre-Ind AS Sep’24 EV/Ebitda leads to a target of Rs 805,” it said.
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