Accumulate This Multibagger Small Cap Stock, Target Price Rs 800, Shares Can Give High Returns

Stock Outlook & Performance

The stock of the Westlife Foodworld closed at Rs 719.60 apiece, up 0.13% from the previous close. The stock is currently trading 11.36% down from its 52-week high. The stock hit its fresh 52 week high on 9 November 2022 at Rs 811.85, and its 52 week low on 12 May 2022 at Rs 402.30. 
 
 Solar Industries' stock in a week has fallen 3.12%, whereas, in 1 month it has fallen 5.75%. It has given 11.61% positive returns in 3 months. Over a year, the stock grew 30.42%. In the last 3 and 5 years, it has given 93.94% positive returns and 106.91% multibagger returns, respectively. The stock has performed good, given multibagger returns to shareholders on long-term period

Modern, relevant & progressive food and food tech company

Westlife highlighted its success enablers towards becoming a modern, relevant & progressive food and food technology company. More importantly it highlighted that it will not dilute its focus away from McDonalds brand as it provides enough opportunity (McDonalds has presence in 66% (Desserts, Chicken and Burger) of the organised informal eating out market). Vision 2027 focused towards four strategic pillars of 1) Meals strategy, 2) Omni channel strategy, 3) faster than ever network expansion and 4) Lead with performance. 

Meals Strategy

Meals Strategy is focused towards building leadership in meals (while maintaining leadership in snacking) with targeted focus on lunch and dinner dayparts through enhanced offers of gourmet burgers, value combos and fried chicken. Meal strategy will be focused towards three categories to drive growth 1) Burger - Westlife has built leadership in burgers across all occasions (Classic, Indulgent and Meals) and price points. 2) Chicken - enhance product portfolio relevance in South (95% of population are non-vegetarians) through fried chicken. Launch of fried chicken has boosted AUV in South (ADS in South is now 1.8x vs 1.5x in West vs FY16). 3) Coffee - become leaders in the coffee market in their region through inducting new consumers with its wide ranging McCafe menu. Target to achieve 100% (from 81%) penetration of McCafe in stores and increasing revenue contribution to 15-18% (from 12%). 

Omni channel business model

Westlife plans to transform into a digitally integrated brand to enable a seamless consumer experience across multiple touchpoints. For dine-in business they plan to convert 100% (from 48%) of restaurants into EOTF stores which deliver better consumer experience and higher average checks from orders through kiosks. In delivery business they plan to strengthen their leadership through fortifying partnership with 3POs and build value proposition from own app (enhance interface, own delivery fleet, increase delivery hubs and unlock scale efficiencies). Drive Thru business which has witnessed increased adoption, plan is to create long term competitive advantage before competition by a) building drive-thru destination stores (1.5x higher average sales per store); b) 30-35% of new stores likely to be drive-thrus and; c) enhancing convenience through 120 seconds service promise. 

Faster than ever network expansion

Westlife plans to accelerate its network expansion by opening 40-55 restaurants vs 23-24 stores per year for next 5 years taking the total count to 580-630 restaurants (from 337) with a long-term potential of >1000 restaurants. ~60% of new stores is likely to be in South given the increased product relevance leading to higher AUVM. ~50-60% of new stores likely to be in small and emerging towns as they are consistently outperforming. Store expansion will continue in its existing 3,000-3,500 sq. ft. Omni channel stores which provides long-term profitability. Westlife will continue to utilise its superior real estate capabilities (long-term relationships with landlords) to execute the above strategy. 

Long-term value creation

Above discussed strategy will lead to value creation through 1) 100-150bps margin expansion through product mix improvement and net pricing, 2) 80-100bps margin expansion through cost savings, 3) 300- 350bps margin improvement through operating leverage. 

Overall the target is to reach 18-20% operating EBITDA margin (post IND AS; 15-17% pre IND AS) by 2027. Royalty rates are likely to be progressive with ~50bps increase in FY24 and FY25. Further it is expected to increase by ~50-75bps per annum from April'26. 

Other leading performance indicator vision for CY27 are 1) Revenue of Rs40- 45bn, 2) high-single digit SSSG, 3) 65-70% digital-led sales, 4) 8-10% PAT margin, 5) Rs18bn+ Cash flow from operations, 6) Rs14bn+ network investments (~70% towards new stores), 7) +25% RoE and +40% RoCE, 8) +60% FCF conversion rate and 9) 15-25% Dividend Payout. 

Valuation and risks

ICICI Securities said, "Our earnings estimates are unchanged; modelling revenue / EBITDA CAGR of 31 / 61 (%) over FY22-24E. Maintain ADD with DCF-based revised target price of Rs800 (was Rs850). Improved execution engine and accelerated share-gain potential (preference for hygiene) keep us positive. Key downside risks include sustained weak consumer sentiment impacting restaurant throughput and likely higher competitive intensity in near term." 

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.