Broking firm, Emkay Global Financial Services has suggested buying the stock of Westlife Development Limited (WDL) which focuses on establishing and operating McDonald's restaurants across West and South India, through its wholly owned subsidiary Hardcastle Restaurants Pvt Ltd.
30% Upside On This McDonald’s Operator
Emkay Global Financial Services sees a 30% upside on the stock of Westlife Development with a price target of Rs 630 on the stock, as against a current market price of Rs 495.
"Our interaction with management indicates strong traction in convenience channel sales, led by consumer shift to dominant brands & digital initiatives. Dine-in is currently impacted but faster recovery is expected vs. FY21 on easing restrictions and increasing vaccination. Expansion plans are intact at 25-30 store additions in FY22 despite second wave-led lockdowns. Ramp-up of Mc-Café network (present in 80% stores currently) and scale up of new products (fried chicken/gourmet burgers) ahead offer relatively better SSG outlook," the broking firm has said.
Hardcastle Restaurants operates more than 300 McDonald's restaurants (as of September 2019) across 42 cities in the states of Maharashtra, Karnataka, Telangana, Gujarat, Tamil Nadu, Kerala, Chhattisgarh, Andhra Pradesh, Goa and parts of Madhya Pradesh, and provides direct employment close to 10,000 employees.
McDonald's operates through various formats including standalone restaurants, drive-thru's, mall food courts, McDelivery and dessert kiosks. It also has three thriving brand extensions - McDelivery, McCafe and McBreakfast.
"The management maintained its store addition target of 25-30 stores in FY22E, with plans to further scale up Mc-Café to the remaining network in next 2-3 years. Currently, Mc-Café is present in 230 stores out of total 305 stores. Newly introduced products such as fried chicken in South India and gourmet burgers in Maharashtra are gaining traction and will be extended to the remaining network, driving higher unit sales," Emkay Global Financials has said in its report.
Attractive valuation compared to peers
Emkay Global Financial believes that the stock valuations of Westlife Development are attractive when compared to peers.
The firm sees cosr reductions as well, as rental contracts are being further optimized and some rebates are expected in Q1. Commentary remains positive on cost efficiencies, and WLDL hopes to see results from Q2 as sales normalise, the firm has said.
"We expect sales/EBITDA growth of 10%/20% in FY20-24, and faster recovery can drive upsides. Large penetration opportunity, improving profitability and valuations at discount to peers make it an attractive long-term bet. We value Westlife Development at 32 times Sept-23 estimated pre-INDAS EBITDA (vs. Jun-23E) with a target price of Rs 630," the brokerage has said.
The shares of Westlife Development were last trading at Rs 493.85 on the National Stock Exchange.
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