Prabhudas Lilladher in its recent report on Westlife Development Ltd. recommended investors buy the stock for a target price of Rs 847 apiece. Westlife Development is a small cap tourism and Hospitality sector company having a market capitalisation of Rs 10,862.51 crore.
Westlife Development is one of the fastest growing players in India's Quick Service Restaurant (QSR) sector. Westlife Development Limited (WDL) focuses on establishing and operating McDonald's restaurants across West and South India, through its wholly owned subsidiary Hardcastle Restaurants Pvt. Ltd. (HRPL).
Stock Outlook, Returns & potential Gains
Thursday, 29 September, Westlife Development's stock on NSE closed at Rs 696.60 apiece, 2.14% up from its previous close. Its 52-week low is Rs 402.30 and the 52-week high is Rs 754.95, respectively. The stock recently touched its 52 week high.
The stock in the past 1 week moved down 1.99%. Whereas, in the past 1 and 3 months, it gave positive returns of 8.5% and 41.08%, respectively. Over the past 1 year, it has given a positive return of 23.79%. In the past 3 & 5 years, it gave multibagger returns, 132.24% and 190.215, respectively.
According to the brokerage's given target price, the stock is likely to jump 22% if the stock is purchased at the current market price.
Strong Demand momentum despite price increase
- Demand momentum continues to trend up in 2Q23.
- May 22 price hike of 5% has been well accepted by customers.
- Commodity inflation across the RM basket has softened since 1Q23.
- Revenues have crossed pre-COVID levels across dine-in & convenience.
Operating leverage and improved mix key margin drivers
- WDL aspires to have mid to high-teens pre-INDAS EBITDA margins. Gross Margin expansion will come through pricing actions, improved mix & sourcing efficiencies.
- Operating leverage will drive EBITDA margins by rising store throughput and lower employee expenses and utility costs (as a % of sales).
- Royalty rates capped at 5% till FY26. WDL is in negotiations with McDonalds Corp for royalty beyond FY27; reasonable probability of staggered increase in royalty rates.
Innovations pipeline remains strong
- Focus to premiumize range of products with gourmet burgers & new variants in Fried Chicken.
- Fried Chicken is being piloted in select (5-10) stores in west India.
- WDL has a pipeline of innovations which are yet to be launched
New store openings to accelerate
- On track to open 35-40 stores in FY23, 200 stores over FY22-26.
- Plans already in place with catchment identification and reasonable work on real estate acquisition for the stated store additions.
- Capex (Incl of McCafe & EOTF) stands at Rs 30-35mn per store.
Multiple players to expand Fried Chicken market
- Huge opportunity exists in the Indian Fried Chicken market with growth acceleration as multiple players enter this category.
- Differentiated product with good-to-the-bone chicken.
McDelivery Pilot in Bengaluru
- WDL's own delivery contribution to delivery sales has reached double digits.
- Own fleet in Mumbai capable of comfortably meeting app demand.
- Pilot of own delivery infrastructure underway in Bengaluru.
- Yet to consider adopting a formal dividend policy.
- Open to reward shareholders through dividends and buybacks.
Commenting on the stock, the brokerage said, "We increase EPS estimates (1.0%/3.4% FY23/FY24 and introduce FY25 EPS estimates) and increase our DCF based target price to Rs847 (Rs781 earlier). Our recent management interaction reinforced our positive stance on the company given 1) Plans to add 35-40 stores in FY23 and 200 stores by FY26 2) Strong innovation pipeline across Burgers and Chicken 3) Probability of staggered increase in royalty (4% in FY23, 4.5% in FY24, 5% in FY25/26) beyond FY26 4) Sustained success of launches like Gourmet Burgers & Meals and Fried Chicken and 5) strong start to new stores in Tier2/3 with sales at par with older stores."
Prabhudas Lilladher Retain Buy with a target price of Rs 847
Growth momentum remains strong on the back of sustained growth in Dine in and Convenience channel (2x pre-COVID levels), positive response to Fried Chicken pilot in West (5-10 stores in Mumbai) and traction in Gourmet Burgers & Meal options. "We believe input cost pressures have peaked out and 5% price increase from May22 will aid margin expansion in coming quarters. We estimate Sales CAGR of 27.3% over FY22-25 with an EPS of Rs8.3/Rs11.5 in FY23/24 and we introduce FY25 EPS at Rs15. We assign DCF-based target price of Rs847 (Rs781 earlier). Although WDL has gained 70% from May 22 lows, long-term prospects remain positive. Retain Buy," the brokerage has said.
The stock has been picked from the brokerage report of Prabhudas Lilladher. 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.