Shares of Westlife Development, the master franchisee of McDonald's restaurants, have increased steadily over the last six months from ₹465.90 apiece to ₹739.70, yielding a return of over 58.76%. YTD, the stock has risen 31.53%.
The stock had a difficult start to the year, dropping 11.20% in January and 7.51% in February, but it later gained momentum in March and has since risen by nearly 66.63%. On December 06, the stock zoomed 10.22% to hit a new all-time high of ₹815.60 apiece.
In the last three years, the stock delivered a staggering return of 109.87%, and in the last five years, it returned 101.53%.
However, based on the forecasts made by Edelweiss, the stock may still have a long way to go. The brokerage maintained its bullish view on the stock after attending the strategy day organised by Westlife Foodworld (WFL), wherein the management provided its scorecard on Vision 2022 and presented the roadmap for Vision 2027.
The company targets to open 250–300 stores by CY27 to reach 580–630 stores; looking for an almost three-fold jump in sales up to ₹4000- 4,500 crore in the next five years by 2027, supported by high single-digit SSSG and a target EBITDA margin of 300–350 basis points to 18–20%, the brokerage said.
Edelweiss said that the company has outperformed the QSR sector over the past two quarters and is expected to continue outperforming for at least the next one year. The brokerage reaffirms its “Buy” rating on the stock with a target price of ₹875/share.
Similarly, another domestic brokerage firm, Axis Securities, remains positive on WFL. "Our confidence in WFL’s bright future prospects is supported by the company’s strong and consistent track record of revenue and EBITDA growth of 17 and 51 percent, respectively, over FY16–20, driven by new product launches and cost rationalisation programs (a 100–200 basis point cost reduction every year)," said the brokerage.
Axis Securities expects the company to deliver healthy revenue and EBITDA growth of 30%–43% CAGR over FY22–25.
The brokerage said the stock is looking attractive given the company’s strong revenue growth over FY22–25E and large headroom for expansion moving forward. The brokerage maintains its Buy rating on the stock with an unchanged Target price of ₹930/share, implying an upside of 29% from the stock previous closing price.
While Prabhudas Lilladher anticipates the company has a high probability to surpass Vision 2027, given the strong growth momentum post-COVID, The brokerage estimates a sales CAGR of 27.3% over FY22–25 with an EPS of Rs.8.3/11.5/15 in FY23–24–25.
“We assign a DCF-based target price of ₹847 per share (no change). "We maintain Buy and expect more calibrated returns incremental post the sharp run-up in the past 6 months," Prabhudas Lilladher said.
"Westlife of today is a result of great execution (a real turnaround when compared to say, 8 years ago). It 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 the expansion of the food service market remain intact, and we remain long-standing believers," ICICI Securities said in its equity research report.
Apart from McCafe, the new drivers for the company, including Gourmet Burgers (strong premiumisation potential); Fried Chicken (in the south market), and the scale-up of the convenience channel (one of the best executions on scaling up omnichannel), are driving big gains, the brokerage added.
However, ICICI downgraded the stock to "ADD" from "BUY" with a revised target price of ₹850 given the recent run-up in the stock price.
In Q2FY23, the company's consolidated net profit came in at ₹31.5 crore as against a net loss of ₹4.4 crore in the corresponding quarter last year.
Total revenue increased by nearly 48.33% to ₹577.6 crore in the June-September quarter of FY23, compared to ₹389.4 crore in the same period last year. Further, the company’s operating profit grew more than twofold to ₹95.9 crore in Q2 FY23 as against ₹44.4 crore in the similar quarter of last fiscal.
Similarly, the company's EBITDA margin increased to 16.76% YOY, from 11.53%, expanding by almost 523 basis points. The earnings per share also improved to ₹5.9 during the quarter compared to ₹3.5 in the preceding quarter.
An average of 17 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
