Westlife Foodworld tank 6% after Q2 net profit falls

The share price of Westlife Foodworld, McDonald’s India operator, tanked 6 percent on October 27, a day after it reported a 29 percent on-year (YoY) fall in September quarter profit, missing analysts’ estimates.

The company’s revenue and EBITDA, however, came in higher but were below estimates.

Most analysts, however, say Westlife Foodworld is well-placed to navigate the challenging environment with execution machinery in place, a well-laddered menu architecture, sustained dine-in footfall and multiple levers for margin expansion.

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Outlook

Westlife’s same-store sales growth (SSSG) slowed to a percent in the quarter under review. Management indicated that consumer spending remains tight. The focus was on increasing share in core day parts. The management is working on integrating multiple channels into a single platform and on network, format expansion.

International brokerage CLSA expects Westlife’s earnings growth to be faster than that of Domino’s operator Jubilant FoodWorks.

Long-term growth drivers for the company remain intact with a focus on burger, chicken, and coffee combos and Mcsaver meals, and guidance of 580-630 stores by CY27, said Prabhudas Lilladher.

Menu innovations and limited edition launches from time to time, increased traction on fried chicken, and flexibility of format with relevance across metros, tier-1, mid-tier towns and highways will also aid growth, it said.

Also Read | Westlife Food Standalone September 2023 Net Sales at Rs 0.21 crore, up 47.59% Y-o-Y

Buy, hold or sell?

Prabhudas Lilladher analysts expect back-ended returns linked to improved consumer sentiment and demand recovery. The brokerage has maintained a “hold” tag on the stock with a revised target price of Rs 844, down from Rs 958 earlier.

CLSA has an “outperform” rating on the stock, with a target price of Rs 1,000 a share.

Analysts at JM Financial are of the view that the company’s gross margin trajectory is likely to remain healthy, given stable input costs and benefits from initiatives around supply chain efficiencies and better mix.

“From long-term perspective, we remain constructive on the stock and the weakness in stock price should be looked as an opportunity to add,” the domestic brokerage said. It assigned a “buy” call on the stock with a target price of Rs 1,005, down from Rs 1,060 earlier.

Motilal Oswal Financial Services said the building blocks are in place for Westlife Foodworld to capture the long-term opportunity in the quick service restaurant (QSR) space. However, the consumption trends remain soft.

“Easing commodity pressure and the company’s focus on growing its average unit volume are the key positive factors. These factors could be partly offset by an increase in royalty,” the brokerage said, reiterating the “ neutral” call on the stock with a target price of Rs 850.

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ICICI Securities has an “add” rating on the counter, with a target price of Rs 950, with improved execution engine and accelerated share-gain potential keeping its analysts positive. Sustained weak consumer sentiment impacting restaurant throughput and higher competition in the near term were the risks cited by the brokerage firm.

At 1.03 pm, Westlife Foodworld was trading at Rs 826.50 on the National Stock Exchange, down 6.38 percent from the previous close.

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