Institutional Equities

Westlife Development
26 July 2019

Reuters: WEST.BO; Bloomberg: WLDL IN

Topline tracking expectation BUY

The topline performance of Westlife Development (WDLD) in 1QFY20 was fairly within Sector: Quick Service Restaurant
expectation, growing at 11.8% YoY. The growth in topline was on the back of SSG of 6.7% YoY,
which marks the 16th consecutive quarter of positive SSG growth. WDLD has delivered well on its CMP: Rs291
strategic initiatives and management is confident that SSG of 7-9% is sustainable in the current
scenario. Excluding the impact of IndAS116, EBITDA was Rs305.2mn and witnessed a decline of Target Price: Rs370
10% YoY. The weakness in EBITDA despite a healthy top-line growth can be explained by the fact
1QFY20 Result Update

that the company invested significantly in A&P in the quarter, frontloading the marketing plan.
Upside: 27%
Gross margin excluding the impact of IndAS 116 was 64.3%, expanding by 30bps YoY, which was Ayush Chaturvedi
driven by better product mix and supply chain efficiency. The several strategic initiatives where Research Associate
the company has impressed us significantly include restaurant modernisation (more than 90% of ayush.chaturvedi@nirmalbang.com
the restaurants are now modernised), menu innovation (healthy burger bread, spice fest,
+91-22-6273 8244
beverages and desserts) and continued strengthening of its platforms (McCafe, McDelivery and
McBreakfast). The company has invested significantly in its digital capabilities, which will ensure
increased customer off-take and better customer experience. We continue to like the company's Key Data
strategy of driving strong baseline growth and delivering on operating leverage. After making
revisions to our earnings estimates due to the ongoing slowdown being experienced across the Current Shares O/S (mn) 155.7
consumer space, we have retained Buy rating on WLDL with a target price (TP) of Rs370 (from Mkt Cap (Rsbn/US$mn) 45.3/656.6
Rs450 earlier) based on an unchanged forward EV/EBITDA multiple of 28x.
52 Wk H / L (Rs) 454/285
SSG well supported by customer initiatives: The company has delivered positive SSG for the past 16
Daily Vol. (3M NSE Avg.) 105,180
quarters. SSG in 1QFY20 was 6.7% YoY, which was well supported by several new customer initiatives
like strengthening of value platform and McCafe reward. The continued growth in McCafe, McDelivery
and McBreakfast is highly encouraging and we expect SSG to witness an improvement in FY20-FY21. Price Performance (%)
Margins continue to show improvement: The company delivered healthy gross margin. Considering 1M 6M 1 Yr
the encouraging growth in its platforms such as McCafe and McDelivery, we expect the company to
continue driving operating leverage and aid margin expansion going forward. EBITDA margin was lower Westlife Development (5.8) (21.6) (16.3)
on account of higher A&P expenses. Nifty Index (5.0) 4.4 0.8
Outlook and valuation: We continue to like the company's strategy of driving strong growth and Source: Bloomberg
delivering on operating leverage. After making revisions to our earnings estimates, we have retained Buy
rating on WLDL with a TP of Rs370 (from Rs450 earlier) based on an unchanged forward EV/EBITDA
multiple of 28x.

Y/E March (Rsmn) 1QFY19 4QFY19 1QFY20 YoY (%) QoQ (%) FY18 FY19 YoY (%)
Net sales 3,417 3,392 3,819 11.8 12.6 11,349 14,016 23.5
COGS 1,229 1,217 1,376 12.0 13.1 4,275 5,055 18.2
% of sales 36 36 36 10bps 10bps 38 36 (160bps)
Gross margin % 64.0 64.1 64.0 (10bps) (10bps) 62.3 63.9 160bps
Employee costs 457 522 502 10.0 (3.9) 1,721 1,971 14.5
% of sales 13 15 13 (20bps) (230bps) 15 14 (110bps)
Other expenses 1,392 1,404 1,453 4.3 3.4 4,597 5,783 25.8
% of sales 41 41 38 (270bps) (340bps) 41 41 80bps
EBITDA 339 248 488 43.9 96.8 755 1,206 59.7
EBITDA margin % 9.9 7.3 12.8 290bps 550bps 6.7 8.6 200bps
Depreciation 186 210 332 77.9 58.0 673 797 18.5
EBIT 153 38 156 2.3 311.6 83 409 395.0
EBIT margin % 4.5 1.1 4.1 (40bps) 300bps 0.7 2.9 220bps
Interest expenses 40 49 203 403.8 312.2 151 177 -
Other income 9 72 30 245.2 (58.0) 248 161 (35.2)
Exceptional items
PBT 121 61 (17) (113.7) (127.3) 180 393 118.2
Tax 5 (11) (5) (210.5) (50.6) 13 (10) (177.7)
Effective tax rate % 4 (18) 32 28.0 49.5 7 (3) (10.1)
PAT 116 71 (11) (109.7) (115.8) 167 403 142.0
PAT margin % 3.4 2.1 (0.3) (370bps) (240bps) 1.4 2.8 140bps
EPS 0.7 0.5 (0.1) (109.7) (115.8) 1.1 2.6 142.0
Source: Company, Nirmal Bang Institutional Equities Research
 Institutional Equities
Exhibit 1: Financial summary
Y/E March (Rsmn) FY17 FY18 FY19 FY20E FY21E
Net revenues 9,308 11,349 14,016 15,634 17,686
YoY growth (%) 11.7 21.9 23.5 11.5 13.1
SSG 4.0 15.8 17.5 8.2 8.0
EBITDA 470 755 1,206 1,489 2,029
EBITDA margin (%) 5.0 6.7 8.6 9.5 11.5
PAT (121) 167 403 526 786
EPS (Rs) (0.8) 1.1 2.6 3.4 5.1
YoY growth (%) N.R. N.R. 142.0 30.6 49.3
RoCE (%) (2.4) 1.1 5.3 7.8 12.6
RoE (%) (2.3) 3.1 7.2 8.6 11.6
P/E (x) N.R. 298.9 135.1 86.0 75.2
P/BV (x) 6.3 9.2 9.3 7.1 8.3
EV/EBITDA (x) 72.3 67.5 46.1 31.2 29.6
Source: Company, Nirmal Bang Institutional Equities Research
Note: EBITDA and EBITDA margin are excluding the impact of IndAS116

Exhibit 2: Our estimates versus actual performance

Y/E March (Rsmn) 1QFY19 4QFY19 1QFY20 YoY (%) QoQ (%) NBIE estimate Variation (%)
Net sales 3,417 3,392 3,819 11.8 12.6 3,895 (2)
EBITDA 339 248 488 43.9 96.8 428 14
EBITDA margin (%) 9.9 7.3 12.8 2.9 5.5 11.0 (119)bps
Adj. PAT 116 71 (11) (109.7) (115.8) 168 (107)
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Change in our estimates

Y/E March Old estimate New estimate Change (%)
(Rsmn) FY20E FY21E FY20E FY21E FY20E FY21E
Net sales 15,978 18,695 15,634 17,686 (2.2) (5.4)
EBITDA 1,723 2,474 1,489 2,029 (13.6) (18.0)
EBITDA (%) 11 13 9.5 11.5 (126bps) (176bps)
Net income 702 1,151 526 786 (25.0) (31.7)
Source: Company, Nirmal Bang Institutional Equities Research
Note: EBITDA and EBITDA margin are excluding the impact of IndAS116

2 Westlife Development
 Institutional Equities
Financials (standalone)
Exhibit 4: Income statement Exhibit 5: Cash flow
Y/E March (Rsmn) FY17 FY18 FY19 FY20E FY21E Y/E March (Rsmn) FY17 FY18 FY19 FY20E FY21E
Net sales 9,308 11,349 14,016 15,634 17,686 PAT (121) 167 403 526 786
% Growth 11.7 21.9 23.5 11.5 13.1 Depreciation 637 673 797 855 956
SSG % 4.0 15.8 17.5 8.2 8.0 Other income (200) (248) (161) (243) (145)
COGS 3,663 4,275 5,055 5,656 6,417 (Inc.)/dec. in working capital (23) 267 (79) 87 53
Staff costs 1,407 1,721 1,971 2,101 2,304 Cash flow from operations 293 858 960 1,226 1,651
Other expenses 3,768 4,597 5,783 6,387 6,936 Capital expenditure (-) (907) (930) (1,296) (1,204) (1,400)
Total expenses 8,838 10,593 12,810 14,145 15,657 Net cash after capex (614) (72) (336) 22 251
EBITDA 470 755 1,206 1,489 2,029 Inc./(dec.) in invest. & other ass. 78 105 (202) 278 (185)
% growth 10.1 60.9 59.7 23.4 36.3 Cash from invest. activities (829) (825) (1,499) (925) (1,585)
EBITDA margin (%) 5.0 6.7 8.6 9.5 11.5 Dividends paid (-) - - - - -
Other income 200 248 161 243 145 Inc./(dec.) in total borrowings 409 (13) 448 (539) (100)
Interest costs 154 151 177 175 170 Cash from financial activities 409 5 461 (539) (100)
Depreciation 637 673 797 855 956 Others 128 - 102 - -
PBT (before exceptional items) (121) 180 393 702 1,048 Opening cash balance 70 71 109 92 (147)
Exceptional items - - - - - Closing cash balance 71 109 92 (147) (181)
Tax - 13 (10) 175 262 Change in cash balance 1 39 24 (239) (35)
PAT (before exceptional items) (121) 167 403 526 786
Source: Company, Nirmal Bang Institutional Equities Research
PAT (121) 167 403 526 786
PAT margin (%) (1.3) 1.4 2.8 3.3 4.4
% Growth (527.8) (237.4) 142.0 30.6 49.3 Exhibit 7: Key ratios
Source: Company, Nirmal Bang Institutional Equities Research Y/E March FY17 FY18 FY19 FY20E FY21E
Note: EBITDA and EBITDA margin are excluding the impact of IndAS116 Per share (Rs)
EPS (0.8) 1.1 2.6 3.4 5.1
Book value 33.9 34.9 37.5 40.9 45.9
Exhibit 6: Balance sheet Valuation (x)
Y/E March (Rsmn) FY17 FY18 FY19 FY20E FY21E P/Sales 3.6 4.4 3.9 2.9 3.3
Share capital 311 311 311 311 311 EV/sales 3.6 4.5 4.0 3.0 3.4
Reserves 4,964 5,111 5,519 6,045 6,831 EV/EBITDA 72.3 67.5 46.1 31.2 29.6
Net worth 5,275 5,422 5,830 6,356 7,142 P/E (274.1) 298.9 135.1 86.0 75.2
Total debt 1,904 1,891 2,339 1,800 1,700 P/BV 6.3 9.2 9.3 7.1 8.3
Deferred tax liability - - - - - Return ratios (%)
Total liabilities 8,803 9,291 10,243 10,427 11,277 RoCE (2.4) 1.1 5.3 7.8 12.6
Gross block 8,450 9,552 10,752 12,052 13,452 RoE (2.3) 3.1 7.2 8.6 11.6
Depreciation 3,142 3,815 4,612 5,467 6,424 Profitability ratios (%)
Net block 5,307 5,737 6,139 6,584 7,028 Gross margin 60.6 62.3 63.9 63.8 63.7
Capital work-in-progress 172 - - - - EBITDA margin 5.0 6.7 8.6 9.5 11.5
Investments 1,700 1,843 2,024 2,200 2,500 EBIT margin (1.8) 0.7 2.9 4.1 6.1
Inventories 302 337 410 458 597 PAT margin (1.3) 1.4 2.8 3.3 4.4
Debtors 49 64 98 159 131 Liquidity ratios (%)
Cash 71 109 92 (147) (181) Current ratio 0.5 0.3 0.4 0.3 0.4
Loans & advances 1,094 1,161 1,278 1,120 1,120 Quick ratio 0.4 0.2 0.3 0.2 0.3
Other current assets 100 39 46 50 80 Solvency ratio (%)
Total current assets 1,780 1,238 1,879 1,391 1,747 Debt-to-equity ratio 0.4 0.3 0.4 0.3 0.2
Creditors 783 1,084 1,178 1,239 1,503 Turnover ratios
Other current liabilities & provisions 915 932 864 1,000 900 Total asset turnover ratio (x) 1.1 1.2 1.4 1.5 1.6
Total current liabilities 3,528 3,850 4,381 4,039 4,103 Fixed asset turnover ratio (x) 1.8 2.0 2.2 2.4 2.5
Net current assets (1,748) (2,613) (2,502) (2,649) (2,356) Inventory days 28.9 27.3 27.0 28.0 30.0
Total assets 8,803 9,291 10,243 10,427 11,277 Debtor days 1.8 1.8 2.0 3.0 3.0
Source: Company, Nirmal Bang Institutional Equities Research Creditor days 72.8 79.7 80.0 78.0 78.0
Source: Company, Nirmal Bang Institutional Equities Research
Note: EBITDA and EBITDA margin are excluding the impact of IndAS116

3 Westlife Development
 Institutional Equities
Rating track
Date Rating Market price (Rs) Target price (Rs)
6 May 2015 Buy 296 403
11 May 2015 Buy 293 403
5 June 2015 Buy 280 403
10 August 2015 Buy 295 356
9 November 2015 Buy 238 335
8 February 2016 Buy 222 280
9 May 2016 Buy 202 282
9 June 2016 Accumulate 237 246
8 August 2016 Accumulate 214 219
24 August 2018 Buy 395 485
29 October 2018 Buy 320 420
4 February 2019 Buy 380 440
4 April 2019 Buy 420 490
15 May 2019 Buy 349 450
26 July 2019 Buy 291 370

Rating track graph

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Not Covered Covered

4 Westlife Development
 Institutional Equities
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NBSPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing /
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5 Westlife Development
 Institutional Equities
Disclaimer
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BUY > 15%
ACCUMULATE -5% to15%
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Rahul Arora CEO rahul.arora@nirmalbang.com -

Girish Pai Head of Research girish.pai@nirmalbang.com +91 22 6273 8017 / 18

Dealing

Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com +91 22 6273 8230, +91 22 6636 8833

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Michael Pillai Dealing Desk michael.pillai@nirmalbang.com +91 22 6273 8102/8103, +91 22 6636 8830

Nirmal Bang Equities Pvt. Ltd.

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6 Westlife Development