Westlife on cusp of turnaround

Continued sales momentum, focus on brand extensions

Westlife Development (Westlife), McDonald’s franchisee owner in south and west India, should soon see a turnaround on an annual basis. The company, which has been ramping up stores over the past few years and consistently meeting consumer preferences, has also broadened its revenue streams. Its brand extensions, comprising McCafé, breakfast menu as well as delivery (home/office), have been driving growth in recent times. 

The ability to meet consumer preferences has helped Westlife achieve a healthy growth between 1.7 per cent and 8.4 per cent from existing stores in the past six quarters, notwithstanding the slowing consumption demand that has put pressure on a lot of quick service restaurants (QSRs).

Amit Jatia, Vice Chairman, Westlife Development, says, “We believe brand extensions will contribute at least 50 per cent of our revenues by FY22. This translates to a revenue growth of three times from current levels to Rs 450-500 crore for these businesses. These segments will also drive our margins higher.” 

The brand extensions currently contribute about Rs 150 crore (16 per cent) to Westlife’s annual revenues.

This optimism is also shared by analysts tracking the stock, as reflected in Bloomberg consensus estimates of 18 per cent revenue growth over FY17-19, while Ebitda margin are expected to increase to 9 per cent from 5.2 per cent in FY16. 

Going ahead, while the company will continue to add stores, it has not toned down the pace, and aims to reach 450-500 (McDonald’s) and 300-350 (McCafé) stores by FY22, from 252 and 104, respectively, at present. It is also trying to ramp up footfalls by installing digital kiosks, which allow convenience of ordering customised meals, free Wi-Fi and other facilities.

A strong pace in new store additions, so far, has kept depreciation elevated, leading to net loss for the company in recent years. As its new stores mature and contribution from brand extensions ramps up, Westlife is expected to witness turnaround at the net level as well. Notwithstanding quarterly fluctuations, net loss has fallen from Rs 40.3 crore in FY15 to Rs 22.6 crore in FY16.

The company is also stepping up efforts to drive cost efficiencies, which will start bearing fruits in the next 12-24 months. Rising presence of healthy foods such as salads, soups, etc, in its menu will help Westlife to cater to fitness-conscious customers.

Markets seem to have sensed the improvement is underway. The stock, which was lagging market since July 2015, has caught up speed and has outperformed Sensex since January this year. Most analysts are also positive on the company on the back of strong prospects, and expect the stock to deliver returns of about 23 per cent over the next one year.