Westlife’s maiden analyst meet focused on elaborating key pillars of the business and unveiling of Vision 2022. Over the next six years, it is aiming for mid-to-high single digit SSSG even as it doubles restaurant count to 450-500 from 237 currently, leading to 2.4-3x growth in sales. Brand extension is a key tool to grow same store sales and hence focus is to scale up McCafé (from 75 to 300-350) and McDelivery (from 124 to 300-325). It is in the process of rolling out ‘Restaurant Operating Platform 2.0’, which should lead to 20-25% reduction in operating and capex costs. Hence, it expects OPM to improve from 6.2% in FY16 to 13-16% by FY22 even as royalty increases from 4% to 8%. We build in net sales CAGR of 17.6% over FY16-18. Despite higher royalty, we estimate OPM expansion of 300 bps over FY16-18. Maintain ‘buy’ with DCF-based target price of `300.
Management highlighted three competitive advantages: strong supply chain (localised sourcing of products/ equipment over the past 20 years); real estate (diverse portfolio of restaurants, long term contract of 20 years) and people (experienced mgmt. team, know how from McDonald). Over the next six years, management is focusing on growing market share and increasing revenue by 2.4-3.0x. This will be driven by a combination of growing same store sales with the help of brand extensions, menu introductions and contemporary brand imagery and broadening the accessibility of brand McDonald’s.