However, valuations limit upside; coverage initiated with Neutral and TP of Rs 440
WLDL, which is focused on establishing and operating McDonald’s restaurants across West and South India through its wholly-owned subsidiary Hardcastle Restaurants Pvt (HRPL), offers an exciting investment opportunity in the Indian QSR (Quick Service Restaurant) space on account of the following factors: The large Indian Food Service Industry (FSI) is expected to deliver 9% CAGR in the coming years, and QSRs are best placed to tap this opportunity. With their affordability, aspirational branding, higher convenience, scale benefits, and technological edge, QSRs are expected to grow at 19% CAGR over FY20-25e.
WLDL offers strong growth potential with 3x store network expansion potential, robust SSSG performance led by brand extensions, profitable and improving unit economics, and improvement in return ratios. We are encouraged by the long term structural opportunity. However, the current valuations seem to fully price in the near term upside. We initiate coverage with a Neutral rating and TP of Rs 440.
Valuation: WLDL ticks all the boxes as an attractive investment from a potential topline and earnings growth perspective. It has already demonstrated strong performance in recent years. Once the company emerges out of the COVID-led disruptions, this is one of the few businesses among consumer/retail peers that can compound earnings at 20% or higher. This is reflected in our forecasts of ~20% Ebitda CAGR over FY20-25e. There is, therefore, a compelling case for investment over the next three years.