Westlife Foodworld sees stronger footfalls as input costs weigh on Q1 margins

Investment View and Valuation

Motilal Oswal Financial Services Limited reiterated its Neutral rating on Westlife Foodworld with a target price of Rs 550, based on 28x March 2028E EV/EBITDA on a pre-Ind AS basis. The broker noted that revenue performance improved in 1QFY27 and management commentary was positive for FY27, although profitability was below expectations because of input-cost inflation.

1QFY27 Revenue and Same-Store Sales

Westlife Foodworld reported total revenue of Rs 7,356 million in 1QFY27, an increase of 12 per cent year on year and broadly in line with Motilal Oswal's estimate of Rs 7,351 million. Same-store sales growth was 4.3 per cent year on year, ahead of the 3.5 per cent estimate and an improvement from 0.5 per cent in 1QFY26 and 1.5 per cent in 4QFY26.

Growth was supported by a 9 per cent increase in stores, double-digit guest-count growth in the West and South markets, and balanced momentum across channels. On-premise sales increased 12 per cent year on year, while off-premise sales rose 11 per cent. Management said May and June delivered mid-single-digit same-store sales growth and that momentum continued in July. However, average sales per store declined 1 per cent year on year to an annualised Rs 61 million.

Profitability and Margin Performance

Margin delivery was weaker than expected because of higher fuel, food and packaging costs. Gross margin was 67.6 per cent, flat year on year but down 50 basis points sequentially and below Motilal Oswal's 69.5 per cent estimate.

Restaurant Expansion and Digital Adoption

Westlife added a net four restaurants in 1QFY27, opening five and closing one, taking its McDonald's network to 482 restaurants across 79 cities. Additions were lower because of temporary fryer-inventory constraints following the conversion of LPG equipment.

Management reiterated plans to add more than 60 restaurants annually, compared with its previous pace of 45-50 additions, and is targeting 580-630 restaurants by December 2027. The company has 100 per cent penetration of McCafes and Experience of the Future restaurants.

Digital sales through self-order kiosks and mobile applications contributed about 74 per cent of revenue, up 150 basis points year on year. Cumulative application downloads exceeded 55 million, while monthly active users were about 3.7 million. Management is also restructuring the operating model from three divisions to five to improve execution speed and bring decisions closer to customers.

Management Outlook and Operating Leverage

Management guided for approximately 67 per cent FY27 gross margin amid inflation and retained its target of 100-150 basis points of annual improvement in pre-Ind AS EBITDA margin, subject to operating performance. The company has not taken price hikes and intends to maintain disciplined pricing, relying instead on operating leverage, cost optimisation and improving sales productivity.

Motilal Oswal expects regional demand and average daily sales to recover gradually. It expects better throughput from newer stores to improve unit economics and operating margins over the coming years. The broker models pre-Ind AS EBITDA margins of 8.2 per cent in FY27E and 9.4 per cent in FY28E, compared with 7.7 per cent in FY26.

Revised Financial Estimates

Following the quarter, Motilal Oswal increased its FY27E and FY28E EBITDA estimates by 6.1 per cent and 5.0 per cent, respectively.

Key Pressures and Execution Considerations

• Food, fuel and packaging inflation is weighing on gross margin and restaurant operating margin.
• Margin delivery in 1QFY27 was below Motilal Oswal's expectations.
• Regional demand and average daily sales are expected to recover gradually rather than immediately.
• Accelerated restaurant expansion will require effective execution, including the management of temporary equipment-related constraints.