The pandemic dealt a crushing blow to the food services industry. As per Crisil’s estimates, the volume of the organized sector dipped 90% during the lockdown. But the quick service restaurant segment has since managed to stage a swift comeback.
Westlife Development, which manages McDonald’s in West and South India, had to shut 19 stores in the past two quarters. But in Q3FY21, its revenue has reached 85-90% of pre-COVID levels. During the June and September quarter, Westlife’s revenue had plunged 75% and 48%, year-on-year, respectively.
The stock has also recovered from the May 2020 low of Rs.271 and now trades at Rs 452. Cashing in, director Achal Jatia has offloaded stock worth Rs.357 million and reduced his stake from 2.86% to 2.36%. This was Jatia’s first sale in the past 12 months. Overall promoter holding now stands at 58.58%.
Analysts are optimistic about Westlife’s recovery, even though the Q3FY21 result was below their estimate. Analysts at Edelweiss Securities believe that convenience channels contributed to Westlife’s volume recovery. They have maintained a ‘buy’ rating with target price of Rs.535. “We believe WDL’s focus on brand extensions, cost management and diversification into segments of the future should help it achieve sustainable high-single digit SSSG once market condition normalizes,” the report states.
Analysts at Nirmal Bang Securities also harbour a similar view. They feel that strong optimization of fixed costs supported Westlife’s margins and have maintained their ‘accumulate’ rating with a target price of Rs.495. “Going forward, improvement in gross margin along with operating leverage should lead to a sharp improvement in operating margin, signs of which are already visible with a leaner cost structure,” mentions the report.
Meanwhile, mutual funds have increased their holding from 12.6% to 13.09% in the December 2020 quarter. Sundaram MF increased its stake from 2.62% to 2.77%. SBI Hybrid Equity Fund and ICICI Pru Life Insurance Company are the biggest institutional holders with 6.99% and 6.71%, respectively. While FPIs have trimmed their shareholding from 10.02% to 9.59%. Smallcap World Fund is among the prominent investors with 1.24%.
