Buy Westlife Development, target price Rs 415: JM Financial

JM Financial has given a buy rating to Westlife Development with a target price of Rs 415 over 12 months.
Given how FY21 is likely to turn out, as EBITDA level loss is expected in the first quarter of FY21), the brokerage has made a sharp cut in its FY21 forecasts but expects FY22 profits to be higher than FY20’s. These may also have the effect of delaying Vision 2022 targets.

The new direct cash flow (DCF) -based target price stands at Rs 415/share – a cut of 14 per cent versus the earlier target price.


The share price of the company moved down by -3.76 per cent from its previous close of Rs 328.10. The last traded price is Rs 315.75. Incorporated in 1982, Westlife Development has a market cap of Rs 5073.78 crore.

Investment Rationale

Westlife’s business update on 4QFY20 revenue performance signalled top-notch execution of its strategy of driving in-store sales through promotions and scaling up brand extensions (McCafe, McDelivery) helped strengthen performance significantly and drove same-store sales growth to to near-teens level of 12.3 per cent in Jan-Feb’20.

But according to brokerage calculations, Covid-19 fears and subsequent lockdown caused it to decline 45-50 per cent in March’20 (impact was felt even pre-lockdown). The impact would be even sharper for the first quarter of FY21, when business activity would be at a near-halt for at least 33 days.

The company could see some delay in achieving its earlier-stated Vision 2022 targets, according to which, average unit volume would have been in the range of Rs 60mn/store and margin in the early-to-mid teens range.

The company is responding through innovative solutions for customers (contact-less delivery) and focusing on cost-rationalisation. A significant proportion of rent is already on a revenue-share basis. Preserving its liquidity position (Rs 1.6 billion of liquidity surplus and Rs 2.25 billion of debt lines available – these total c.45 per cent of annual costs (excluding RM)).

Financials

For the quarter ended March 31, 2019, the company reported consolidated sales of Rs 430.72 crore, up 9.08 per cent from last quarter sales of Rs 394.87 crore and up 16.20 per cent from last year's same quarter sales of Rs 370.66 crore. The company reported net profit after tax of Rs 14.37 crore in the latest quarter.