Westlife Foodworld Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Record year, steady quarter: FY23 delivered highest-ever sales, SSSG, EBITDA margin and ROCE, while Q4 SSSG hit 14% with dine-in up 38% YoY, establishing a post-COVID baseline the company calls "bigger, better, bolder."
• Margin expansion with a caveat: Gross margin rose 371 bps YoY, but roughly half that gain came from a one-time volume delivery incentive and an accounting reclassification; underlying gross margin sits near ~67%, and management targets only a 100 bps band around it.
• Growth is dine-in-led, off-premise moderating: On-premises grew 38% YoY while off-premise growth slowed to ~5% in Q4 despite a new McDelivery app launch; the full-year story was largely a dine-in recovery, which carries seasonality risk.
• Innovation pipeline is the long bet: Management wants 50–60% of business to come from innovation over a 2–3 year horizon, pointing to McCafe and fried chicken as platforms that could reshape the mix, but no near-term commitments were made.
• What to watch next quarter: Whether the 2–3% price increase lands without hurting volume, how the 40–45 new stores ramp, and any signal on fried chicken expanding beyond South India.

Quarterly Performance & Margin Mechanics

• Top-line strength: Q4 sales growth was broad-based across channels, geographies and portfolio; west and south markets grew steadily, and smaller cities responded extremely well to new experience-of-the-future (EOTF) restaurants with McCafe.
• Dine-in drove the quarter: On-premises business grew 38% YoY, while off-premise growth moderated to ~5% despite the March launch of a new McDelivery app; management noted full-year growth was largely dine-in-led, which has inherent seasonality.
• Digital penetration: Digital sales jumped to 62% in Q4, led by self-ordering kiosks and the growing EOTF store base; McDelivery grew at 1.5x the rate of third-party operators.
• Gross margin unpacked: Reported gross margin of 71.9% includes a one-time volume delivery incentive and an accounting shift where production moved to job workers, reclassifying processing charges from COGS to other expenses; the like-to-like gross margin was ~68.2%, and management pegs the annualized run-rate at roughly 67%.
• EBITDA margin: EBITDA margin grew 51 bps YoY to 16.5%, with gross margin gains partially offset by higher G&A; payroll as a percentage of sales improved from 9.1% to 8.9% YoY, though absolute payroll rose sequentially on higher crew costs tied to sales volume.
• G&A trajectory: G&A was stable at ~6% for FY23, with a higher variable incentive payout than budgeted; management expects some operating leverage benefit over the longer term as sales rise, but gave no timeline.

Jatia: "I would keep 100 bps plus/minus. And I would say that's the range in which we will deal with"

Store Expansion & Capex

• FY23 additions met: The company added 18 new restaurants in Q4, hitting its annual target of 35 new restaurants for the year.
• FY24 plan: On schedule to add 40–45 new restaurants in FY24, with a gross addition of 42 planned; closures are rare, at most 1–2 per year.
• Vision 2027 scale: The long-term target is 580–630 restaurants by 2027, implying a multi-year build-out that will require sustained real estate execution.
• Capex envelope: Typical annual capex of ₹200–250 crore will be maintained; management declined to break out the ₹270 crore FY23 spend across new stores, EOTF upgrades and other refurbishments.
• EOTF coverage: 72%+ of stores are now in the experience-of-the-future format; all new stores will carry EOTF features, and the goal is to reach 100% EOTF.
• New store productivity: The company endeavours to keep average unit volume above ₹6.6 crore, inclusive of new stores; management declined to share performance splits by store vintage.
• Opening cadence: Cycle times from real estate identification to opening remain long, especially for Drive Thrus; marginally more openings are expected in H2 FY24, consistent with prior-year seasonality.

Jatia: "I'm a strong believer that you've got to keep your facilities, your asset base, very modern and relevant. And even by global McDonald's standards, in fact, 95% of our stores are in that category."

Menu, Innovation & the Future Mix

• Core platforms performed: The menu centered on burgers, meals, chicken and McCafe drove Q4 performance; Chicken Big Mac elevated the Mac platform while strengthening the chicken market position; McCafe beverages grew strongly, with great-tasting burger scores and coffee scores hitting all-time highs.
• McCafe recovery: Both dine-in and McCafe are now performing above pre-COVID levels on a per-store basis.
• Innovation as a growth engine: Management is explicit that 50–60% of the business must come from innovation over a 2–3 year horizon, pointing to McCafe and fried chicken as examples of platforms that could become large chunks of future revenue.
• Fried chicken stays regional: The fried chicken platform is retained as a South India phenomenon for now; the Chicken Maharaja Mac promotion ran across West and South, but management declined to commit to a West India chicken rollout, saying they will decide "when it's right."
• Breakfast is small but sticky: Only ~130 restaurants serve breakfast (mall locations open late and are excluded); all do "very decently well," and management sees a big opportunity emerging, but breakfast is prioritized against other levers that maximize revenue.
• Product mix opacity: Management declined to share the revenue or volume contribution of Chicken Big Mac or any product mix breakup, deflecting to the broader goal of growing average unit volume.

Jatia: "We keep pushing ourselves to look for lines like we did with McCafe. So for example, we will keep experimenting with things, which will give us a very large chunk of our business for day after tomorrow."

Pricing, Inflation & Margin Outlook

• Inflation normalizing: The excessive inflation of the prior year has restored to normalcy; dairy still carries some inflation but is manageable within the 4–6% range the company has operated in for 25 years.
• Pricing posture: No price increase was taken in Q4; management plans a 2–3% increase during the year, with a stated principle of staying at 2% in great years and 3–4% only when inflation is higher.
• Gross margin philosophy: Management is focused on maintaining gross margin in the current territory, not necessarily growing it; the priority is to grow sales and bring profit to the bottom line through operating leverage, with a tolerance band of 100 bps plus/minus.
• Operating profit path: The vision statement guides for sequential year-on-year improvement in operating profit through multiple levers, with operating leverage being the primary one; no quantified margin target was given beyond the directional commitment.

Digital, Channels & Competitive Positioning

• Off-premise resilience: Off-premise contributed over 40% of sales on a high base; McDelivery outperformed third-party operators by 1.5x, and the new McDelivery app launched in March is designed to handle higher order volumes during peaks with an enhanced user experience.
• ONDC watchfulness: Management is thinking about how to apply and utilize ONDC but pushed back on the idea that it would be more margin-accretive than existing channels, stating plainly: "No, I don't think so. I don't think it's going to be more accretive."
• Market-share posture: Management believes that by building its own baseline and delivering same-store sales growth, what happens in the broader marketplace is "to some extent, irrelevant."

Jatia: "We believe that by building baseline, as Akshay said, we will be able to maintain the same-store sales growth. And as long as we deliver that, I think what happens in the marketplace to some extent, is irrelevant, from our point of view."

Capital Allocation & Leadership

• Dividend policy formalized: The board approved an updated dividend distribution policy guiding for around a 25% dividend pay-out ratio, subject to conditions; the policy document will be available on the corporate website.
• Subsidiary dividend milestone: For the first time, Hardcastle Restaurants Private Limited, the wholly owned subsidiary, proposed a dividend to Westlife, signaling maturing cash flows at the operating entity.
• Leadership transitions: Saurabh Kalra was elevated from COO to Managing Director effective March 2023; Rohit Kumar joined as CHRO and Sohail Nalwalla joined as supply chain head.

Guidance & Commitments

Key Metrics