Why we are out of Westlife(Mcdonald’s)?


Last week Westlife Development the master franchisee of McDonald’s in the south and west India declared their annual numbers. 

We analyzed the numbers and are not at all happy with them . its been years and years of losses and sales are marginally higher to around 900 crores. Marcet cap is around 4000 crore and we now getting nervous about potential returns from this stock.

We have accumulated this stock at around 160-175 and started selling it around 250 with last lot sold at 220 .

The commentary from the management is not giving us any comfort and the road map till 2022 does not justify the stock price.

“Westlife Development consolidated revenue for the quarter came in at Rs. 223 crores, registering 7.2% yoy increase.

EBITDA for the quarter rose by 25.5% yoy to Rs. 8 crore with a corresponding margin expansion of 52 bps. EBITDA margin for the quarter stood at 3.6%. This margin expansion was primarily driven by 36.8% yoy decrease in purchase of stock-in-trade.The net loss for the quarter came in at Rs. 4.15 crore v/s net loss of Rs. 6.34 crore in same quarter last year.Looking at the full year numbers, we see that revenue jumped by 12% to reach Rs.918.86 crore while EBITDA rose by 6% to 35.03 crore. The company reported net loss of Rs.12.12 crore v/s net loss (adjusted) of Rs. 19.91 crore in FY16.”The company has been focusing on bringing down the cost of setting up a new store with a “Restaurant Operating Platform 2.0” program. Westlife vice chairman Amit Jatia said the strategy had helped reduce fixed costs by 20-30%.With this, new stores are now adding to cash flow rather than reducing it”, he said. “In FY17, our cash flow has increased by 30%”.Westlife expects to post a net profit in the next 24 months, Jatia said.“Our biggest achievement for this fiscal year (FY16-17) is that while Euromonitor has estimated a 5.6% increase the size of the informal eating-out sector, we have seen 11.7% growth in revenues, beating industry rates,” Jatia said.”

So The company will start generating profits after two years …So we could look at this story may be after two years or stocks comes in the range of 150-160. The management has disappointed us on al fronts. With sales increase by only 11% and very very slow store expansion, and making losses year on year does not justify sky-high stock price.

Our initial hypothesis of such a big market to capture, and with brand and products of Mc Donalds the company can do wonders but it seems management doesn’t want to be aggressive and are not comfortable in taking some risks.

Aso with threats from Dominos and KFC now eating their market share, Patanjali is also coming behind them. So with so many uncertainties and sky-high stock price and very mild management, we have decided to dump ur entire holdings.

Also , since markets are at their all time high, we would like to take some money off the table. If the market crashes (Which we are waiting for and keeping cash in hand )we can get this stock at our comfort price of 150-175. Then we can relook at this stock.

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