March 3, 2023
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WESTLIFE FOODWORLD, Supply chain bolsters growth prospects
Call & Research Report by Motilal Oswal
Sector: Consumer
CMP Rs. 675, Target Rs. 745 (10% upside potential)
Target Period: 12 Months
The Westlife Foodworld (WLDL) management organized a visit to the facilities of two of
its key supply chain partners – Vista Foods and Radhakrishna Foodland. Both of them
have had a long association with McDonald’s in India and are also critical for WLDL’s
growth plans, especially as the company now plans to add an unprecedented 50-60
stores annually as highlighted in our note, following the unveiling of its Vision 27
program in December 2022:
Key highlights from Vista Food facility visit and management meet
● Vista Foods India is a part of OSI international, a Chicago-based long-term global supplier to McDonald’s. It started the supply chain 1.5 years before McDonald’s opened its first store in the country in the mid-1990s.
● It is a key player for McDonald’s India in the meat (mainly chicken) and vegetable patties/nuggets processing supply chain. About 55-60% of its capacity is used by McDonald’s alone.
● Among many other plants, it also operates the largest frozen food plant in
South India.
● Vista Foods India has also been crucial in setting up lettuce supply chain and the supply chain for potatoes used in french fries, both of which were nonexistent earlier.
● McDonald’s has been able to increase the average weight of chicken to nearly 2x, since the beginning of its operations in India.
● Being privy to McDonald’s expansion plans over the next three years, Vista is a critical component of the much vaunted ‘cluster-based approach’, which lowers the cost of the supply chain.
● 95% of all raw materials (including coffee and palm oil) are now sourced locally and sustainably in India.
● Vista has also been able to convert used cooking oil to 99% bio-diesel.
● Stringent quality control and process discipline indicate wastage levels are only ~1%.
Key Highlights from Radhakrishna Foodland facility visit and management meet
● Radhakrishna Foodland is the sole transport and warehousing system provider for WLDL.
● It works with McDonald’s India on inventory planning, replenishment, data analytics, demand planning, warehousing, transport (to and from vendors and stores), and vendor payment mechanisms, etc.
● Its association with McDonald’s goes back to the days when it started operations in India.
● In Westlife Territory (West and South India), RK Foodland has four Distribution centers at Kalamboli in Maharashtra, Bangalore, Hyderabad, and Ahmedabad. The last two facilities have been recently set up. The Hyderabadfacility reduces the distance travelled to supply significantly.
● All their modernized trucks have GPS trackers.
● The management focusses on ensuring that there are no stock-out at the store level and the trucks are fully utilized to transport inventory to and from the store as well as vendor partners, including Vista.
● Average distance travelled for Westlife has been coming down year after year. Average distance travelled for QSRs are anyway lower than FMCG products.
● Interestingly, the same truck can have multiple temperature-controlled zones and these are also customizable to single temperature. Thus, the trucks remain fully utilized at all times in their transport route.
Valuation and view
● As indicated in our detailed note in Dec’22 after the unveiling of WLDL’s Vision 2027, building blocks are in place to capture the long-term opportunity in the QSR space.
● The visit to the supply chain partners also enabled us to appreciate key pillars that support the Vision 2027 growth plans
● We reiterate our Neutral rating on the stock, given its: 1) fair valuations, 2) a scheduled increase in royalty rates to 2x from its current levels, and 3) limited incremental gross margin levers. Our valuation at 26x pre-Ind AS FY25E EV/EBITDA leads to a TP of INR745.
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