Westlife Foodworld Limited (505533) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Westlife Development Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dr. Dattaprasad Tambe, General Manager, Finance and Accounts. Thank you, and over to you, Mr. Tambe.

Thanks, Nirav. Thank you all for joining us on the Westlife Development Limited Earnings Conference Call for the quarter ended December 31, 2021. We are joined here today by Mr. Amit Jatia, Vice Chairman; Ms. Smita Jatia, Director; and myself, Mr. Dattaprasad Tambe, General Manager, Finance and Accounts for Westlife Development Limited. Please note that our financial results and investor presentation has been mailed across, and these are available on our website as well. I hope you had the opportunity to browse through the highlights of the performance. We shall commence today's call with key thoughts from Amit, who will provide a strategic overview, which shall be followed by Smita to take you through the key business initiatives with overall operational progress and the strategic imperatives that lie ahead. I will cover the analysis of the financial performance period. At the end of the management discussion, we will have a Q&A session. Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties we face. A detailed statement and an explanation of these risks is available in this quarter's press release, investor presentation and in our annual report, which is available on our website. The company does not undertake to update these forward-looking statements publicly. With that said, I would now like to turn over the call to Amit to share his views. Thank you. And over to you, Amit.

Thank you, Datta. Good evening, everyone. Firstly, I wish all of you a very happy and healthy 2022 and hope you and your loved ones are safe. 2021 was a special year for us for many reasons. To begin with, it marked a significant milestone for us at Westlife as we completed 25 years of operations in India. Looking back at the journey we have traversed, there is so much to be proud of. From a single store in Bandra to over 310 stores in 44 cities, from pioneering large-scale lettuce farming to setting up various ecosystems from scratch, that have taken lives of their own, from a 10-employee store to building a 10,000 strong family, from bringing a quintessential American brand to India to making it a household name, our journey has been defined by leadership across menu, people, supply chain and technology. Our growth has been consistent, sustainable and a true testimony to our commitment to the market. We have also been very mindful about our impact on the environment and the community we have been part of. We have, therefore, woven sustainability in our business right from the start and are very proud of our ESG efforts that have resulted in positive impact in terms of reducing carbon footprint, skilling the youth and generating employment. There have been many wins for us in these 25 years. But the one thing that we are more grateful for is all the love we have received from our customers, 300 million strong customers. And we thought the best way to celebrate this milestone would be to do something to give back to the community. To mark our [Audio Gap] in India, we have announced 25 Acts of Happy, 25 big and small initiatives we hope will bring a smile to the faces of our customers and employees. Smita will be telling you more about these initiatives. But like I said, the year 2021 brought in many more reasons for us to celebrate. 2021 was the year we saw our strategies come to life. We believe that the last 20 months have been an inflection point for our business. What started off as an unprecedented crisis steadily turned into a springboard for our next phase of growth. Our concerted efforts to build an all-daypart menu and omnichannel brand and a strong value proposition made up the customers favorite. Our technology investments to pivot McDonald's from a food to food tech brand started manifesting in the way our customers used our brand across several touch points, helping us own the convenience proposition. This, complemented with our sharp focus on cost and operational efficiencies, a unique real estate portfolio and best-in-class supply chain helped us accelerate business and set new benchmarks. We saw this play out strongly in quarter 3 FY '22 as we delivered our best ever quarter so far, firing on all cylinders, notwithstanding the restrictions and volatilities. The convenience channels that we built over the last 20 months continued to grow stupendously. As we have hypothesized right at the beginning of the pandemic, the convenience channel continued to add incremental revenues, led by new brand use cases, even as dine-in came back strongly. This is a true testimony to our omnichannel strategy that customers being able to access us wherever and however. Menu innovation is our core strength and this quarter, we added the new Gourmet Burger Collection to our menu. The customer feedback for these new indulgent range of burgers have been phenomenal. Last quarter, I shared how our new Fried Chicken platform was aiding the average unit volume growth in a big way. Now with these new burgers, our AUV is set to accelerate further, boosting the overall profitability of our restaurants. I now hand over to Smita to take you through the earnings presentation.

Thank you, Amit, and good evening, everyone. Happy New Year to you all, and hope you are all keeping safe. I am happy to share that quarter 3 FY '22 was our best ever quarter with robust trends across all business parameters. As a stronger new normal set in for us, our revenues jumped by 46.7% Y-on-Y to INR 4,768 million, our highest ever in 25 years. Our SSG for the quarter stood at 44% Y-on-Y. This was driven by growth across both dine-in and convenience channel that grew by a solid 39% and 55%, respectively. Our performance continued to accelerate through the quarter. We started by clocking an all-time revenue in October and then beat that in December, setting a new benchmark. This growth in revenue was complemented with continued cost efficiencies. So despite all inflationary pressures, we clocked a robust gross margin of 66.4%, an improvement of 48.3% Y-on-Y. Our strong topline ensured a robust 60.3% Y-on-Y jump in restaurant operating margins that stood at 22.6%, again setting a new benchmark. We also reported an all-time high EBITDA of INR 836.2 million, a 61% increment Y-on-Y, taking our EBITDA margin to a new high again. As a result, our PAT zoomed to an all-time INR 208.2 million, a formidable jump over the same quarter last year. What is particularly interesting to note is that this growth came in a quarter that continued to see COVID-led restrictions. But our strategy pegged on a strong channel mix enabled us to activate different levers depending on what the external environment was. This helped us capitalize on the tailwinds for the organized eating out sector and grow our overall revenue pie, which we believe is the new baseline for us. Quarter 3 FY 2022 was a true manifestation of all our efforts in the last 20 months. Our vision to build a one-for-all, all-for-one brand with an omnichannel presence and relevant menu offerings for all dayparts and segments truly came alive in this quarter. We saw a strong dine-in as malls and food courts recovered. This, however, did not result in any cannibalization for our convenience business, which continued to accelerate. Like you can see on Slide #11, our sales mix over the last few quarters has had a significant share on convenience-led revenue. Even in this quarter, when most dine-in restrictions were eased, 45% of our revenue came from our convenience channels. This is a testimony to our definite pivot to being a convenience-led brand with a stabilizing channel mix. As you know, we have been making concerted efforts to build and grow our meal daypart through our [Audio Gap] and premium burger platform. I am happy to share that this quarter, we saw a robust 50% jump in our meal daypart revenue. This led to a larger revenue pie on the back of new customers, new brand use cases, and growing AUV. Menu innovation, omnichannel strategy and network expansion continued to be the key levers of our strategy. Our [Audio Gap] aids our all-daypart proposition and enables us to own both the snacking as well as the meal proposition. Reinforcing our burger leadership this quarter, we launched our new Gourmet Collection, a range of premium in the [Audio Gap] made with exotic ingredients and sauces. This helped us bring in new customers to the McDonald's fold and further strengthened our meal proposition. As a result, our burger meal volumes grew by over 50% as compared by June 2021, and we saw a good jump in our brand scores for great tasting burgers. As you know, chicken is emerging as a pivotal platform for us, giving us a strong foothold in the South market and helping us boost AUV in a big way. This quarter, we gave our chicken offering yet another fillip by launching the Rashmika Meal. As a part of the campaign, we not just tapped into superstar's popularity to build brand relevance, but also led some disruptive innovations to build long-term brand [ recall ]. As a result, our chicken scores jumped up by close to 4x. We also kept our final coffee platform buzzing with exciting new launches and marketing campaigns. Finally, as one of our 25 Acts of Happy, we gave our iconic Happy Meal a wholesome makeover by adding a mixed fruit beverage and a cup of hot fresh corn to it. All these menu interventions together helped us increase our average unit per restaurant by a solid 30%, taking it close to INR 6 crores, which is 2x to 3x of the industry average. I would like to highlight that this has come purely on the back of menu relevance without any significant CapEx investments, thus giving a boost to our [Audio Gap] Second lever of our strategy, our omnichannel strategy helped us complement our strong menu relevance by making the brand ubiquitous, accessible, however, wherever and whenever they like. We deployed a series of ATL and BTL initiatives to showcase these channels, including delivery, takeout, on-the-go, drive-thru and of course, dine-in. This created new brand use cases, helping us acquire new customers and increase frequency of the existing ones. Convenience continued to fire with McDelivery yet again clocking an all-time high revenue. At the same time, we saw a complete recovery of dine-in in the quarter as malls and multiplexes came back. While McDelivery has continued to enable our convenience proposition, our McDonald's app, a unique offer engine that gives customers personalized offers played a key role in driving in-store volumes and frequency. The app saw cumulative downloads of 1.3 million in the quarter. We also saw both active user base and average check for the McDonald's app increased significantly. With a stronger baseline, we are back on track with our expansion plans. This quarter, we added [ 8 ] new stores, taking our restaurant count to 316 restaurants across 44 cities. Close to 80% of our restaurants have McCafe now while 100 of them are Experience of the Future stores. We are now ready to accelerate our network, doubling our new store run rate from 25 to 30 a year to 40 to 50 stores a year. With an investment close to INR 800 crores to INR 1,000 crores in the next 3 to 5 years, we are looking at taking our store count to more than 500. Our expansion strategy will be completely aligned with our omnichannel strategy. We will have a robust portfolio of Experience of the Future stores and stores with separate takeaway windows, enabling our customers to use our brand wherever, whenever, however they like. Inclusion and sustainability have been important pillars of our past 25 years. We have been very mindful about creating a positive impact on the environment and community. Last year, we launched Eat Equal packs that make the act of eating burgers easy for our people with limited upper limb mobility. This quarter, as one of our 25 Acts of Happy, we reinforced our commitment to inclusion through a refresh to the Eat Equal campaign. Eat Equal is an inclusive platform that we will continue to build. This unique packaging marks just the first step in the direction. We aim to launch a host of new meaningful innovations to make the McDonald's experience easy for everyone. I now hand it over to Dattaprasad, who will take you through the financial highlights of the quarter.

Thank you, Smita. Good afternoon, everyone. Hope you all are doing well. I wish you a happy 2022. It's been a happy start for the year for us. As Smita said, we clocked all-time high sales of INR 4768.3 million, a 46.7% jump from the same quarter last year. The same-store sales growth has jumped to 44%. The topline results represent a continuation of our broad-based business momentum that is coming from both on-premise and off-premise consumption. We have seen robust business growth across all our channels, in-store, delivery, takeaway and drive-thrus, thus reinforcing our faith in our omnichannel strategy. Let me give you some key highlights of Q3. We saw record sales in each of the 3 months, October, November and December, resulting in highest ever revenue with high AUV of INR 6 crores. Our gross margin jumped by 48.2% despite inflationary pressures. This is because we continue to maximize our supply chain efficiency and rationalize the food cost. The strong revenue growth led to commensurate increment in both EBITDA and operating EBITDA that jumped by more than 60%. This is on the back of operating efficiencies in utilities and M&R. The flow-through of the topline growth also gave our margins a strong boost, and we clocked an all-time high PAT margins, operating EBITDA margins and restoring operating margins. As a result, our PAT increased manifold and created a new benchmark of INR 208.2 million for the quarter. We have complemented our revenue growth with continued cost leadership. We continue to target meaningful margin progress and are tracking towards our long-term margin objectives, demonstrating our ability to accelerate value creation, regardless of the environment. We continue to maintain a strong balance sheet and a robust liquidity position by optimizing our strategy and working capital. Our relentless focus on internal improvement and driving synergies across our portfolio will enable us to extend our continued best in-class record. Going forward, we are confident that our operating performance will continue to fuel growth in our already strong free cash flow profile. As a result, we are committed to our historical capital allocation priorities to invest in new restaurants, in existing restaurants and opportunity to grow the business. I now hand it over to Amit for his closing remarks.

Thank you, Datta. The short-term volatilities are here to stay, but we believe we have the right playbook to navigate these and stay relevant to our consumers. We are bullish on the future and [Audio Gap] press the gas pedal. We have a solid strategy, pegged on menu innovation, digital and strategic store expansion. With Gourmet Burgers, the chicken platform and McCafe, we believe we have the right menu strategy to retain, regain and acquire customers, increasing the baseline. We also have a pipeline of digital initiatives to drive personalization and enhance customer experience. Lastly, we've already started work on our expansion plans that we had announced in October 2021 as a part of our 25th anniversary. We have identified the opportunities to strengthen our presence and optimize our network. We have an aggressive expansion plan to increase our restaurant count to over 500 in the next 3 to 5 years and already have a pipeline of close to 100 new restaurants that will fructify in the next 1 to 2 years. As we enter our 25th year, we are excited about the opportunities and the possibilities of our next phase of growth has for us. [Audio Gap] very much and [Audio Gap] poll for Q&A.

[Operator Instructions] The first question is from the line of Avi Mehta from Macquarie.

Amit and Smita, congratulations on sales performance. I wanted to just understand first from a near-term lens, have we seen any material impact from the third wave on operations and more importantly, on the dine-in recovery in this strand that we are witnessing this quarter? If you could kind of give us -- help us understand that part, that would be helpful.

Yes. So --[ and soon ] that whether third wave or whatever the circumstances are externally, I think we've been true to an omnichannel presence, and we are able to kind of accelerate a different channel mix depending upon what the external environment is. So obviously, the third wave did see restrictions on dine-in again. But the good news was we were able to accelerate what we could on our other channels. And that's why even in December, while the last 15 days had restrictions, we were yet able to deliver a stellar quarter.

Just continuing on that, we have now seen 2 quarters of almost close to double-digit EBITDA growth, whether you take adjusted [ ICAT ] numbers or not. With the demand strength sustaining, would it be fair now to expect FY '23 to see double-digit EBITDA margins? Or if you could kind of help us give a sense on what should we look for as we go into next year, given the demand side looks fairly back -- coming back to normal.

Thank you, Avi. I mean, as you've seen, I think we continuously preface our business based on the situation. And if you look at a 4-year trend, we've grown our EBITDA by 130 basis points every single year, if you leave out the COVID exception. And I have talked about Vision 2023, effectively, FY '23, which is now sort of coming to close. And we have talked about a 13% EBITDA pre-IND AS. I think we will definitely -- we are at that number, and we definitely see that and more in the future. We will have an Investor Day, where we will talk about our next vision. And as we boldly laid that out in 2016, we'll again boldly lay out our next 3- to 5-year vision in the next event. But yes, you can expect this EBITDA to remain as the baseline.

And lastly, just a bookkeeping, could you share what CapEx number should we expect for FY '23, given that along with the 40, 50 stores, there would be investments required in digital as well as supporting infrastructure?

Sure. So firstly, I think you might have noticed that we've consistently reinvested back in our existing restaurants, which is why whenever we open McCafe, we modernize the restaurant as well. So the important thing that the industry -- even in the industry, I think everybody will realize this over time, keeping a modern fleet is extremely important. And today, the relevance of our designs with our consumers is at the highest. So we have 100 Experience of the Future restaurants and so on. So all those investments are going to continue. Essentially, you can expect about INR 200 crores of CapEx for the next year.

[Operator Instructions] The next question is from the line of Gaurav Jogani from Axis Capital.

Congratulations on a good set of numbers. Sir, my first question is with regards -- in your presentation, I have seen one thing that earlier, there was lot of focus on the value for money meals that you did. But this time, it was very heartening to see that the Gourmet Burger with the chicken offerings have also been in place. So can you just highlight how will be the contribution from these 2 pieces? And are their contribution increase will lead to the gross margin expansion also?

So it was not very clear, but whatever I could understand, I'll tell you. Firstly, in my opinion, it's not about -- I think it's the evolution of a brand. And in our journey, the first idea was to introduce burgers to consumers and make it relevant. And that was the first phase of value recruiting more users into the informal eating-out category. What happens is once it becomes baseline, then you've got to launch indulgence, which is what we have done now. But it does not mean that value is over. But yet at the same time, now consumers do expect indulgent products. So you will see a balance across these parameters coming from us, like particularly Gourmet Burgers have just been launched. So obviously, there's a lot of runway left on the Gourmet Burgers. I think Fried Chicken is also just the beginning. It is just our first step towards leadership in the chicken area. So essentially, we are going to deal with that. The second part of the question on gross margin impact. As you have seen, I always like to talk with facts. And if you look at 5 years of our history, 5 years is a very, very, very good basis for anybody to make a judgment as to where the company is headed. And through thick and thin, we have our secret recipe of how we are able to manage gross margins and components of that [ cost ] is around product mix, it's about managing supply chain, backward linkages to the farms, long-term relationships and so on and so forth. So I hope that answers the question, although it was not completely clear.

Sure, sir. That definitely does. I mean that was my point that, given the product mix, that would have improved this -- [ because of busy ] units, that also would have benefited the margin along with the cost efficiency. But you have answered that. Sir, my next question is with regards to the recovery in the dine-in theme. So I mean, is the dine-in recovery back to the pre-COVID levels? I mean we understand that in many places, there are still restrictions on the seating capacity, the 50% is on. So if you can put some more light on how the dine-in recovery is and how is the dining out as well?

Yes. So just before the wave 3 kind of hit, pretty much our dine-in was close to around pre-COVID levels, around 90% to 95%, and that's what you have seen that in the quarter, even dine-in has grown by 49%. So pretty much, again, I will repeat that depending on external circumstances, we basically just see which lever [ and ] channels are we able to accelerate. And that is why we are very true to our omnichannel strategy, and we have a very robust platform that irrespective of what happens in the future, we [Audio Gap] to be able to get what we can from our customers.

And just one last question for my end. The Slide #11 that you've put here, with the mix of the delivery and the convenience mix, I would say, has remained very consistent around 40%, 45%-odd. So should we consider this as a base case now going ahead with dine-in now also getting recovered?

Yes. I think that is the new baseline. We are [Audio Gap] There is an evolution. And as we said, new use cases, which the customers have come with, whether it is using the on-the-go feature or whether it is ordering in delivery even on a weekend. So we feel that this is going to continue as a baseline where both dine-in and convenience channels will have a very respectable contribution.

[Operator Instructions] The next question is from the line of Percy Panthaki from India Infoline.

My first question is on the margins. You mentioned that you would do a 13% kind of pre-IND AS margins very soon. Just wanted to understand the implications of the royalty increase, which would happen 2, 3 years down the line. I think it is slated to increase by approximately 300 basis points. So once that increase does take place, what kind of margins are we targeting on a pre-IND AS basis?

Yes, I have maintained this before and I've answered this many times that -- firstly, it's in 2026 Okay? And we have always maintained whatever vision we've set up is the absolute number that we are going to deliver. We are not going to lose the margin because royalty increases there. Also, I have mentioned this in the past, that while currently the path for royalty is up to 2026, there is -- it's unlikely that it will go from 5% to 8%. So that path, we will try and resolve and bring clarity over the next couple of years. But we are not very worried. If we are able to deliver whatever we are talking about, both in terms of unit growth as well as the average unit volume, in any case, globally, we are able to absorb these royalties. So that's what it is. But Smita would like to add something.

I mean the only thing I would add is, by FY '26, as you saw in this quarter, we are going to get as what we had always said, operating leverage benefit. You already saw the operating leverage benefit come with a INR 6 crore AUV. And by '26 this INR 6 core AUV will also grow and giving us the operating leverage to cover up for whatever loss of royalty, which could come up later.

And this 8% number, is that a standard number for McDonald's across other franchisees globally?

Absolutely, because I don't think I'm a bad negotiator.

Secondly, just wanted to understand in terms of the normalization of dine-in, although, yes, Q3 was a very good quarter. But I'm sure there's still some more leeway for normalization. Or do you think that basically, there is some amount of channel mix change which has happened, which is prominent in nature and therefore, comparing the normalization percentage to a pre-COVID level is not necessarily right because that benchmark itself has changed as people have changed their habits, et cetera? So any thoughts on that?

Yes. I have shared this over many earnings calls. I'll explain what I mean. Firstly, let's take the convenience channel sales today at INR 100, okay? So I strongly believe -- and let's say, earlier, the dine-in was INR 80, right? So what I'm saying is that the INR 80 won't come back to INR 80 for sure, and it's going to further grow, but the INR 100 is not going to drop. And therefore, in my opinion, percentages are irrelevant. Essentially, our sales will go up by 8% to 10% with the new channel mix. So I had explained that earlier as well. I hope you were able to see it because it's finally rupee value that matters, right?

And lastly, just wanted to understand in terms of now that you're accelerating your store addition, 2 sub-questions to that, one is that the new stores, are they going to be offered different square footage versus your existing stores? And the second sub-question to that is that with the new stores coming up, do you think that, sort of to some extent, depresses the sales per store on a total average basis because the new stores open up at a lower level? And how do we look at same-store sales growth, which is a slightly different metric versus just the sales per average store? How do you look at same-store sales growth going ahead once this COVID issues, et cetera, are normalized?

Okay. So again, I have mentioned this in pretty much all our earning calls. We do not believe that we are going to reduce the size of our restaurants. We will continue to build the 2,700 to 3,000 square foot restaurants. So far, it worked beautifully for us even with all the new restaurants. I think that kind of answers your second question because I don't see my average unit volume dropping, that's not been factored into our plan. And by no standards are we sort of going in that direction. Lastly, on stabilization, as I have said this many, many times, 8% to 10% same-store sales growth is kind of what we shoot for. So that's pretty much on a stabilized basis of what we will gun for.

[Operator Instructions] The next question is from the line of Vicky Punjabi from JM Financial.

So just again on this delivery and dine-in kind of split now, with McDonald's as a thought is that, given the [ categories ] which are better suited for a dine-in segment, the relaxation of restrictions that you saw in the last quarter, which was almost a normalized quarter pre the COVID hit, the thought process for me was that you would see a sharper growth in the dine-in segment. But when I look at the growth rates, I think delivery still continues to outpace the dine-in segment in terms of growth. Could you help me understand what sits in here? Or were there certain factors that actually kind of impacted the dine-in segment in this quarter as well?

See, firstly, I cannot disagree with the hypothesis that McDonald's is a dine-in brand. I've mentioned this many, many times that we operate in a segment called QSR and table stakes of QSR is around convenience, right? And convenience is all about just taking things away. And I mentioned this before that globally, even pre-pandemic, 70% of our business was off-premise. So you've got to understand that is the segment we operate in. In India, the brand had been building, and therefore, it is what it is. And what has happened is through COVID, the pivot has been sharp. And the last quarter is a phenomenal example of how this omnichannel thing [ form abnormal ] is a reality. So to my mind, in-store restrictions by the way, even in the last quarter, pretty much half of October and the last 10 days of December, which are the most important days, we had tremendous restrictions in dine-in. But yet we were able to deliver an almost INR 500 crore quarter, which we've never done before. So imagine if the restrictions are not there, our own expectations were higher than whatever numbers you see, and we got impacted because of the things I just talked about. So my belief is -- we keep talking about -- why do we keep talking about average unit volume, along with new store openings, because it goes hand in hand. The first point is that if some other brand wants to open 80, we believe that our 40 restaurants are worth 80 because of the average unit volume we do. And we are not saying that by opening the 40, the INR 6 crores should go down. We are, in fact, shooting. Our vision talks about a much higher average unit volume over time, and that is also visible in the global McDonald's model, which is over a 70-year horizon. If you look at McDonald's global average unit volume and you look at any of the competitors, it's almost double across the world. So I don't know if that answers your question but by and large, that's what it is. I think that's really what we feel.

Just on -- conceptually, if the mix changes in favor of delivery and the revenue per store would have remained the same, just in a hypothetical example, would that have a negative implication on the EBITDA margin per se?

No, because we've been through it over the last 5, 6 quarters, and you look at our gross margins. Other than very heavily impacted quarters like the first quarter of this year where everything was shut, right, it was the second -- beginning of second wave, you cannot compare that because everything goes topsy turvy, but outside of which even with delivery being 70% of sales, our margin profile has been pretty solid.

Just while we are here, I just wanted to understand, previously, you were talking about SSGs relative to pre-COVID levels or, say, your December '19 quarter. If I have to look at the overall unit SSG versus, say, instead of the base 3Q FY '21, we look at versus 3Q FY '20, what was that -- I mean what that figure could be?

I didn't understand the question actually.

I mean I just wanted to know the SSG versus, say, 3Q FY '20 levels rather than 3Q FY '21 levels.

It's about 10%. We believe in sharing SSG pretty transparently.

Last thing, in this quarter, I couldn't find the disclosure regarding the pre-IND AS EBITDA margin. I don't know whether I have missed it or not. Could you help us understand what is the pre-IND AS EBITDA margin for the quarter?

Yes, they are all better than whatever numbers you saw. We will -- it should have been there as an annexure. We will e-mail that to you. But I'll tell you the numbers. I mean, I know the absolute numbers. It's 13.5% EBITDA pre-IND AS. And our profit, of course, in an absolute number goes to INR 27 crores, INR 28 crores, which is another 200 basis points more than whatever you see here, which to me is the more important number.

So frankly, crossing a 13% EBITDA margin in a quarter that still had some impact and maybe we can't see the complete normalized quarter, does that mean the vision for EBITDA margins kind of get reset for the future?

It always does. I mean, see, we were in 2016 when the market was quite bad, I think we had wholly laid out a vision that nobody can have more deliverable. But I think quarter-on-quarter, year-on-year, I feel we've done that, and that's the feedback we got from the community as well. We will come out with our new vision. It will be bold, it will be big, it will be audacious, but it will be sustainable and smart in our opinion. I feel we've made bold calls. And even in real estate, while it seems that our number of store openings are what they are, but when we get there, it's a 25-year deal, it's a 20-year deal, it's a deal that is sustainable. And many, many examples of locations that otherwise would not have come through to us. If you look at the international departure McDonald's, that is there, everybody is talking about it as a beautiful store, volumes are phenomenal and we actually are profitable. And that's the kind of store we like. It took us time, but we are there. So that's sort of our philosophy, and you will see margin continuously rise from here on. And we will bring that out in our vision document -- the 3- to 5-year vision document.

Congrats for a very strong quarter.

Thank you very much.

[Operator Instructions] The next question is from the line of Kapil from Edelweiss.

Congratulations on a great set of numbers. Sir, in terms of revenue per store, we are at -- you have touched around INR 6 crores per store. And if we compare this to our closest burger competitor, it would be around INR 4 crores per store. So apart from the Cafe rate segment, there would be -- the number of mature stores also that would be contributing to a great extent. So what would be the mature stores as on today as a percentage of sales, as a percentage of total stores for us? And also like, what was the average store -- average revenue per store for these mature stores?

You see, I don't believe that stores mature because I'm not saying 3 years from now that these stores are not going to comp or we've seen store sales grow. Also, last year, we effectively did not open any stores. So all the stores that we are talking about, so our growth of the 47% is largely from existing stores and all of them have been opened, I think, 24 months or 20 months ago because the pandemic has been around for that long. So we feel that this mix is giving you this average unit volume. We feel that's quite positive.

And sir, a couple of bookkeeping questions from my side. So like the McDelivery hubs have given a very good sales number this quarter. So what would be the number of McDelivery you have as on today and what sales contribution would be from this -- from here?

The total number of hubs would be -- I'll tell you right now, about 280 -- 240. We have 240 delivery hubs. We don't share the breakup per hub actually.

And sir, one more thing, from the total number of stores outlets that we see, it seems that you have closed 2 McDonald's stores this quarter because the last quarter, the number was around 310 stores. Now since you've opened 8, so probably 2 stores must have been closed. So could you provide some color on it?

No. These 2 stores were relocated. So they were not added as new stores. They've been relocated, not closed.

[Operator Instructions] The next question is from the line of Hasmukh Vishariya from SUD Life Insurance.

I just wanted one clarification on store openings. So in last quarter, you had mentioned about doubling the store count over the next 3 to 5 years, let's say, which should translate roughly to 600 to -- 60 to 100 stores per year. And in this quarter, you are mentioning about 40, 50 stores every year. So can you tell us is this 40, 50 only for FY '23? And will this number increase going ahead to reach 500 stores by FY '25, '26? Or how should we look at it?

Sure. We don't see -- my philosophy around store openings, it's always over a 3- to 5-year horizon. And we do not talk about quarter and years. What we are telling you are 2 things. We are telling you that we will do 200 stores more in the next 3 to 5 years. And we are saying next year, we are going to do 40. The rest is all math.

So now the right target is 200 over the next 3 to 5 years and not double, which was, let's say, 300 stores for next 3 to 5 years.

Yes. Yes, you can say that. I mean, like I said, we will come out with a vision, but very firmly, we are talking about 200 stores over the next 3 to 5 years with 40 openings next year.

[Operator Instructions] The next question is from the line of Gaurav Jogani from Axis Capital.

Sir, with regard to Chicken Burger, has it been introduced all throughout? I mean, earlier, I think it was only the southern part of India. So now is it available all across your network?

No. It's right now, the Fried Chicken is only in South India as of now.

And sir, I believe, last time you mentioned around -- that approximately INR 50 lakhs of incremental contribution is expected from the Fried Chicken Burger. So one clarification on this. This incremental contribution would only be for the southern stores because it's introduced there? And how has we progressed so far?

So right now, it's only in South. It will, of course, come to West. But right now, this incremental volume that we've talked about is for the store base in South.

And sir, what has been the progress so far?

West India, of course, we got the Gourmet Burgers. So that's what sort of given a fillip here as well.

And sir, what has been the -- I mean, so are we reaching near that INR 50 lakh contribution on an annualized basis now in the southern stores? Or I mean how has been the progress there?

No, see, I mean we normally don't share details like that. But basically, that's the number that we have reached, which is what we've said. Our ambition does not stop there. We do believe that as the consumer starts connecting Gourmet Chicken and Fried Chicken to our brand, we believe that over the next 2 to 3 years, this business is going to grow quite exponentially. I mean, you can do your own channel checks, but the customer feedback around our product has been extremely, extremely positive. And that puts us on a good wicket and we are quite bullish about this particular business.

[Operator Instructions] The next question is from the line of Nihal Jham from Edelweiss.

Congratulations to the management. Sir, just one question from my side on the store opening target. When we are looking at this target of 500 stores over the next few years, do we have internal plan of how many cities do we expect this to be? Currently, we've been in 43, and I think over the last couple of years, that number has more or less stayed the same, but just wanted your perspective on that.

Sure, sure. Our philosophy is around ensuring that we continue to gain market share in the cities we operate in because cities are changing very dramatically, and we don't like to lose our share there. Yet at the same time, in the next 3 to 5 years, we want to add at least 20, 25 new cities as we kind of expand our network and we spread our roots into the interiors of the country.

The only related thought to that is that in one of the earlier questions you were asked about the store sizes. So let's say you go deeper and beyond the Tier 1 or Tire 2 cities, ideally smaller store formats would work depending on the areas that those stores do. So you are still sure that even as you go deeper into the remaining 25 cities, you would keep the store format between the 2,700 to 3,000 square feet?

In fact, our learning is, I mean, at the end of the day, we do operate in 43 cities and they include the smaller cities to the largest. And our experience is that in smaller cities, family sizes are much larger and the occasion for consuming is very concentrated. So therefore, we believe that we should have larger stores. And in fact, in many of the smaller cities, originally, we started with a smaller footprint, but we kept the space available. And if you visit our Baruch court now, we doubled the size. But fortunately, we did not keep the -- we kept the real estate available to be able to do it when we needed to, because it's a whole separate conversation around what are the implications of not doing that. We've seen that over our 25 years journey.

And on the Gourmet Burgers, is it currently only available in a certain number of stores? And if that is the case, you could just share approximately what proportion of stores are you serving that in? And what is the plan of scaling that and also the Fried Chicken incrementally to, say, the entire network?

So we normally do everything through the entire network. And therefore, Gourmet Burgers are across the network. In South India, what had happened is that time COVID came in. Otherwise, our plan was to rapidly expand that. But with the Gourmet Burgers coming in, that's what. So yes, we will see it in West India. We are just working the details out. But eventually, it will be across 100% of our restaurants.

The next question is from the line of [ Chinmay Gandre ] from Reliance Nippon Life Insurance.

Sir, just on the gross margin front. I mean I missed one part of our commentary, like what is the reason for such good margins we have put out in the current quarter?

Well, I mean, that's our secret sauce. But I was just saying earlier that over the last 5, 7 years, we've been able to consistently grow our gross margin systematically, while not really increasing prices too largely to the consumer. So I think we've been able to understand the playbook around that quite well, and it's worked for us. It obviously started with a strong supply chain foundation where right from day one, we've been working directly with farmers. And most of our relationships with our suppliers are 25 years old. We've not had to change suppliers at all, and we've worked with them, so a lot of efficiencies from there and [Audio Gap] about 3 to 5 years. So that's one part of it. And the other part is really the secret recipe that we have by which we are able to manage this through product mix and other ideas.

Sir, and on the EBITDA front, I mean on a broader assumption, would it be fair to assume that levy would be having maybe a lower EBITDA margin because of the delivery costs attached to that with respect to aggregator or would that be a fair assumption to make?

See, we don't see our business like that. As far as I'm concerned, we have to deliver a higher EBITDA, full stop. So if something is going to take away, how do you -- what do you do to manage the other part of it. And the gross margin is the same question. So my point is that, line items have to be managed, something goes up, something goes down. Something is inevitable and it will go up, but something else to work to bring it down. So in summary, we work on a 100 to 200 basis of cost elimination every year out of the system. And it's a continuous process, it never ends. And the world keeps changing around us, giving us new opportunities to cut cost. And that is how we sort of stayed where we are. So I think that's how we will continue to manage. I'm not really getting into line items. But essentially, our job, in my opinion, is to finally deliver an operating EBITDA and a PAT. So that's the way I look at it.

And last question was regarding the Fried Chicken. I mean you mentioned that more or less we have reached that maybe on annualized basis that INR 50 lakh kind of target, right? But would we see for most of the stores in South where we have that offering or these are…

Smita, you want to -- I didn't get the question very clearly.

My question was you mentioned that basically with respect to the Fried Chicken, we have kind of reached the INR 50 lakhs kind of an incremental topline addition on an annualized basis. So would that be across stores in South where the product is available?

Absolutely. I mean there are many stores that do far greater, that we sort of average across. I wouldn't take a few stores. That would be the wrong sort of number to share, but it is across the board and it's getting stronger by the day.

The next question is from the line of Vishal from Nirmal Bang.

Congratulations on a strong quarter. My question is on the overall industry and nothing specific to the quarter. There were talks in the last 2 years on many standalone players kind of struggling to operate and also seeing closures during the last 2 years. With the markets now stabilizing, if you can share some thoughts on how things will pan out in terms of market share movement for the organized players, specifically for players like you who are present across dine-in as well as convenience channel?

I'll tell Smita to take that.

So in COVID that there was a change in the IEO construct from movement of players, people started to go into chained and organized more because of safety and assurance and hygiene. So this is something which I think is going to be here to stay. And the organized sector is going to grow and is going to become a much larger part of the informal eating out which till now, it wasn't. It was dominated by the unorganized sector. So we can see this happening in India like it’s happened in the [ rest ] of the world. And in that organized sector, I think definitely, we are a very strong player and especially our omnichannel presence will help to get better market share as we go quarter-on-quarter.

But have you seen anything on ground in terms of in the last 2 quarters where operations are kind of normalizing? Have you seen those players coming back on ground? Any anecdotes that you can share or any examples?

Difficult to give a complete -- but yes, there are new players, which keep on mushrooming. And I think everybody has learned kind of from COVID to make a sustainable business model. So I'm sure there will be single units, which will come back. And when he was pretty normal for everyone, so I think the players which have all -- which are single players would have definitely seen a better O&D quarter. And it's not going to take away from new players coming in, there will be new players which will come in.

The next question is from the line of Amnish Agarwal from Prabhudas Lilladher.

Amit, Congrats on strong set of numbers. I have a couple of questions. My first question is that you stated that even in 3Q, there were some disruptions with regards to the occupancy in the stores and particularly in the last 15 days when the third wave, you can say, started setting in. So can you give us some idea that how the -- you can say, the last 15 days of the quarter particularly panned out because you have big presence in Mumbai, Pune, Bangalore, et cetera, where usually we have seen that the -- any fear of COVID has been starting from these cities? So how much and in what manner the sales got impacted during this quarter, particularly in the last 15 days?

So I wouldn't say completely sales was impacted. As I mentioned earlier on the call, we are now an omnichannel. When we saw dine-in getting restrictions and there were some curfews also which came in, what we were able to step up and accelerate was [ up ], which is delivery-on-the-go. So yes, we did see a slight impact, but I don't think we saw an impact what we saw either in Wave 1 or in Wave 2. So I think this is now a way of doing business, a new normal. Even in the future, if there could be some restrictions, I think all brands are now poised to be able to accelerate with their own channel mix. And that's what we did in the last 10 days, and that's the reason why we continue to have a great quarter.

But were we able to normally, you can say, conduct delivery operations even during those restrictions or curfews, et cetera, in general?

Yes. I mean there were -- it was different city-wise. So in Chennai, there was a Sunday curfew all day where, obviously, we were not able to up till a certain timing. Whereas in Mumbai, there was no curfew or restrictions, and therefore, delivery was plying as per normal. So it was city by city and [Audio Gap] reopened when there were no curfews in Maharashtra, only capacity was impacted, and therefore, delivery was also functioning and dine-in was also functioning.

Now my second question is on the margins. If I can recall, [indiscernible] I think your thought process used to be that on a pre-IND AS basis, in a steady state, we used to guide for a margin of, say, roughly around 14%, 15% kind of a number. Now with 13.5% margin, which Amit said we have achieved in this quarter on a pre-IND AS basis. So do you think that over the next 2 to 3 years, we can now have a margin which will be significantly better than what we used to guide every year?

I mean, see, it has to be, right. I mean, my -- I just mentioned earlier that every year, we've given a 130 basis points consistently year-on-year on margin growth. And in my opinion, any company that stops growing their earnings, I feel they shouldn't exist, right? That is the expectation of all stakeholders. And therefore, that was a vision that we set for ourselves. And I feel we've delivered on that vision because in 2013, '14, '15, margins had dropped to almost 7%, 8%. So over these last few years, we've at least sort of come to 13.5% of this quarter. And essentially, obviously, our next guidance will be to push it higher. We are not going to accept that we will stay at 13.5% for the rest of our life. So it is intended to go up, that there is no doubt.

The next question is from the line of Ashit Desai from Emkay Global Financial Services.

Amit, just a question on the store openings. We have seen a little bit of back and forth on the outlook for next 3, 4 years' store openings. Can you give the reasons for that? And what's your confidence level in achieving this 500 stores over the next 3, 4 years?

No, I don't think there's been any back and forth. We generally don't give out -- we had, in 2016, talked about the number of stores that we are going to open by FY '22. And after that, the only time we really talked about it was on our 25th anniversary. The intention is obviously to double the store base over a certain period of time. But what is a firm call is that we are going to build -- we are going to cross 500 stores, which means we are going to build another 200 stores over the next 3 to 5 years with a roughly 40-plus openings for FY '23, next is FY '23. So that is really what you can take it as.

So it's 200 stores over the next 3 to 4 years?

Correct.

And is there an increase in CapEx per store because our CapEx number has remained the same at INR 800 crores to INR 1,000 crores. So is this for the additional 200 stores?

No, 200 multiplied by, say, about 3 is about INR 600 crores, INR 700 crores right there. And then we do -- as I've mentioned in the call earlier, that not only are we going to convert the rest of the stores to Experience of the Future, but we need to get McCafe to the other 20%, plus we like to reimage. Reimaging is a continuous process because as stores age, if you don't go back and reinvest in them, you cannot long term deliver good results and also the brand takes a beating. So we stick by the numbers that we've just talked about.

And when you say 40 stores a year, that is the minimum that you would look at?

No, I'm not saying 40 stores a year. I'll repeat it again so that everybody gets it. I said that 200 stores over the next 3 to 5 years and a definitive plan of 40 stores-plus next year. That's all. I'm not talking of the year after because I don't give such numbers out. I've given you a 3- to 5-year horizon, and I've talked about the immediate year that's coming up.

And secondly, can you share what has been the recovery in the Cafe segment?

I mean, see, Cafe, while McCafe is big for us, obviously, is it in-store, not only there, it's a more in-store brand. So it's obviously at that 80%, 90%. It's not yet at 100%, and it's going to pick up. But for us, we are a multipurpose all-day dining restaurant. And everything, fortunately for us, is a smaller component of a larger pie. And that is McDonald's globally. And that is why we like to operate, say, in breakfast with beverages, which is McCafe, in chicken, in burgers, so that we are an all-day restaurant appealing to everybody. But overall, specifically, it's 80%, 90%.

And lastly, request you, if you can put the pre-IND AS numbers on the exchange as well.

Yes, we will put that up. We will update the earnings thing and add it as an annexure.

I now hand the conference over to Mr. Amit Jatia for closing comments.

Thank you very much, everybody, for participating and taking the time to be with us today. We appreciate it. Have a lovely evening and talk to you soon.

Thank you very much. On behalf of Westlife Development Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.