Ladies and gentlemen, good day, and welcome to the Westlife Development Limited Q1 FY 2022 Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Devanshi Dhruva, Manager, Investor Relations. Thank you, and over to you, ma'am. Thanks, Margaret. Welcome everyone. Thank you for joining us on Westlife Development Limited earnings conference call for the quarter ended 30th June, 2021. We are joined here today by Mr. Amit Jatia, Vice Chairman, Ms. Smita Jatia, Director, and Mr. Pankaj Roongta, CFO and VP, Finance and Accounts for Westlife Development Limited. Please note that our financial results presentation had been mailed across to you. 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. He will take you through the key business initiatives with overall operational progress, the impact and response during the second wave, and the strategic imperatives that Pankaj will cover analysis of the financial performance and highlights during the review period. At the end of the management discussion, we will have a Q&A session. A request to all the participants that due to the current uncertainties, members of the management are joining the call remotely, and there could be some time lag when responding to your queries. I urge you therefore to kindly bear with us. 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 explanation of these risks is available in this quarter's press release, investor presentations, 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, over to you, Amit. Thank you, Devanshi. Good evening, everybody, and hope you and your families are doing well. I'm happy to share that the business is firmly back on track. Revenues are building strongly. Brand trust is rising consistently, and our convenience channels are accelerating at an unprecedented pace. These are the building blocks for brand McDonald's and have firmly entrenched us in the markets. We are excited to chart the next phase of growth as we all learn to live with the challenges of COVID-19. QSR, by definition, is driven by impulse and convenience. As consumers discovered new ways and means to experience the brand, our convenience channels have accelerated. Based on our experience of the last 18 months, these positive changes are here to stay. This is very strongly reflected in our recent results. Even with severe restrictions on in-store dining, our sales in July 2021 were almost the same as July 2019 pre-COVID. Additionally, there are some positive tailwinds for the category towards the organized sector. Consumers are increasingly choosing trusted brands with high standards of health and hygiene, which puts us in a strong position. The future lies in being an omni-channel brand that's available whenever, wherever, and however the consumer likes. In the last few years, we at Westlife have invested substantially in our digital capabilities that have been pivotal to our off-premise business growing leaps and bounds in a sustained manner. We are also focused on building a realistic competitive advantage by understanding side-by-side performance through extensive research. We have taken the time during the pandemic to reorient the portfolio and are using GIS tools to identify large growth opportunities for the brand. We will continue to grow in our core cities and also expand our footprint in Tier-2 towns that have presented a significant opportunity for growth. Our menu continues to be an important lever for the brand. As you are aware, last year we launched our fried chicken product. This has further accelerated our journey of chicken leadership. We believe this product has the potential to add about INR 50 lakhs per store per annum and also strengthen our meal proposition. Globally, McDonald's Corporation has the highest average volume across 30,000+ stores, led by servicing all day parts and menu segments. We hope to tread a similar path. We believe we are firing on all cylinders, including brand, cost, menu, and access. With this, we are confident of charting accelerated growth and creating new benchmarks for the industry in the coming quarters. I now hand over to Smita to take you through the highlights of quarter one, FY 2022. Thank you, Amit, good evening, everyone. I hope all of you and your loved ones are safe and healthy. I am happy to share that business has bounced back strongly. Our strategies of survival and revival have helped us develop a definitive playbook that has been our business resilient to external environment to a large extent. This is strongly reflected in our results. Despite all challenges due to wave two, we saw more than 176% growth across revenues and SSG. Our business continued to hold strong notwithstanding the lockdowns. Our new cost structure and robust revenue recovery have been pivotal to our performance, with convenience channels creating new benchmarks. Revenues from our convenience channels have been consistently rising over the last one year. In the quarter under review, overall convenience jumped over 300% Y&Y. This was driven by delivery, drive-thru, and on-the-go. Revenues from drive-thru, that is our key competitive advantage, grew by 115% Y-o-Y and 52% quarter-over-quarter. McDelivery continued to rally and grew close to 200% Y-o-Y and 36% quarter-over-quarter. It touched a new high yet again in June 2021. This in spite of dine-in restrictions easing in the month. It has been heartening to see off-premise consumption grow consistently, even as restrictions around on-premise have been easing. It is now apparent that there is no cannibalization, and this in fact is incremental revenue driven by new habits, new customers, and new brand use cases adding to our top-line strength. This presents immense growth for us. Consider a simple data point. In July 2019, before COVID, our revenue stood at INR 130 crores, where 70% was through dine-in and only 30% through our convenience channel. Fast-forward to July, our revenues are close to 90% of July 2019, even with continued dine-in restrictions. We have seen 100% recovery in all markets outside Maharashtra that continued to be under strict COVID restrictions even in July. The interesting thing to note is that 62% of this is convenience-led. Malls continue to remain muted, drive-thru and high streets have completely recovered. This makes us believe that when all formats are open, we will be pegged for accelerated growth. With this strong foundation, we will pace ahead with confidence in the coming quarter with our key levers of menu and product leadership, accelerating the omni-channel and digital presence, and finally, network expansion and reinvestments to keep the brand modern. In order to dominate the snacking and meal occasion this quarter, we launched some very powerful campaigns, including the BTS Meal, that got unprecedented response from our customers. We also roped in Rashmika Mandanna, a popular film star, as our brand ambassador in the South to build stronger brand resonance. With a compelling proposition, we are ready to dominate the INR 5,000 crore fried chicken market. Technology and digital acceleration continue to be the cornerstone of our strategy. We have been leveraging technology to offer enhanced customer experience. Our digital channels are continuing to outperform despite dine-in restrictions easing up. We are building digital sales in store also by leveraging our McDonald's app, a unique offer engine that provides personalized offers. The app has over 5 million total number of downloads, a 45% jump year-on-year. In the quarter under review, our total guest counts on our app tripled Y-o-Y, reflecting enhanced customer experience and value. Finally, on the network, we continue to invest in the business by both re-imaging our existing stores as well as opening new ones. We have added seven McCafés and 11 Experience of the Future restaurants in the quarter. In fact, we had five new stores ready to open during the quarter, of which we have already opened two in July, and many other are under ground break. We are also expanding our network in non-core and emerging cities. We are guided by a commitment to scale for good and have been taking definitive steps to positively impact the environment and society that we operate in. Over the last years, we have gone through various ESG-led initiatives, not only reduced our carbon footprint, landfill, and energy waste, but also enhanced operating efficiencies and saved costs. This includes usage of energy management systems, production of biodiesel from used cooking oils, and eliminating of single-use customer-facing plastic. As a direct impact of these initiatives, in the last financial year alone, we have saved close to 7,500 tons of carbon emissions through our proactive steps, which is equivalent to planting close to 350,000 trees. We have also been working towards fostering inclusion across all our brand touchpoints. I am happy to share that EatQual, our campaign around special packaging for our customers with limited upper-limb mobility, has bagged several recognitions. Last but not the least, we have concluded the first round of vaccination for all our employees, while over 1,000 have been fully vaccinated. We have also announced a comprehensive COVID support program to ensure physical and emotional well-being of our employees. With this, I now hand over to Pankaj, who will take you through the highlights of our financial performance. Thank you, Smita. Good evening, all. I hope you and your loved ones are keeping safe. We have entered FY 2022 on a firmer footing. Our sales have been a whopping 176% growth on a Y-o-Y basis, amounting to INR 259.2 crores. The same-store sales growth has jumped 183% on a Y-o-Y basis. This is on back of the historical highs made by our delivery and other convenience channels. Let me share some key highlights with you. Our convenience channels, that includes delivery, drive-through, and on-the-go, consolidatedly grew by 202%, of which delivery grew by 200% and 36% on quarter-on-quarter basis. June 2021 was a solstice for us, and we witnessed the highest-ever sales in delivery. Drive-throughs have grown by 115% Y-o-Y and 52% on quarter-on-quarter basis. Even on-the-go has been consistently growing at a robust pace. We saw a steady buildup in the in-store business, and July has been even a stronger upstate. In fact, earlier, we are happy to share that in July, we have seen 100% recovery in all the markets outside of Maharashtra and 100% recovery in all drive-through and high-street stores. This means convenience is here to stay, and with the steady buildup of dine-in volumes, we will chart accelerated growth in the coming quarters. We have complemented our revenue growth with continued cost leadership. We have maximized our supply chain efficiencies, continue to rationalize food cost. As a result, we have maintained a 65.4% during this quarter, representing a 218% growth over the last year. We continue to target meaningful margin expansion and are tracking towards our long-term margin objectives, demonstrating our ability to accelerate value regardless of the environment. We have a revised cost structure in place and are continuously improving our operational efficiencies. As a result, we have seen a 204% improvement in our restaurant operating margins that stood at 9.8% for the quarter, and our operating EBITDA stood at 2%, which represents 112% improvement over the same quarter last year. What I would also like to highlight is that with the recovery of volumes in the month of June, our restaurant operating margins zoomed to 16% for the month. Consequently, operating EBITDA jumped to 9.2%. Hence, we believe that with the volume recoveries gaining pace, we are heading for strong and sustainable margin expansions. Throughout the pandemic, we kept a razor-sharp focus on maintaining a stronger balance sheet and robust liquidity position by optimizing our treasury and working capital. We are confident that we will only accelerate from here on. Our relentless focus on internal improvements and driving synergies across our portfolio will help us extend our continued best-in-class track record. As we go ahead, our priorities are clear: growing our footprint, accelerating our convenience channels, and maintaining fiscal discipline. We are in a strong fiscal position to deploy our capital for business expansion. The pandemic has shown some good real estate opportunities for us, and like Amit said, we see a great potential in the Tier-2 cities that have shown greater resilience. We will increase our presence in these cities over the next few years in addition to the metros. With this, I will now hand it back to Amit to take you through the outlook for the coming quarter. Thank you. Thank you, Pankaj. Volatility is the order of the day, but with our strategic framework, we believe we are very well positioned to navigate through these challenges and continue growing market share. We will continue to make big, bold moves and keep pushing the envelope on innovation and customer experience, thereby making the brand a true millennial brand. With business back on track, we will pick up our pre-COVID-19 pace of re-imaging restaurants and expanding network. While we continue our strong focus on our six key markets, our network in Tier-2 towns are consistently growing, opening up huge opportunities for us, which we will effectively tap into. We will also continue to make significant investments in strengthening our technology backbone, which we believe will be a key business driver from here on. With this, we are confident about our continued market leadership on the back of brand equity, menu innovation, cost leadership, and technology. I now open up the call for questions. Thank you. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. The first question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi, Amit and team. Thanks again for the opportunity. I just wanted to start with your comment on the convenience bit. It seems convenience is a new normal. Given that is the expectation, could you share if you are exploring any change in the store addition or store format to suit that demand more, and could you share the guidance, what we should build in for the year forward? Thank you, Avi. Basically, in terms of the store format, first, we have been consistently and continuously incorporating the fact that there's more and more external business. Many, many years ago, we had adapted for takeaway, so we have two windows, just like a drive-through. We have consistently improved our drive-through ability so that we can push more cars through the window. As delivery business kept picking up, we wanted to ensure that delivery riders are not consistently coming in and crowding around the front counter, which impacts customer experience. That kind of work we've already done. I think the key question everybody does ask is about store size. Like I mentioned before, I don't see us reducing the size at this point in time. My point is that we obviously want to take our AUV. We still want to grow that by 50%-100% over the next 5 to 10 years. I feel that even if in-store remains 30%-40% of the business, it's going to be a much larger business size to start with per restaurant. Therefore, while even globally we are thinking and talking about it, there is no immediate shift in the size of the store format at this point in time. In terms of store addition, I think for us, real estate competitive advantage is very important. It has played out very well. We can see the fact that we have drive-throughs and the fact that we were very well penetrated in the retail locations rather than being only mall dependent, has worked extremely well for us. However, we do believe that we are seeing a new buzz in Tier-2 cities. We think it is here to stay, and we believe that therefore from the 25-30 store openings that we are doing, that we've had a complete relook at the whole market over the last 18 months. We've used GIS software, we've used a lot of research that we've been doing on side-by-side performance, and we believe that the potential overall in our territory is about 1,000 restaurants. However, it's got to be mined in an intelligent manner. We are hoping to be able to push the envelope to between 30 and 40 in the coming years, and therefore accelerate our pace of opening as we go along. We do believe that there is an opportunity in the organized sector now, which has sort of accelerated over the past. Okay. Where I was coming from, as you rightly kind of alluded, it was essentially on the store size and if that reduction can drive ability to add it at a faster pace. That is what I was trying to understand. I got a sense that you're looking right now at 25, but this is under discussion. Yeah. Avi, I'm sorry to interrupt you. You see, my point is, we have seen enough global markets where we've gone with smaller sizes, and then it comes to bite you after 10 years. You know the one thing that you cannot change is the size of the store. You can change the decor, you can change the layout, but the size of store is not in your circle of influence. Even earlier, over the 25 years, we've experimented with everything, and the thing is that size is not just saving a little bit on the rent, takes away from our ability to get to, say, INR 8 crore or INR 10 crore per restaurant per year. I'm sorry, I just wanted to add that. No, no. That's very helpful. That's very clear, Amit. The second bit I wanted to ask is on the guidance for the EBITDA margin, which we had earlier called out. Mid-teens number is what we were kind of planning, but that was a pre-Ind AS number. Now, while you've given a reconciliation, I realize that you have not given the Ind AS adjusted financials the way you were giving last quarter. Would you be able to give us an updated guidance on margin on a reported basis, or could you guide us how should we look at from a 2023, 2024 perspective? Okay, that's an excellent question, Avi. For example, if I were to take just June sales. Because it's been so volatile and uncertain, I think June, even though there were too many COVID restrictions, still is a more stable month. For example, in June, even with all the restrictions, our sales were more than November 2020, which was a Diwali month, and by then restrictions had kind of reduced a lot. Firstly, that was very heartening to see in terms of sales. In terms of margin, let's forget about Ind AS, but restaurant operating margin in June as a month was 16%. Very, very solid, even though sales were still much lower than what they should be normally. We still maintain our guidance that we will be as per the old accounting standards. We will be at the low to mid-teens in EBITDA margin by FY 2023, is what we have talked about. We can still feel that we will get there, and what we will do is we move towards what the industry is doing, the rest of all our QSR peers, where we are just going with the accounting standard. We will try and add in our MIS, some sort of a reconciliation so that you can refer back to the pre Ind AS as well. Amit, just a request, finally. The slide that is there in the presentation which gives the Ind AS adjustments, if you could continue with that would be extremely helpful to help us appreciate how we are kind of on that path. That was the only request. Noted. Thank you very much. It will be done. Thanks. Thank you. Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead. Thank you for the opportunity, sir, and congratulations on a good set of numbers in a COVID-19-impacted quarter. My question is with regards to the other expenses, specifically the G&A expenses. If you see, while the sales at Q2 have declined, but your occupancy and other expenses haven't declined much. Is there some one-off there that you would like to call out there? You've got to understand that it's a very volatile, uncertain quarter. There are restaurants where we have fixed rentals, there are restaurants where it's revenue share. All the landlords, because this came up quite suddenly, right? We were not able to get everything at that time. I personally feel that it's not the right quarter to judge that. I think what is important is if you look at last year, the quarter ended March 2021, versus that, if you look at G&A, I think we've done quite well. Even though this time around, there were no salary cuts, no deferments, nothing like that. I don't know if that answers your question, but I personally feel it's not the right comparison, given so much uncertainty, what was on, what was not on. Some landlords have supported, some have not supported. Looking at it as a percentage of this quarter may not be the right way. Sure, sir. I get you. I mean that the percentage of sales would not be the right metric, yes. My question was largely on the absolute number. I get your sense that as you get more concessions, maybe this might come down. Will that be the right understanding in that sense? Yes. As a percentage, it will come down because sales already, for example, in July, have continued to grow. With the announcement of Maharashtra that from 15th August they are going to permit in-store, I think that is going to help us dramatically. You have to understand that each market, it was very volatile, sometimes on, sometimes off, sometimes shut down on weekends, which is the core part of our business. It becomes very difficult to negotiate with landlords accordingly, and that too in a short space of time. That's awesome. Got it. Sir, my next question is with regards to the store opening guidance. This time you specifically alluded to the stores opening in the Tier-2 cities where you are seeing great opportunity. Also, you alluded that you would be now looking to 30-40 stores per year. Is that you are upping the guidance in terms of the store opening from the 25-30 earlier that you were discussing? Yes, absolutely. We do believe so. We've used this pandemic to really look at the portfolio, and when we look at the portfolio, it is based on facts and data. This data cannot be collected sort of in a year. When you look at Mumbai, we have 100 restaurants in Mumbai. 100 restaurants is very, very, very strong penetration. If I further go into a mini market of Andheri, there are, say, 8 restaurants in Andheri. Now, when you put the 9th restaurant, if you don't know where customers are coming from and where they are going, you tend to cannibalize into other restaurants. With all this work that we have done, we have found that there is yet pretty much gap in every market. Also with what's happened, a number of restaurants have sort of shut down as well. There's a shift towards organized. The delivery business has sort of increased. More recently, our chicken launch has made ourselves more relevant in certain markets in South India as well. Looking at all of that, and especially Tier-2 as well, where I've been very selective in the past, we've sort of upped our guidance around that. Sure, sir. That's great. Sir, just a follow-up to this. Would there be any change to your CapEx guidance? If you can guide us anything on that, given the fact that you've also highlighted that you'll be investing more on the tech front as well. What would be the CapEx roughly for this year and the next year, if you can help us out? That would be for me, please. We've been between INR 100 crore-INR 150 crore range. This year, because we lost the first quarter in openings, we yet believe we should be in the 20 to 25 range. We are going to push ourselves as hard as we can over the rest of the three quarters. If there's a third wave and again construction stops, then it is what it is. We are pushing for between 20-25. If it is 20 to 25, you know that we spend roughly INR 2.5 crore-INR 3 crore per restaurant. You can do the math accordingly. If you are able to get between 30 and 40, it's still, I would say, INR 120 crore. If you take everything else, it will not exceed INR 150 crore. The INR 100 crore-INR 150 crore guidance stays. Awesome. That's it. Thank you. That's all from me. Thank you. Thank you. Anyone who would like to ask a question, you may press star and one. The next question is from the line of Percy Panthaki from IIFL. Please go ahead. Sir, the fried chicken launch that you have, and you mentioned that you think you can garner about INR 50 lakh per store from fried chicken. Is this INR 50 lakh incremental? I mean, INR 50 lakh is from fried chicken, but of course, it would cannibalize some part of the other menu. Just wanted to understand, in light of this, how much if, let's say, there is a complete normalcy from the COVID front, FY 2023, what would be your sales per store kind of a target? It's a good question. I'm talking of incremental sales, not cannibalized sales. That is part number 1. Part number two, we've always maintained that our average unit volume target was to first achieve between INR 6 to INR 6 and a half crores. We were at INR 5 and a half crores pre-COVID, and the target was to get to between INR 6, INR 6 and a half. In our investor day in 2018, we had given three levers, which was delivery, McCafé, and menu. Delivery has way outperformed, and I think it's here to stay. That alone, this is the important part of what I'm going to tell you, that the incremental business of convenience that we've got between delivery on the go, takeaway, and drive-thru. Even if in-store comes back to 80% of what it was, that's a 10% same-store sales growth. I'm expecting at least another INR 50 lakhs per restaurant per year to come out of that. Chicken, I gave you an indication, it means almost INR 1 crore, which kind of takes us to the INR 6-6.5 crore per restaurant target that we have talked about for our Vision 2027. Okay. This INR 6 crore-INR 6.5 crore is for FY 2023 itself, right? Next year. That was our vision. Obviously, some part of it depends on normalization of COVID. Assuming a completely normal COVID scenario, would you say that FY 2023 can achieve this target? I mean, anywhere between six and a half, yes. Okay. Understood. Secondly, I wanted to understand in terms of menu innovation, you have done this fried chicken, and you've done several other menu innovations also in the last two to three years. See, of course, this is a continuous process, and it will continue even 10 years down the line. Would you say that the main gaps in the portfolio are now sort of plugged and incremental menu innovation is not going to be as big bang as what it was earlier? I feel thankfully, that's not the case. I think even if you look at global McDonald's after operating for 70 years, still menu plays a significant role in the way we are able to grow our business. Even after 70 years, McDonald's globally continues to deliver same-store sales growth. The average unit volume, even after 70 years, even in very developed market, continues to grow. Therefore, I believe that menu innovation just does not stop. We've also just touched the tip of an iceberg on so many categories. More recently, we launched our gourmet burgers. The response for the gourmet burgers has been absolutely tremendous, and yet we haven't even marketed it completely. It's only available on delivery, but wherever we've launched it, the incremental volume per restaurant has been very nice. All I can say is menu innovation, even 10 years from now, will continue to be as robust as you see it today. In the food business, it never stops. Right, sir. That's all from me. Thanks, and all the best. Thank you. Thank you. The next question is from the line of Kapil Jagasia from Edelweiss. Please go ahead. Thank you for the opportunity, sir. Decent set of numbers. If I heard it right, you have researched for opening around 1,000 restaurants. Even if we go by the increased guidance of opening 30 to 40 stores, these 1,000 restaurants would be fulfilled in how much time? We are right now at 305 stores or so. That would take a tremendous amount of time. The answer to that is that there is an absorption rate factor there as well. While there is 1,000 restaurant possible, I'll give you an example of you take Ahmedabad, take Pune, take Bombay, any of these markets, we've been around for a while. Let's say I'm just making up the numbers to make my point, so don't go by the numbers themselves. You take Ahmedabad, right? We have 20 restaurants, 25 maybe. I think basically we own that market. Can Ahmedabad not be 35 to 40 restaurants over the next five to ten years? Absolutely it can be. Can I open all of the 10 together tomorrow? Absolutely not. What happens is there's an absorption rate, frequency of eating out continue to rise, brand relevance rises for the consumer in that market for our brand. All of these factors are there. Basically, even though the gap is there, again, Mumbai, while let's say we can do 200 restaurants in Mumbai, but even if real estate was available, I cannot snap my finger and open 100 tomorrow. An example is you take Andheri. Let's say we have eight restaurants in Andheri. We started with one, then we put two. If we would have put all eight together here, a lot of money would have been lost, and we would not have got the average unit volume, and we would have had to shut down. There is an art and a bit of science in this, and based on whatever our knowledge is, that is the potential. Earlier, many, many years ago, in one of our investor calls, we had talked about 800 restaurants, and I had said how the 800 restaurant changes. 800 restaurants become 1,000 because of per capita income growth. It becomes on real estate growth. It grows based on relevance of brand, frequency of eating out, purchasing power, and all of these. There are many, many factors involved with that. I hope I'm able to answer your question. Definitely, sir. Definitely. That was very helpful. Just one bookkeeping question from my side. Other income has dropped on a Y-o-Y basis. Would it be because of securing lower rental revenues this quarter? No. Pankaj will have to answer that. Yeah, that's right. Okay. Going forward, we should be modeling this number for the rest of the year? Yeah. As we were saying earlier, we will keep on sharing the index and the adjusted numbers, so that you can get a visibility on a quarter-on-quarter basis. Okay, great. That was very helpful. Thank you for answering all the questions. Thank you. Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead. Hi. Thanks for the opportunity. I want to know what are your thoughts on DELCO format. We understand your viewpoint in response to the question Avi Mehta asked earlier. Today, when you open large stores, you can't cover the entire city very well from a delivery opportunity perspective. As a consumer, there are pockets in the city where delivery from McDonald's can take maybe 25, 30 minutes. Which if it's cut down to 15, 20 minutes, you'll be able to capture a larger pie of the market. What is your thought on attempting or trying out with pure DELCO stores? Some of your peers are planning to do so or already started to do so. What will be the CapEx if you were to open, from a return ratio perspective? Is it viable, or do you think it's not viable economically? Sure. Thank you for the question. It's not that we've not tried or attempted or thought about DELCOs. I go back to my old point that I've made many, many, many times, that McDonald's is a high volume company, and our average unit volume comes from servicing all day parts, different menu segments, et cetera. If I would have gone just on penetration alone without considering long-term, today, we would not have been able to bring McCafé in every single restaurant. Imagine if you have 1,800 square foot restaurants where the kitchen takes a large part of it, and you don't have even capacity in the kitchen because the tighter you make it, the tighter your cold chain and all that starts suffering. Five years later, you will see problems. We have seen very, very difficult real estate markets globally. When we benchmark those markets, every time we've gone to penetrate the city with smaller formats, yeah, it has never panned out. The DELCO model has been tried by McDonald's in many markets. Yes, the world keeps changing every day, but even with that, the CapEx does not drop significantly enough to give us the return that we are looking for. Now coming back to the other aspects. See, with 100 restaurants in Mumbai, I feel we capture pretty much 95% of the city. As we are going to open new stores, the delivery market is going to be incrementally small. We'd rather capture that delivery market with the opening of a restaurant because I go back to my thinking, my point I always make is one plus one plus one is equal to five is equal to seven. What I mean by one plus one plus one is that when you have the in-store business, you add to that takeaway, on-the-go, drive-thru wherever possible, and delivery. On top of that, you add McCafé. On top of that, you add breakfast. Our return as a business is always much better with that. On the call, that's the best I might be able to explain to you. We've looked at this regularly, and we will continue to look at it. What I'm saying is it's not that we are ignorant about what a DELCO can do or cannot do, but whatever we've seen so far, and even globally, there's a lot of work and discussion around this. At this point in time, only DELCOs look very unlikely, at least for brand McDonald's. Perfect. Now, the idea of asking this question was. Sorry, I'll just also add that we pretty much have 100% coverage of, say, a Mumbai city with the 100 restaurants that we already have. Correct. Idea of asking the question was, on one side, you are super bullish on the convenience opportunity and confident that it will continue to stay. There is a permanent structural change in the consumer habits as far as ordering is concerned. The other side, you are sort of relying on the experience globally of success of DELCO based on pre-COVID era, where delivery had not taken up, delivery was not as mainstream as it is today, even in the Western world. Maybe over the next one or two years, we will get to know where it settles eventually. There are enough markets in the world today where delivery, even pre-COVID-19, was 60% of their business, by the way. I can offline tell you which markets they are. Remember, we do over INR 5 billion-INR 10 billion of sales in delivery globally. We have almost INR 100 billion of system-wide sales. We have quite a bit of an understanding on how that works. Convenience is not only about delivery, and delivery is no structural change, by the way. It's an incremental use of the customer where they can order outside food at home as well, which in India has grown substantially because of what it is. If you go to Singapore, you go to Indonesia, you go to many of the Middle Eastern markets, 40% of the restaurant business was delivery even pre-COVID-19. Maybe today that has become 60%. My point is that, firstly, any brand that lives in the past will not see tomorrow. If you recollect my comments in the past, you have to keep evolving every day. We are a brand that is built on evolution and innovation, and we are going to continue to lead that. I take your point, and I hope you get my point as well. Definitely, sir. That's very helpful. Second question is, can you talk a little bit about success of McD in fried chicken globally and any success stories there? Hello? Hello, hello. I've lost you. Mr. Doshi, we have lost the audio from your side. Hello, am I audible? Yes, now you are audible. Right. Could you talk a little bit about success of McD and contribution of fried chicken to McD sales globally? What is the initial response that you've seen in the stores where you've launched early on in terms of average unit volume? Just a final follow-up, this INR 50 lakh per store, do you think that's the potential across your portfolio or that is largely in South and perhaps not so much in Ahmedabad or Mumbai? Firstly, you might notice that I'm very cautious with my comments, and I only make comments when I firmly believe in what they are. Firstly, globally, McDonald's is very strong in chicken, by the way. With our $100 billion in sales, we still might be the largest chicken company in the world yet. In Southeast Asia, we do very strong business, in all of Asia rather, around fried chicken, and particularly Malaysia, Indonesia, and many such markets. We are pretty much number one also in that category. In India, I have always chosen to go step by step. Even if you look at nuggets, chicken nuggets, while globally it's a core McDonald's offering and people swear by our nuggets, but yet we brought chicken nuggets only in around 2008, 2009, almost 10 years after we had opened. I believe chicken in South India, of course, it's an INR 5,000 crore market, and we believe that this is now the right time to start playing in it. I believe that there is similar potential in West as well. Actually, in my opinion, it's much more than INR 50 lakhs, but I always believe that there's a step-by-step approach. That's how we think about it. It is an all-India opportunity. It's not just limited to South, although South is slightly more skewed towards chicken. South could be, for example, INR 75 lakhs per restaurant per year. I'm giving you a bit of an average for our West and South region. Thank you. We lost his line. We'll move to the next question. Before we take the next question, we would like to remind our participants you may press star and one to ask a question. The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher. Please go ahead. Yeah. Hi. I have a couple of questions. My first question is on the chicken segment only, where, Amit, you are indicating INR 50 lakhs or maybe going up to INR 75 lakh sales. First of all, how would you compare yourself vis-a-vis, say, one of your other global competitors like KFC, because that company is having a run rate of around, say, INR 3.5 crores per store in India, and chicken is their major product. How do you look at then your sales in the longer term, or is there a big difference in the product offering or the way you can say KFC has a strong position in the mind of consumer? See, this has nothing to do with KFC or anybody else. Chicken is a segment in the country, and I'm only talking of fried chicken. We have our McChicken burger, which may in itself do over hundreds of crores of sales. I'm not even talking about that. We have the Spicy McChicken, which, by the way, people swear by, and has led to significant increase in our business when we launched it. We have chicken nuggets, we have chicken wings, we have chicken this, and we have chicken that. Fried chicken was a category we decided to launch only two years ago, and it's not that we did not know what to do with it, because globally we have a pretty strong position in that particular area. It was just you got to do the right thing at the right time. Menu and business evolves every day. You can't put all the 1,000 products at one shot because consumers also get confused. In the last two to three years, we've invested in step-by-step improving and increasing our chicken menu like we did with burgers. More recently, we launched our gourmet burgers. Why didn't we do it 20 years ago? Because it is relevant today, and it was not relevant 20 years ago. I feel that it has nothing to do with anybody else. The important thing is that as a protein, chicken is an important protein. McDonald's has played a significant role from 1996 in this market, and we are continuing to expand this opportunity and continuing towards our chicken leadership. That is how at least I see it. Like I said, the INR 50 and 75 lakhs that I am talking about has to do only with fried chicken. By the way, irrespective of organized sector, there is a very, very large unorganized sector market of fried chicken that exists particularly in South India and East India. We are sort of eyeing that as well to bring all those customers into the organized sector fold. Okay. If I go by what you're saying, then can you share with us what is the proportion of the non-veg to veg sales in our total food sales as of now? We don't generally share the breakup. Just to give you a bit of a sense, it's normally 50/50. Okay. Different markets play a different role, so it's not that easy an answer, but broadly. Okay. That's helpful. Amit, my second question is regarding our restaurant operating margin. What sort of a number should we look at it in the medium term, one, two years down the line, particularly FY 2023 and beyond on a pre-Ind AS basis? Yeah, sure. Basically, we've said restaurant operating margin. We define our restaurant operating margin very clearly. Restaurant operating margin doesn't have any play with Ind AS 116. At least at Westlife, we've been consistent with it from 2013, since we sort of listed. On restaurant operating margin, 16%-18% is really what we are sort of shooting for. If we are able to get to that 16-18 range, we are talking of operating EBITDA between 13%-15%. On FY 2023 onwards, I don't give guidance, but I'm saying trend-wise, that's where we are heading. Okay, sir. Thanks a lot. Thank you. Thank you. The next question is from the line of Vishal Punmiya from Edelweiss Institutional Equities. Go ahead. Yeah. Thank you for this opportunity. My question is again on the margin front or the operating margins for the quarter. If I look at the cost items, and if I just compare it with 2Q of FY 2021 where the top line was actually lower than what we did during this particular quarter. I understand that employee costs have slightly gone up as well as rental costs might have also gone up. Is there any other cost that you see for this quarter which might have not been there at a significant level in 2Q, 3Q? Maybe in the terms of advertisement spends towards this new category or maybe doing some spends behind the stores which are not operational for the quarter. You might have spent during this particular quarter to open it in the next quarter. Any thoughts on that front? I'll let Pankaj take that question, but I'll only give you one bit of information that I've sort of gone by. Firstly, the second wave came pretty abruptly and suddenly. Secondly, it was more severe than the 1st wave. Thirdly, to me, what was important was in June, where still there were very severe restrictions, but our sales were better than November, and our restaurant operating margin was at 16%, and our operating EBITDA was at 10% in that month. That clearly tells me cost structure continued to stay where it needed to be. Obviously there were no employee cutbacks this time. There was no salary impact. In fact, we sort of rewarded our people to work with us through all of last year, which was a very, very difficult year. Pankaj might give you more specifics, if he has anything to add. No, just to add, because of the high volatility in this quarter, percentage to sales is not the right way to look at it. If you see the growth of the P&L line items in operating costs, SG&A, food costs, et cetera, they have been significantly lower than the sales growth of 176%, which establishes the revised cost structures in place. As Amit said, with the June recovery, we were already at 16% restaurant operating margin and EBITDA turning 10%. Okay. Secondly, when you talk about the fried chicken market and getting shares from the unorganized market. What I believe is the unorganized market is purely a fried chicken market and not a breaded fried chicken market. Would it be easy to convert those consumers to a breaded fried chicken market? From our point of view, we've seen in other markets like Malaysia, et cetera, where it happens over a period of time. For example, what happens is, I always say this, and I truly believe. I believe that the more burger players advertising burgers, talking burgers, and making burgers available increases the penetration of burgers in the country. Right. Slowly I talked about how we will bring new users into the market. Similarly, I do believe that in the fried chicken market, the same thing is going to happen as more and more people offer it, make it affordable, people do start moving up. As they move up the value chain, they start then coming towards breaded, et cetera. There are yet many examples of breaded. Like if you go to Empire in Bangalore, which is one of the most popular sort of fried chicken markets, it is all coated, right? The breading quality or type may be different, but it is still breaded. In our case, we have created a unique coating. It's called the Ghost Chili coating. Consumer sort of feedback, even before we launched it, on a scale of 10, it was average 9.5. I mean, below nine, we did not get a single score. Now that is reflected in the sales that we are seeing in the market as after sort of this time, because of the pandemic, we could not advertise it, but as people are experimenting it, we are continuously seeing a rise in sales in this particular product. We do believe that we will convert over time, bring new users into the McDonald's fold. Last point I want to make is just like McCafé. Previously when you wanted to have coffee, before McCafé, McDonald's was not in your consideration set to start with. Okay? Similarly, if you wanted to go for fried chicken, which has its own set of sort of customers, McDonald's was never in the consideration set. With us having launched the fried chicken, and as the awareness for that increases, as people try the product, yeah, we will come in the consideration set of the consumer. That alone will give us a certain amount of business, and the rest of it will come through unorganized and through competition of organized sector. Sure. Understood. Just lastly, in the southern market where you guys obviously started with the fried chicken portfolio, how many dips would a person buy for to basically consume a particular bucket of fried chicken? What are the margin benefits do you see, along with the fried chicken when they consume the dips? Thank you. We don't I mean, it's too minor a point to be honest, Vishal. It's not going to change the game substantially. For us right now, it's about people trying the product. The number two thing is to bring McDonald's in their consideration set when they think of fried chicken. It's a step toward what we call chicken leadership that we've been able to achieve in many of the markets. That is currently what the focus is. We don't obviously discuss individual margins, but to me, it's about taking average unit volume up, and that in itself, in our opinion, will lead us to margin growth in terms of operating EBITDA and restaurant operating margin. Sure. Thank you. Thank you. Thank you. The next question is from the line of Jayesh Shah from OHM Portfolio, Equity Research. Please go ahead. A good presentation and explanation. I have two important questions. The first one is that when we hear about Jubilant FoodWorks and Burger King and the others looking at store expansion of 75 to 100 per annum, Westlife at 25 to 35 range appears pretty modest and makes it look like a defensive stock in a hyper-aggressive sector. What are the constraints that doesn't allow you to grow at this? Do you think these kind of growth rates are sustainable? Because we have seen the large listed player add stores on their base, which is still so high. In one way, are they taking away the market potential from you, and are you ceding potential market share to them? We don't believe so. We have seen. Firstly, it's about average unit volume as well. Rather than do 1,000 square foot stores that do INR 2 crore or INR 3 crore in average unit volume, just to show that we have 1,000 stores is not our strategy. We have seen enough very large players, many of whom you are talking about. Just announcing that I will do 700 stores, I feel does not change the game. You will see this in Westlife that we consistently, through the period of 2013, 2014, 2015, 2016, 2017, where everybody else was shutting stores, but we were adding 25 to 30 stores. There is an example of some of our competition from whom we've learned. They were at 400 stores in 2014, and they are at 400 stores in 2019. Yeah, maybe today they are at 450 stores. My point is, just because you are opening 70 restaurants a year is not material. Let me put it differently. Suppose I can be INR 10 crores per restaurant, and opening restaurants could take me to INR 3,000 crores right there. I feel there is a balance between the two, and I think the jury is still out there over time to tell us. It's about market share, finally. It's not about number of stores. Currently in the markets we operate, we lead in market share. It's about penetration. It's about the number of consumers that are using you per store. For example, in 100 stores in Mumbai, if I can do average unit volume of INR 9 crore per store, let's say I'm making this up, the INR 9 crore means obviously I'm serving a very large base of customers. Why should I build 200 stores to serve the same INR 9 crore average unit volume? You understand what I mean? Right. If the average unit volume of the 200 stores is INR four and a half crores, why should I put another INR 200 crores of CapEx? Please first see the HRPL and Westlife performance over a 10-year horizon in terms of how we've grown our stores and how everybody else has. I'm not saying they are good or bad, I'm just saying you see the difference. When you look at 35 stores, the 35 stores or 30 stores is for half the country as well. Okay? You've got to factor that in as well. Yeah. I think I've made my point. Yeah. Just to add, there is a substantial difference in the AUV of McDonald's stores versus competition. When we open one store, it is equal to almost two stores. You can also compare like that. It's the national presence and plus the AUV difference. Globally, when there were at some point more one other brand than McDonald's. McDonald's had 32,000 restaurants, and that other chain claimed that they had more restaurants than McDonald's. McDonald's sales were INR 100 billion or at that time, maybe INR 70 billion, and this other chain was INR 15 billion. Right. McDonald's made, say, INR 8 billion in profit, and the other chain made sort of no profit. My point is, it's not about number of stores. It's about the right quality of stores, the right average volume, the right location, real estate competitive advantage, like how we've got drive-throughs. It has made a significant difference. How we've been able to penetrate High street versus only being in malls. All that matters. Right. No, got it. That's a very useful insight. Just to follow up on this, hypothetically, what will make you look to store expansion up to, say, INR 50 crores? What is the constraint here, if at all? Constraint is the Indian market. One, the frequency of eating out is still the lowest in the world. Two, the per capita income is lowest in the world. The ability of the consumer to spend money, as you can see in any category, forget USA, is the lowest in the world. Yes, we have population. You can say we have 1 billion people, and therefore we should have 10,000 restaurants. I would love to see somebody build 10,000 restaurants. I gave the example earlier on the call, that while Ahmedabad has. I'm just using these numbers to make my point. The numbers have no relevance. Right. It can take 50 restaurants. By the way, if you show me another brand that has 100 restaurants in Mumbai of our standing, in our category? There is nobody that has 100 restaurants in Mumbai. To make 100 restaurants in Mumbai and make money in the 100 restaurants in Mumbai, I feel clearly reflects on what the brand is all about. Of course, we have chosen to go on an inside-out strategy. Therefore, as we get into smaller cities, and by the way, we are in 40 small cities as well, outside of the 6 core metros. We own our 6 core metros, and that's been our strategy. My closest competitor in Mumbai would have 30 restaurants. You understand? Right. You got to look at the quality of real estate. You got to look at the diversification. To answer your question, it's about growth in frequency of eating out. It's about the economy growing. Economy can't grow at 4% GDP, and then you expect that we can grow faster than that. It's tough. For us, it's about sustainable growth, yeah. Right. That's very useful. Amit, my second question is that, as shareholders, we have noticed that whenever the Westlife stock crosses INR 450, there is a little bit of regular promoter selling, which ends up being an overhang. Now, we have seen the practice in the other companies where the promoters have given an indication in terms of how much they want to sell, for whatever reason, and up to what point. That gives us some kind of visibility as to what to expect. Can we expect something similar out of you? Absolutely, we have been saying this in all our calls. There is a lot of pressure on us to increase liquidity. Every time some very good global investors want to buy, we start getting calls and pressure from a lot of people to help with liquidity of the stock. We have made a stated goal that we are currently at, I think, about 57% or so. We've said over the next three to five years, we want to come down to about 53%. Over time, in the right manner, with the right disclosures, we want to sort of help get the stock to the liquidity that all our peers who recently listed have got. That's really what it is, and we are quite upfront that we want to get to about 53% over the next three to five years. Okay. Thank you very much, Amit. That's very useful. That's all. Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Amit Jatia for closing comments. Thank you very much, everybody, for being on the call. Appreciate your questions and patience to hear our answers. Have a lovely weekend and stay safe. We meet again in the next quarter. Thank you. On behalf of Westlife Development Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your line.