For 1QFY2017, Radico Khaitan's results have come in line with our estimates. The company's top-line grew by ~3% yoy to Rs. 430cr on back of higher sales of premium products while the bottom-line grew by ~25% yoy to Rs. 22cr on the back of a strong operating performance and lower taxes.
Top-line grew ~3% yoy: Volume growth during the quarter was of 3.6% yoy which resulted in the top-line growing by 3% yoy to Rs. 430cr (our estimate was of Rs. 427cr). The company has consciously shifted its focus in favor of prestige & above products which command better margins, over higher volume mass market products. Prestige & above brands' volume grew ~11% yoy while their contribution to total IMFL volumes increased from 25.2% in 1QFY2016 to 26.9% in 1QFY2017.
Despite lower sales, PAT grew by ~25% yoy: On the operating front, the company's margin improved by 201bp yoy to 13.1%, primarily on account of a favorable shift in the product mix from regular to premium products. The company reported a ~25% yoy rise in its net profit to Rs. 21.5cr for the quarter on the back of a strong operating performance and lower taxes.
Outlook and Valuation: Going forward, we believe that the company has the potential to perform better on the bottom-line front on the back of (a) volume growth (b) higher sales of premium products (c) anticipation of better price hikes and (d) gradual reduction in debt which should lead to significant savings in interest costs. Hence, we recommend a Buy rating on the stock with a target price of Rs. 125.