Radico Khaitan Limited - Outperformance aided by premiumisation - Antique Stock Broking

Radico Khaitan Ltd's (Radico) volume growth during 3QFY12 has been in line with expectations led by its premium portfolio (emphasizing the company's premiumisation initiative). The company recorded a growth of about 10.5% in IMFL at 4.52m cases which was an outperformance over the industry growth. Its premium brands grew by 22.5% led by 15% growth in Magic Moments and 82% growth in Morpheus brandy. Radico would have registered a higher volume growth sans the impact of the drop in its large older brands, 8pm (2% drop in volumes) and Contessa Rum (12% drop in volumes). The impact on volumes was due to the restricted supply to CSD (defence sales - 17% of total volumes), in order to implement price hikes during 4QFY12.

Results highlights

- During 3QFY12, Radico's net sales grew by 17% to INR3.18bn while EBITDA and recurring PAT grew by 9% and 0.5% respectively to INR449m and INR206m. EBITDA margin dropped by 97bps to 10.6% due to increase in raw material cost by 361bps to 48.8% of net sales.

- The impact of input cost inflation going ahead would be partially offset by price hikes to the tune of 2.5% during 4QFY12. Additionally, input prices (ENA) in the coming quarters are expected to ease with increased supplies of molasses on account of delayed crushing season.

- Interest out-go during the quarter increased by 69% to INR153m due to increase in debt (from about INR5.6bn during 2QFY12 to INR6.3bn currently).

Valuation and outlook

- In view of the higher than expected input cost inflation during the quarter and interest outgo, we are reducing our EPS estimates for FY12e and FY13e by 6% and 4% respectively to INR6.2 and INR8.5. At the CMP of INR117, the stock is trading at a PE of 19x FY12e and 13.8x FY13e. We maintain our BUY recommendation with a target price of INR173. We believe that Radico is currently the best placed stock in the listed IMFL industry with an improving product mix and strong track record of establishing brands.

- The most important ability of the company has been its strength in establishing its brand in the high growth Vodka segment which will be the future growth driver of IMFL in the coming years. Further, its success in 'After Dark' would provide it a foothold in the high growth prestige segment of the whisky category.

Source : Equity Bulls

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