Maintain BUY on Radico Khaitan - Outperformance continues - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Radico Khaitan (Q4FY20): Outperformance continues. Maintain BUY
(TP Rs 363, CMP Rs 330, MCap Rs 44bn)

Radico's 4QFY20 performance was strong with 15% yoy growth in net revenues. IMFL revenue and volume growth was 16% and 13%, out of which, P&A clocked 31% and 11% respectively. This was in stark contrast to the industry (flat yoy) which struggled in 4QFY20 (UNSP posted rev/vol decline of 11/13% yoy). Co continued scaling its premium brands (Rampur, Morpheus, 8PM Black, etc) and Morpheus is expected to become a millionaire brand in FY21. EBITDA growth of 13% was not only superior to UNSP but also to other FMCG players. Lockdown and sharp increase in taxes by states are a caveat for FY21 growth for the liquor industry. However, we expect that Radico can sustain its outperformance led by aggressive marketing, successful recent launches and competitive pricing. With ENA prices being steady and expected to be soft in FY21, we believe co will be able to sustain its EBITDA margin. Receivables were high on Mar'20 but co received ~Rs 1bn during April/May from few states (mainly AP). Thereby, working capital stretch was more of timing mismatch. Consumption slowdown will also have its impact on the liquor industry, thereby, we cut EPS estimates by 7/2% for FY21/FY22. We value Radico at 16x on Mar-22E EPS, deriving a TP of Rs 363. Maintain BUY.

Robust Revenue Growth: Net revenues grew by 15% yoy (6% in 4QFY19, 17% in 3QFY20) vs. expectation of 12%. IMFL volumes grew by 13% yoy (P&A 11%, Popular 14%) vs. 10% exp (P&A 12%, Popular 9%). P&A/Regular revenue growth was 31/4% yoy. Realisation growth in P&A was 17.5% led by price hike, favourable state mix, higher mix from premium P&A (Rampur, Morpheus Brandy, 8PM Black). Realisation for Popular was down by 8% yoy. Co saw market share gain throughout FY20, and we expect it will sustain. Online delivery and availability of premium liquor in malls can be structurally positive for the industry.

Miss in margins: GM (adjusted for IND AS impact of country liquor stock) was down by 400bps yoy to 48.6% (+208bps in 4QFY19, +11bps in 3QFY20) due to high RM inflation. Employee/S&D/other expenses grew by 6/3/-3% yoy resulting in 13% yoy growth in EBITDA (IND AS adjusted) to Rs 810mn (exp Rs 786mn). EBITDA margin declined by 22bps yoy to 13.8% (+21bps in 4QFY19, -180bps in 3QFY20). APAT was up by 15% yoy to Rs 449mn (exp Rs 462mn). Cost control initiatives will sustain EBITDAM in FY21.

Call & other takeaways: (1) All 32 units of Radico are operational now, (2) 50% liquor stores have opened pan-India with ~80% demand, (2) Online delivery of liquor will be a boost to the industry, (3) ENA and glass prices are expected to remain stable to decline in FY21, (4) GM can be 48-49% for FY21, co taking various control cost measures to sustain margin, (5) Net Debt for the co increased from Rs 3.2bn in FY19 to Rs 3.8bn in FY20.

Shares of RADICO KHAITAN LTD. was last trading in BSE at Rs.330.3 as compared to the previous close of Rs. 321.4. The total number of shares traded during the day was 103436 in over 3902 trades.

The stock hit an intraday high of Rs. 338 and intraday low of 315.8. The net turnover during the day was Rs. 34119512.

Source : Equity Bulls

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