Maintain ADD on Radico Khaitan - Outperforming continues - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Radico Khaitan clocked a strong 1QFY21 with a beat in revenue and margin. Revenue saw a 34% YoY decline in revenue (IMFL declined 40% YoY), beating our estimate of 51% YoY decline. IMFL industry declined by >50% YoY, Radico continued its market share gain trajectory. The sequential improvement in demand since May indicates a better revenue show in coming quarters (-10% YoY in June). Gross margin expanded sharply by 666bps YoY (5-year high) to 54.6%, aided by favourable state & product mix and strong exports (7% revenue mix). Cost control led to the expansion in EBTIDA margin of 242bps YoY to 18.5%. We continue to believe in quicker recovery in Radico. The beat in 1Q and gross margin expansion (~200bps) have led to our EPS estimate increasing by 13/10/9% for FY21/FY22/FY23. We value Radico at 18x P/E on Jun-22E EPS and derive a target price of Rs 426. Maintain ADD.

Beat in revenue: The revenue declined by 34% YoY (+21% in 1QFY20 and +15% in 4QFY20). It was due to a 44% YoY decline in IMFL volumes (+12% in 1QFY20, +13% in 4QFY20). P&A/regular IMFL saw volume decline of 47/42% YoY. IMFL revenue declined 40% YoY, beating the estimated decline of 60% YoY. We model -5/18/11% overall revenue growth in FY21/22/23.

Strong margin expansion: The company surprised with a 666bps YoY expansion of GM to 54.6% (-291bps in 1QFY20 and -400bps in 4QFY20) vs estimated 46.5%. The expansion was led by improved state & product mix, increased traction in exports, and a 10% price increase in Telangana. Employee/S&D/Other expenses declined 8/38/23% YoY with ASP declining by 48% YoY, leading to an expansion of 242bps YoY in EBITDAM (-155bps in 1QFY20 and flat in 4QFY20). EBITDA dipped by 25% YoY. Lower taxes helped the company restrain the dip in APAT to 21% YoY.

Call takeaways: (1) 85-88% shops are operational pan-India; (2) demand continued to improve in July, and the company expects to revert to pre- COVID revenue in 2QFY21; (3) ENA prices are expected to remain stable, and margins will continue to improve; (4) premiumisation trend remains intact; (5) net debt stood at Rs 2.6bn in June vs Rs 3.8bn in March.

Shares of RADICO KHAITAN LTD. was last trading in BSE at Rs.380.25 as compared to the previous close of Rs. 393.7. The total number of shares traded during the day was 19977 in over 850 trades.

The stock hit an intraday high of Rs. 396.6 and intraday low of 378. The net turnover during the day was Rs. 7711218.

Source : Equity Bulls

Keywords