Radico Khaitan Ltd - Q2FY21 Result Update - YES Securities

Market share gains and WC improvement continue unabated; poised for further re-rating

- Financial highlights - 4.6% volume growth, Prestige & Above 3.6% volume growth drove 10.5% net revenue growth, 90bps GM expansion and 180bps EBITDA margin expansion to 17% led by price increase in Telangana, better state & product mix, 24% reduction in A&P spends; PBT growth of 49.5%, further net debt reduction of 129cr in 1H given WC days reduction to 36 days led by aggressive overdue collections.

- MD commentary - Sharp recovery from 1Q but industry growth uneven across states, larger states like UP, Karnataka, Telangana have returned to growth trajectory in 2Q where Radico gained share, festive season to bring back normalcy in 2H, benign RM scenario with ENA prices declining 6.5% yoy and 2.5% qoq; focus on new brand development, cost rationalization and distribution ramp-up, recently launched Rampur Asava premium single malt.

- Margin outlook - Sequential decline of 550bps in GMs given the one-off revenue skew in 1Q towards high-margin states; sustainable target for GMs remains at 50-51%; 70% growth in exports (8-9% of sales) led to higher selling and distribution expenses and additional levy from UP govt; confident of reaching high-teens margins in next couple of years.

- Market share trends - Gained share across states especially UP, Telangana, Uttaranchal and Karnataka where sales has normalized; while market declined by 9%, Radico grew by 4.6% in volumes; Rajasthan (-20%), AP (-50%), Assam, Orissa, Maharashtra (-6.5%) have seen a decline. FY19/FY20/1HFY21 industry growth of 9%/0%/-9% and Radico growth of 11%/12%/4.6%.

- Online delivery - Some states have started but impact on sales is still negligible.

- Price increases - Couple of Southern states are considering a price increase in near term, but expect a significant increase only in FY22.

- Country liquor business - Present in only one state and operates as a separate order-driven business which does not impact IMFL business in any way.

- New launches - Had ramped up malt distillation capacity a few years ago, so continue to launch new variants of Rampur Single Malt.

- CSD business - Restrictions continue to remain stringent which has impacted sales (typically 9-10% of sales); hoping for normalization by 4QFY21; decline of 15-16% yoy in volume terms in 1H.

- Exports business - Export to 80-85 countries, most markets have better margins than domestic market given premium mix; planning to expand aggressively to leverage distribution network.

- Receivables management - Not too much of a worry given credit given mostly to state corporations which can delay but rarely default; NWC cycle down from 61 to 36 days given aggressive collection efforts.

- Capital allocation - Will increase dividend payouts/start buybacks after becoming debt-free; not looking at any acquisitions.

- Whisky strategy after Vodka success - Command 60% share in vodka category; crossed 10mn cases in 8PM; lined up 3-4 new premium and above launches in next 2-3 years.

- Ban on import of scotch - Great opportunity for Radico brands like Rampur and Jaisalmer.

- Valuation and view - The stock is currently trading at 28x TTM earnings which we believe deserves some re-rating given 6 quarters of continued market share gains coupled with margin and WC improvement. Success of new premium brands and significant ramp-up in exports can be further triggers for the stock going forward.

Shares of RADICO KHAITAN LTD. was last trading in BSE at Rs.438.4 as compared to the previous close of Rs. 446.6. The total number of shares traded during the day was 10459 in over 822 trades.

The stock hit an intraday high of Rs. 459 and intraday low of 431. The net turnover during the day was Rs. 4603787.

Source : Equity Bulls

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