Maintain ADD on Radico Khaitan - Outperformance continues, margin in line - HDFC Securities

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

Radico posted a strong set of numbers with beat in revenue and an in-line EBITDA margin. Revenue grew 18.7% YoY despite a firm base (+15% in 4QFY20) vs HSIE 10%. IMFL volume grew by 8% to 6.3mn cases, P&A volume was up by a robust 16% to 1.8mn cases, while regular volume grew by 5% to 4.5mn cases. Premiumisation (P&A volume mix at 28% vs. 26% YoY) and market share gains continued. Gross margin was down by 143/240bps on YoY/QoQ to 48.4%, but FY21 margin was healthy (up 170bps to 50%). A&P expenses were up by 52% while control on other expenses resulted in EBITDA margin expansion of 50bps YoY to 14.6% (in line, HSIE 14.6%). EBITDA grew by 23% YoY (19% 2-year CAGR) vs. HSIE 15%. Despite a challenging year, Radico has reported flat revenue and 10% EBITDA growth in FY21 (UNSP - 13/-34% revenue/EBITDA in FY21). We cut our EPS estimate for FY22 by 5% while maintain it for FY23. We increase target P/E multiple to 25x (20x earlier), given consistent outperformance, improving track record of launches, healthy margin expansion, and strengthening balance sheet. Our value of 25x P/E on Jun-23E EPS gives us a target price of INR 700. Maintain ADD.

Premiumisation trend sustains: Net revenue grew by 19% YoY (+15% in 4QFY20, +6% in 3QFY21) vs. HSIE 10%. IMFL volume was up by 8% YoY. Ex-AP, IMFL volume growth was in strong double digits. P&A volume grew by 16% YoY (+11% in 4QFY20 and +5% in 3QFY21) while Popular volume was up by 5% YoY (+14% in 4QFY20 and -1% in 3QFY21). Most of the company's key markets returned to growth in the quarter. Product launches in P&A and increasing market share will be the key focus areas in the coming quarters. P&A realisation was down by 9% YoY (high base of 18% growth in 4QFY20, mix and export supported last year) but maintained on QoQ to INR 1,397/case. Industry is seeing several challenges but the premiumisation trend has sustained.

Margin expansion continues: GM declined by 143/240bps YoY/QoQ to 48.4% (-400bps 4QFY20, +232bps in 3QFY21). FY21 gross margin was healthy (up by 170bps YoY to 50.3%). S&D costs grew by 20% YoY as the company resumed investments in brand building. A&P was up by >50% and stood at 7% of sales (8.3% of IMFL sales in 4Q, 7.3% for FY21). Employee costs declined by 2% YoY while other expenses were up by 13% YoY. EBITDA margin expanded by 53bps YoY to 14.6% (flat in 4QFY20 and +238bps in 3QFY21) vs HSIE 14.6%. EBITDA grew by 23% YoY (HSIE 15%).

Con call and BS/CF takeaways: (1) 8PM Black crossed 1mn cases in FY21; (2) IMFL industry volume grew by 9/0.4/-14% during FY19/FY20/FY21, while Radico registered 11/12/-8%; (3) Home delivery (allowed in 6-7 states) is a structural change; (4) Delhi's new policy will be good for the industry, similar to UP's free trade model, which is the best in the industry; (5) Capex will be INR 700-800mn in FY22; (6) net debt stood at INR 2bn vs INR 3.8bn in FY20; (7) export contribution to volume stands at 6%.

Shares of RADICO KHAITAN LTD. was last trading in BSE at Rs.645.75 as compared to the previous close of Rs. 628.85. The total number of shares traded during the day was 102329 in over 9532 trades.

The stock hit an intraday high of Rs. 667 and intraday low of 627. The net turnover during the day was Rs. 66411993.

Source : Equity Bulls

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