Maintain ADD on Radico Khaitan - Beat in volumes, remain constructive - HDFC Securities

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

Radico's revenue was in line (with a beat in volumes) but the margin saw a miss. Revenue growth was at 47% YoY (HSIE 50%), with two-year CAGR at - 2% as compared to -15% posted by UNSP. IMFL volume grew 59% to 5.61mn cases (HSIE 5.32mn cases), P&A volume grew a robust 41% to 1.48mn cases while regular volume was up by 67% to 4.13mn cases. The company has witnessed an inspiring volume rebound from Jun'21 onwards and expects to see the next phase of growth from Karnataka, AP, and Telangana. The focus on new launches (premium side), share gain, and expected rebound in industry give better visibility on Radico's revenue. We do not call out the current miss in margin as sustainable and expect margin recovery from Q2FY22 onwards. We slightly increase our EPS estimates for FY22E/FY23E by 2/3%. We increase our target multiple to 30x P/E (25x earlier) on Jun-23E to factor in Radico's consistently outperforming peers and strengthening of its balance sheet. Our target price is INR 900. Maintain ADD.

Beat in volume, promising outlook: Net revenue grew by 47% YoY (-34% in Q1FY21 and +19% in Q4FY21) vs. HSIE 50%. IMFL volume was up by 59% YoY. P&A volume grew by 41% YoY (-47% in Q1FY21 and +16% in Q4FY21) while Popular volume was up by 67% YoY (-42% in Q1FY21 and +5% in Q4FY21). The company's premiumisation trend took a hit due to the lockdown with the share of P&A at 26% (30% in Q1FY21, 32% in Q1FY20 and 28% in Q4FY21). The company is strengthening its premium products portfolio through new launches in the coming quarters.

Mix impacts margin: GM declined by 709/87bps YoY/QoQ to 47.5% (+666bps in Q1FY21 and -143bps in Q4FY21, -550bps HSIE). S&D costs grew by 54% YoY on a low base as the company continued its investments in brand building. A&P was up by 71% to INR 335mn and it stood at 7.2% of IMFL sales. Employee costs/other expenses were up 12%/26% YoY. EBITDA margin contracted by 325bps YoY to 15.3% (+242bps in Q1FY21 and +53bps in Q4FY21) vs HSIE 16.5%. EBITDA grew by 22% YoY (HSIE 33%).

Con call takeaways: (1) Radico has started local bottling for its spirits in Malaysia to overcome high taxes and duties and is evaluating to replicate this in other markets. (2) The premiumisation trend continues with prestige growing in double digits from July. (3) P&A share for the industry has contracted from 19% to 18%, but Radico has gained share. (4) Rampur and Jaisalmer are in process of being sold at the CSD stores, a market of 0.5mn cases. (6) The UP government has increased its revenue generation target from INR 320bn to INR 500bn (50% jump) over the next 3-4 years through introducing favourbale trade policies (UP contributes 30% of revenue for Radico). (7) The next growth phase would come from Karnataka, AP and Telangana (together with Tamil Nadu makes 60% of industry).

Shares of RADICO KHAITAN LTD. was last trading in BSE at Rs. 903 as compared to the previous close of Rs. 881.25. The total number of shares traded during the day was 118469 in over 8244 trades.

The stock hit an intraday high of Rs. 917 and intraday low of 865.8. The net turnover during the day was Rs. 105941966.

Source : Equity Bulls

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