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Premium volumes continue to outshine popular…

Radico Khaitan (RKL) in Q4FY21 reported volume growth of 8% (ex-AP impact, double digit volume growth). For FY21, Radico’s volumes have degrown 8% (compared to a mid-teen de-growth for liquor industry). In Q4FY21, Prestige and Above segment volumes (28% of overall IMFL volumes) grew 15%. RKL reported revenue growth of 19% YoY to | 695 crore. EBITDA grew 23% YoY to | 101 crore driven by improved margin profile. EBITDA margin expanded 50 bps from 14.1% to 14.6% due to gross margin improvement and cost rationalisation. Lower tax rate and exceptional expense of | 8 crore in the base quarter enabled the company to report 78% YoY growth in net profit to | 74 crore.

ENA backward integration impedes raw material inflation

The liquor industry has been facing hardening of raw material prices in the past two to three years (ENA, glass). While on glass the management expects prices to remain flat, on the ENA front, inflation is still uncertain, buoyed by the active uptake of ethanol by OMCs (blending target of 20% by 2025). Radico utilises its own distilled ENA for 50% of its volumes, which lowers the inflation seen by other liquor players (bigger asset light players). The management expects a 50 bps improvement in EBITDA margins, going ahead, which, along-with industry leading topline performance, would translate into stronger cash flow generation.

Strategy primed to enter super-premium whisky category

RKL has been launching brand extensions such as 8 PM premium black whisky, which helps it to push newer volumes into P&A fold (clocked 1 million cases mark in FY21). Further, the company intends to tap into the super-premium category (| 1500-2000 retail price category) and also introduce luxury brands such as Jaisalmer gin and Rampur single malt (| 6500-8000 retail price) in the domestic market. It is on the cusp of another breakthrough (post dominance of domestic vodka market volumes) with its focus on the bigger domestic P&A whisky segment by launching more brands in the segment.

Valuation and Outlook

RKL has been continuously reducing its overall net-debt from peak of ~| 950 crore to current ~| 198 crore and generated ~| 380 crore of CFO in FY21. The management also intends to outsource its bottling of popular segment volumes, which would lower its incremental investment into increasing capacity, thus improving its return ratios. Radico continues to widen its volume growth performance over other industry players while its increased brand presence in higher categories is helping it to instil longevity into Radico’s premiumisation journey. We maintain our BUY rating on the stock with a revised target price of | 750/share (~22x FY23E EPS, earlier | 580).

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