Buy Radico Khaitan Ltd for the Target Rs. 5,350 by Motilal Oswal Financial Services Ltd
Growth catalysts intact; on track for FY27 guidance
* Radico Khaitan (RDCK) has materially outperformed the IMFL industry by shifting its portfolio toward Prestige & Above (P&A) brands. P&A volumes have increased at a 15% CAGR over FY15-26 to 17m cases in FY26 from 4m in FY15, while the segment’s contribution to RDCK’s IMFL revenue has increased to 70% from less than 40%. With luxury and semi-luxury brands already contributing 10% of revenue (~INR5b), the mix upgrade opportunity remains meaningful. RDCK targets 25% growth in FY27 for its luxury segment. We expect P&A volume growth to remain strong, supported by premiumization, portfolio innovation and further market-share gains.
* Growth outperformance vs. United Spirits (UNSP) and Pernod Ricard underscores RDCK’s superior execution. Over FY19-27E, RDCK’s P&A volumes are expected to expand 3.7x vs. 1.4x for UNSP, while P&A revenue is projected to grow 5x vs. 2x for UNSP. RDCK’s P&A revenue share has consequently increased from 14% of UNSP’s P&A revenue in FY19 to 27% in FY26, and we expect this share to rise to ~30% in FY27E. RDCK expects its FY27 P&A volumes to grow by 25% YoY, reinforcing confidence in near-term momentum.
* State-level policy changes could provide an additional growth catalyst for RDCK’s premium portfolio. Karnataka’s pricing rationalization is supporting P&A portfolio (big MRP cuts for luxury brands such as Rampur and Royal Ranthambore). Progressive policy in UP (accounts for 20-25% of domestic volumes) also provides a strong base to deepen RDCK’s P&A presence. Separately, Maharashtra is showing signs of stabilization after initial disruption; the pressure will be in the base in 2HFY27. The UK and EU FTAs could further support premiumization and improve the growth outlook.
* Margin expansion is the second leg of RDCK’s earnings story. EBITDA margin improved to 16.9% in FY26 from 12% in FY24, and management is targeting 20% in FY27, implying ~350bp expansion. While ENA, glass and packaging costs remain high, premiumization-led mix improvement, operating leverage, backward integration and packaging efficiencies should offset them. Moreover, the India-UK FTA is estimated to drive annual input cost savings of INR700- 750m. We forecast EBITDA margin of 20.4% in FY27E and 21.7% by FY29E.
* The improving earnings profile is also supporting balance-sheet deleveraging. Net debt declined by INR1.38b from Mar’26 to INR1.06b as of Jun’26, with management targeting a net debt-free balance sheet in FY27. We expect APAT to increase from INR6.1b in FY26 to INR13.4b in FY29E, implying a ~30% CAGR, driven by P&A growth, supportive policies and margin expansion.
* RDCK trades at 55x/45x FY28E/FY29E EPS, and the projected earnings trajectory supports a premium valuation. We value the company at 55x 2,000 Sep’28E EPS to arrive at a target price of INR5,350 and maintain BUY.
Increasing market share with more focus on P&A
* RDCK recorded 20m cases in 2015, while the IMFL industry recorded 325m cases. In FY26, the IMFL industry clocked 430m cases, and RDCK scaled up to 38m cases (9% share). However, P&A volumes reached ~17m cases in FY26 from 4m cases in FY15.
* RDCK has been consistently delivering industry-leading volume and revenue growth. The shift from the popular portfolio to the premium portfolio (P&A) has been driving strong growth outperformance. P&A volumes have compounded ~15% over FY15-26, contributing 44% of IMFL volumes (vs. 20% in FY15). Similarly, P&A revenue contribution has jumped to ~70% of IMFL revenue from less than 40% in FY15. The premiumization play book of mid-premium has been replicated in multiple luxury/semi-luxury brands, reflecting the company’s superior execution capabilities and longevity of strong growth. Luxury/semiluxury brands now contribute ~10% of revenue (~INR5b in FY26), providing a further runway for mix-led growth.
* Furthermore, RDCK raised its FY27 P&A volume growth guidance to over 25% (vs. earlier 20%), reflecting strong momentum in the premium portfolio. There is still enough headroom for RDCK to keep leveraging its execution to gain share, particularly in whiskey (P&A).
Valuation and view
* RDCK continues to deliver strong growth in its P&A segment, with premiumization remaining a key structural driver. The luxury and semi-luxury portfolios continue to grow at a healthy pace, supported by new launches and rising consumer demand.
* Management remains committed to steadily reducing its debt, supported by healthy free cash flow generation. Net debt declined by INR1.38b since Mar'26, and net debt stood at INR1.06b as of Jun’26. Management is targeting a net debt-free balance sheet in FY27.
* RDCK remains focused on accelerating growth in the premium and luxury segments while driving greater efficiency across operations with disciplined capital allocation.
* Its P&A sales stood ~15% of UNSP’s P&A sales in FY19, which have now grown to ~30% (as of FY26), and we expect this share to further improve going forward. The valuation gap with UNSP has narrowed significantly, reflecting market recognition of RDCK’s brand strength and execution.
* RDCK is currently trading at 55x/45x FY28E/FY29E EPS, with RoE/RoIC of 23%/29% in FY28E. We believe a ~30% EPS CAGR over FY26-29E provides adequate support for sustaining rich valuations. We value the company at 55x P/E on Sep’28E EPS to derive a TP of INR5,350.
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