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Acceleration of premiumisation trend, big positive…

About the stock: Radico Khaitan (earlier Rampur Distillery Company) is among the largest manufacturers of Indian made foreign liquor (IMFL) in India. The company is also a supplier of Indian made Indian liquor (IMIL) and bulk alcohol in India.

* IMFL segment comprises ~80% of consolidated revenues. The rest is contributed by IMIL and bulk alcohol

* P&A volumes contribute 30% to overall IMFL volumes (rest is popular)

Rationale

* The liquor sector is witnessing emergence of newer premium price points due to higher instances of at-home liquor consumption. Fewer avenues for customer discretionary spend resulted in higher spends towards upgradation of liquor brands (that typically exhibit higher customer stickiness and customer loyalty)

* The company is capitalising on the trend by expanding its premium portfolio by adding several new brands in the next two years

* Radico’s foray into canteen stores department (super premium category) will lead to a strong brand image in the super-premium whisky category

* The company has already demonstrated success in the premium category (both whisky and vodka category) via brand extension route (Magic Moments Verve, 8 PM premium black)

* Nearing net-debt free status with return ratios reaching 20%+ levels

What should investors do? Radico has the distinction of being among very few domestic players that have, over the years, entered and generated brand equity in the prestige and above liquor segment.

* We remain positive on the stock and maintain our BUY recommendation

Target Price & Valuation: We value the stock at | 1450 i.e. 38x P/E on FY24E EPS

Alternate Stock Idea: Apart from Radico Khaitan, we remain positive on United Spirits

* United Spirits (USL) is India’s leading alcoholic beverage company and subsidiary of global leader Diageo plc. It manufactures, sells premium liquor brands such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff and Captain Morgan

* We have a BUY rating on the stock, with a target price of | 1050

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