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Buy Radico Khaitan Ltd For Target Rs.1050

Industry beating performance yet again…

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 the overall IMFL volumes (rest by popular)

Q1FY22 Results: Radico reported results where it beat industry by a wide margin.

* Revenues grew 47% YoY to | 603 crore, IMFL volume growth of 59% YoY

* EBITDA grew 22% YoY to | 92 crore with margins at 15.3% (vs. 18.5% in Q1FY21)

* Subsequently, PAT grew 38% to | 61 crore

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 | 1050 i.e. 32x P/E on FY23E EPS

Key triggers for future price performance: Radico has become India’s biggest IMFL exporter and plans to put up local bottling units in export destinations. Further, its foray into canteen stores department (super premium category) will lead to a strong brand image in the super-premium whisky category.

* Continued launches in premium whisky space

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

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 | 770.

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