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Premiumisation to drive earnings in medium term

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 by popular)

Q1FY23 Results: Radico’s QoQ margins rebounded.

* Revenues de-grew 7% QoQ to | 757 crore (IMFL volume de-grew 7% QoQ)

* However, EBITDA grew 16% to | 93 crore with margins at 12.2% (240 bps QoQ expansion)

* Subsequently, PAT grew 24% to | 62 crore

What should investors do: Radico fared well against the rising inflationary trends in Q1 compared to its peers (which saw contraction in margins). Going forward, the management intends to capitalise on the momentum by pushing its premium volumes and also securing its raw material requirement, thereby exuding resilience in medium to long term

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

Target Price & Valuation: We value the stock at | 1100 i.e. 38x P/E on FY24E EPS

Key triggers for future price performance: Newer capacities would ensure enough availability of grain based ENA to address Radico’s higher growth expectations (expect margins to remain at elevated levels).

* Pan-India launch of new super premium spirits and gaining favourable foothold in the fast growing segment

* Continued launches in premium whisky space

* Backend integration for premium products (FY24 onwards)

Alternate Stock Idea: Besides 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 | 920

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