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RadicoKhaitan, a prominent player and the largest manufacturer of Indian Made Foreign Liquor in India's liquor industry, has announced robust quarterly results with a 25% YoY revenue growth. Despite significant commodity inflation in ENA and glass bottles, the company has maintained strong gross margins through price increases and a premiumization trend. Additionally, the recent launch of "Happiness in a Bottle: A Happily Crafted Gin" in their super premium product line and the progress of the Sitapur project, nearing completion and slated for commercial production in Q2FY2024, further solidify their positive outlook. Considering these achievements and sound financials, we uphold our "BUY" rating for RadicoKhaitan, setting a target price of Rs. 1,590/-.

Improved P&A movement:

The commencement of FY24 has been marked by a robust start, evident in the exceptional growth of over 27% YoY for Prestige & Above category brands. This growth is even more pronounced in value terms, where the Prestige & Above category achieved a remarkable 40% increase. Notably, the Prestige & Above category's contribution to IMFL volume has escalated to 36.5% from 29.6% in Q1 FY2023. The successful introduction of "Happiness in a Bottle: A Happily Crafted Gin" in the Gin segment and the company's forthcoming launch of an additional luxury whisky brand in the latter half of FY2024 are anticipated to sustain and amplify this upward trajectory of growth.

Healthy Margins:

Experiencing a substantial 26.1% YoY increase, the Gross Profit has showcased impressive growth. While the short-term perspective on raw materials, particularly ENA, appears to be marked by volatility, a more stable outlook is projected for the medium-to-long term. Leveraging the expanding Prestige & Above mix and the strategic backward integration stemming from the imminent launch of the Sitapur facility in Q2FY24, the Gross Margin is anticipated to strengthen further.

Key Risk:

1 Increase in some of the key input materials, which has impacted our profitability margins particularly in the non-IMFL segment.

2. Government intervention: Considering the fact that in India every state has its own policy on alcohol consumption which therefore creates a challenge for alcohol companies

3. Governance on policies on alcohol industry is spread state wise and therefore it becomes a challenge for all the alcohol companies. This also makes distribution, marketing & taxation policies different from state to state. Irregular excise hikes/ regulatory changes in key markets.

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