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Broad-based performance

Radico Khaitan’s (RDCK IN) Q3 show beat our estimates, led by traction in the Regular segment and non-IMFL sales. Ex-Andhra Pradesh, P&A growth was robust despite current muted macro demand in the consumer discretionary space. Going ahead, growth will be led by continued traction in P&A and recovery in the regular segment. The strategic focus on P&A is aligned with consumer demand. Amid buoyant inflationary pressures and investment in A&P to fuel growth, we modestly curtail margin gain trajectory and cut FY26E/FY27E EPS estimates by 3.8/2.9%. Maintain Accumulate with TP unchanged at INR 2,380, on 48x FY27E P/E (from 46 earlier) given healthy P&A outlook in the AlcoBev space

Prestige and Above – Resilience continues:

RDCK yet again demonstrated robust P&A performance with 18.0% YoY volume growth led by continued premiumization journey and opening up of the Andhra Pradesh (AP) state. Realization per case grew a healthy 5.6% YoY. Albeit with lower salience to the portfolio, luxury/semi-luxury segments grew well as Net Sales Value stood INR 2.5bn YTD and INR 1bn in Q3 alone. RDCK expects this to scale 2x in FY26. RDCK maintains P&A volume growth guidance of 15.0%+ in the near term. Excluding AP, overall IMFL growth was robust at 8.5% YoY (versus average 1.7% YoY dip in past four quarters) despite high base for Q3 and has also been healthy for P&A, implies that P&A growth was broad-based, showing resilience. We expect 17% volume CAGR in FY24-27E given robust product pipeline

Regular segment scripts a comeback:

RDCK arrested its losing streak of nine quarters in the Regular segment, with strong 13.5% YoY volume growth, beating estimates, aided by: a) robust traction from Andhra Pradesh, and b) normalizing of state-level hurdles. We expect volume growth in the Regular segment at 7.0%/3.0% in FY26E/FY27E, largely on lower base of H1 (13% YoY dip) and ongoing tailwinds for the segment. Flagship products (Magic Moments Vodka and 8PM Whiskey) continue to maintain market share.

Blip in gross margin; A&P spend to remain elevated:

Gross margin of 43.0% contracted 60bps QoQ, led by inflation in food grain and offtake in the regular segment (lower margin), but lower A&P spend (5.1% of IMFL sales in Q3- down 100bps YoY) contained EBITDA margin (14.2%) loss to only 41bps QoQ. Expect backward integration benefit of ENA to be partially offset by inflationary pressure in food grain, RDCK aim to ramp-up its A&P spend to 6-8% of IMFL sales to grow market share, which may cap margin gains. So, we cut our EBITDA estimates marginally by 1.6/1.5% in FY26E/27E. ENA integration benefits, lower food grain inflation and prudent A&P spends are key levers.

Maintain Accumulate with TP unchanged at INR 2,380:

While maintaining strong P&A growth, higher A&P spend may cap incremental margin gains. So, we cut EPS estimates by 3.8/2.9% for FY26E/FY27E, but RDCK performed better than peers, with broad-based growth. This, we believe, is commendable given current macro demand. RDCK is our preferred pick in the Alcobev space. Thus, we maintain Accumulate with TP unchanged at INR 2,380, on 48x (46x earlier) based on FY27E EPS.

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