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Radico Khaitan (RDCK) showcased a robust performance in 1QFY25, primarily driven by its Prestige & Above (P&A) brands, which experienced a volume and value growth of 14% and 19%, respectively, along with a 4% increase in realization. The company's non-IMFL segment also saw significant improvement, with a 57% growth attributed to the operationalization of the Sitapur plant.Looking ahead, we anticipate sustained strong demand for P&A brands, with RDCK expected to achieve midteens volume growth, supported by new product launches, enhanced execution, and the scaling up of existing brands. We maintain BUY recommendation with a TP of INR 2,015 based on a PE(x) of 50x FY26E EPS.

P&A Brands Propel Radico Khaitan's Growth:

RDCK's revenue jumped 19.1%, led by P&A brands and non-IMFL business expansion. Despite a 7.1% overall volume decline, driven by a 14% drop in Regular brands, P&A volumes grew impressively by 14.2% YoY, reaching 2.7 million cases. This led to a 19% YoY value growth, surpassing expectations. The P&A segment's contribution to RDCK's IMFL business increased to 67% in value and 43% in volume.

The non-IMFL segment, including country liquor and ENA, saw a remarkable 57% growth to 390Crs, thanks to the full capacity utilization of the Sitapur plant commissioned in 3QFY24. RDCK continues to focus on premiumization, aiming for mid to highteens volume growth in the P&A segment.

Margin Expansion in Sight:

While gross margins contracted by 208 basis points YoY to 41.5% due to grain price inflation, this was offset by premiumization and price hikes in the IMFL business. EBITDA margins expanded by 58 bps YoY to 13.1%, with EBITDA itself growing 24.6% to 149Crs. Selling and distribution expenses were optimized, decreasing by 7.7%, while A&P spending was adjusted to maintain a full-year target of 6%-8%. PAT for the quarter rose by 20.7% YoY to 76.3 Crs.

Other Highlights:

Debt Management: Debt increased this quarter due to inventory buildup and higher receivables. However, the company aims to be debt-free by FY26, indicating a strong focus on improving its financial health.

Capex and IRR Outlook: The company has allocated 150Crs for FY25 capex, with a focus on capacity expansion and maintenance. The expected Internal Rate of Return (IRR) for recent capex is 7%- 8%, with a long-term target of 16%-17%.

Magic Moments Performance: The flagship brand "Magic Moments" achieved significant success, with a volume of 1.9 million cases and sales reaching INR 3 billion, showcasing the brand's strong market presence.

Outlook & Valuation:

RDCK's strategic execution and its ability to identify and launch brands in lucrative market segments. The strong growth in P&A brandsand anticipated margin improvements through backward integration and portfolio premiumization justify the company's re-rating. We recommend a BUY recommendation with a target price of INR 2,015 based on a PE(x) of 50x FY26E EPS.

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