Buy Radico Khaitan Ltd For Target Rs. 2,298 by ARETE Securities Ltd
Radico Khaitan (RDCK) delivered a strong 3QFY25 performance, with Revenue/EBITDA/PAT rising by 11%/29%/30% YoY, respectively. This growth was driven by robust performance in the Prestige & Above (P&A) segment and a strong recovery in the Regular segment. P&A brands recorded an 18% increase in volume and 25% value growth, with realization improving by 6%. The Regular segment rebounded sharply with 13.5% volume growth and a 15% increase in value, backed by the reopening of Andhra Pradesh. With new product launches, better execution, and brand scaling, demand in the P&A segment is expected to remain strong. Profitability is likely to enhance, sustained by premiumization, lower grain prices, and enhanced non-IMFL business performance. We maintain a BUY rating with a target price of INR 2,298, based on a PE of 60x FY26E EPS.
P&A Brands Leading the Way:
RDCK's revenue jumped 19.1%, led by P&A brands and non-IMFL business expansion. Despite a 7.1% overall volume decline, led 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 impressive 57% growth to 390 Crs, 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:
Despite grain price inflation, which led to a 208 bps contraction in gross margins (now at 41.5%), RDCK managed to offset the impact through premiumization and price hikes in its IMFL business. As a result, EBITDA margins improved by 58 bps YoY to 13.1%, with EBITDA growing by 24.6% to INR 149 crore. Operational efficiency played a key role in this performance, as selling and distribution expenses declined by 7.7%, while advertising and promotional (A&P) spend was optimized to stay within the 6%-8% target range for FY25. At the bottom line, PAT grew by 20.7% YoY to INR 76.3 crore.
Outlook & Valuation:
RDCK's strategic execution and its ability to identify and launch brands in lucrative market segments. The strong growth in P&A brands and anticipated margin improvements through backward integration and portfolio premiumization justify the company's re-rating. We maintain a BUY rating with a target price of INR 2,298, based on a PE of 60x FY26E EPS.
Other Highlights:
Debt Management: Debt increased due to higher working capital requirements, but RDCK expects inventory levels to decline in 4QFY25, leading to a reduction in debt. The company remains committed to becoming net debt-free by FY27 through internal accruals.
Luxury & Semi-Luxury Brands Scaling Up: Sales from Luxury & Semi-Luxury brands crossed INR 1 billion in 3QFY25, with expectations to surpass INR 5 billion in FY26. These brands saw 45% value growth and 54% volume growth, with their contribution to total sales rising to 12% in 3QFY25 from 9% last year.
Improving Payment Cycle in Andhra Pradesh: Outstanding dues in Andhra Pradesh are significantly lower than peers, and a new state policy mandating payments within 45 days is expected to ease receivables management.
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