Buy Radico Khaitan Ltd for the Target Rs. 250 by Motilal Oswal Financial Services Ltd
Robust underlying growth aided by AP
* Radico Khaitan reported strong revenue growth of 32% YoY (est. 22%) in 1QFY26, with total volume growing 37% (beat). The Prestige & Above (P&A) segment clocked volume and value growth of 41% and 43%. Regular segment posted 48% value growth and 52% volume growth, aided by a low base, resolution of state-specific issues, and route-to-market changes in Andhra Pradesh (Oct’24). Excluding AP, total volume growth stood at ~12%, with P&A volume growth at ~20%. The market share in AP increased sharply from 10% in 1HFY25 to 28% in 1QFY26. Non-IMFL delivered moderate revenue growth of 12% due to lower bulk alcohol sales.
* Luxury and semi-luxury brands delivered nearly 50% value growth YoY, led by a strong consumer uptake and successful premiumization, with Royal Ranthambore revenue growing 90%. The company remains on track to achieve its FY26 target of INR5,000m in revenue from this segment.
* Gross margin expanded 150bp YoY to 43% (est. 43.5%), led by ongoing premiumization and stable RM prices. EBITDA margin expanded 230bp YoY to 15.4% (est. 14.3%), led by operating leverage. The company has revised its margin expansion guidance upward to 125-150bp annually for the next three years (vs. 100bp earlier), aiming to reach high-teens margins. We model 16% and 16.5% EBITDA margins for FY27 and FY28.
* Radico has delivered healthy returns (17%) since our initiation in May’25 (IC report), where we highlighted its strong growth trajectory in the P&A segment and its strategic expansion into premium and luxury portfolios— segments that continue to exhibit strong industry volume growth. With industry-leading growth, we believe rich valuations will sustain. We reiterate a BUY rating with a TP of INR3,250 (based on 60x Jun’27 P/E)
Robust volume growth; all-round beat
* Strong volume growth: Standalone net sales rose 32% YoY to INR15.1b (est. INR13.8b) in 1QFY26. Total volume increased 37%, with P&A volume rising 41% YoY (16% in 4Q) to 3.8m cases (est. 3.2m cases) and Regular volume rising 52% YoY to 5.4m cases. Royalty cases declined 40% YoY to 0.46m cases, now part of the P&A and Regular segments. Regular segment’s growth was aided by a low base, resolution of state-specific issues, and route-to-market changes in Andhra Pradesh. Non-IMFL’s revenue remained muted due to lower bulk alcohol sales.
* Margin expansion: Gross margin expanded 150bp YoY to 43%, driven by ongoing premiumization and a stable raw material environment. Management remains optimistic on the stability of ENA and grain prices in FY26. Employee costs rose 10%, S&D increased 48%, and other expenses increased 23% YoY. EBITDA margin rose 230bp YoY to 15.4%.
* Strong growth in profitability: EBITDA/PBT/APAT grew 56%/82%/84% YoY in 1QFY26. An exceptional item of INR699m relates to the settlement of a demand raised by the Municipal Council of Rampur for reassessed House and Water Tax covering the period from Apr’19 to Mar’31.
Highlights from the management commentary
* Radico expects Scotch imports worth INR2500m in FY26, and projects imports to exceed INR4,000m in three years.
* Annual capex guidance for the next two years stands at INR1,500m-1,600m, focused on malt infrastructure and brand development.
* Marketing spends are maintained at 7-8% of turnover, with a growing focus on digital media, on-trade promotions, and experiential branding.
* Morpheus Super Premium Whiskey, which marks Radico’s entry into the 17mcase super-premium segment, has seen a strong initial response and will be launched in 10 states, covering 70% of the market.
* Spirit of Kashmir, a luxury vodka brand aimed at competing with international offerings, is positioned for global scale-up and premium consumer appeal.
Valuation and view
* We raised our EPS estimates by 10% for FY26 and 9% for FY27 on strong volume growth and beat in EBITDA margin.
* Radico’s debt is likely to decline steadily, supported by healthy free cash flow generation. The company has already reduced debt by INR1,640mn since Mar’25.
* Radico continues to deliver strong growth in its P&A segment, with premiumization remaining a key structural driver. The luxury and semi-luxury portfolio grew ~50% YoY in 1QFY26, supported by new launches and rising consumer demand.
* The valuation gap with UNSP has narrowed significantly, reflecting market recognition of Radico’s brand strength and execution. Despite past margin pressures, the company’s ability to sustain premium-led volume growth makes it a compelling long-term story.
* Radico is currently trading at 71x/55x FY26E/FY27E P/E, with a RoE/RoIC of ~19%/20% in FY27E. We believe a ~30% EPS CAGR provides adequate support for sustaining rich valuations. We value the company at 60x P/E on Jun’27E EPS to derive a TP of INR3,250.
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