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* Radico Khaitan is one of the oldest and largest manufacturers of Indian Made Foreign Liquor (IMFL) with net revenue of INR48b and volume of 31m cases in FY25 (P&A was ~15mn cases). The company, formerly known as Rampur Distillery Company, commenced operations in 1943 as a major bulk spirits supplier. Radico is known for its brands: 8PM, Magic Moments, Royal Ranthambore, Rampur Single Malt, After Dark, Morpheus, Contessa and Jaisalmer.

* The company has upgraded its brand image and has successfully entered into the luxury segment by introducing brands like Rampur, Ranthambore, and Jaisalmer. It has a wide product range in whiskey, vodka, gin, rum, and brandy with a price range of ~ INR500 to more than INR8000 for a bottle, covering a large consumer base. Consumer acceptance for its premium brands over the years reflects Radico’s long-term brand upgrade story. Radico can further capitalize on this success by adding more brands to fill the white spaces to attract consumer segments that have higher volumes. Radico holds ~8% share in the Prestige & Above (P&A) category in the IMFL industry. For Radico, vodka accounts for ~50% of its P&A portfolio, with an >80% share in the P&A vodka industry. Besides, the company has significantly scaled up its P&A whiskey portfolio (contributes ~5mn cases), though from the industry point of view, it is still small with a 3% share. Here we see a good opportunity for Radico and it gives us confidence that the company can sustain its double-digit volume growth in P&A in the medium term.

* During FY19-25, Radico has delivered 15% revenue growth, with a 12% CAGR in IMFL (70% of revenue) and a 23% CAGR in non-IMFL (30% of revenue). Within IMFL, its P&A portfolio (70% of IMFL) clocked a robust 20% revenue CAGR and a 13% volume CAGR. Owing to steep cost pressure (ENA, Glass), gross margin has contracted from 51.4% in FY19 to 42.8% in FY25 (-800bp). EBITDA margin contraction was limited, down from 16.5% in FY19 to 13.9% in FY25 (-250bp).

* Radico has been one of the best-performing stocks among consumer names, with 25x return over the last 10 years and 8x return over the last five years. The valuation multiple has seen a notable re-rating over the last five years, with consistent outperformance of its P&A portfolio. However, we still believe that Radico will deliver strong earnings growth over the next 3-5 years considering the opportunity it has to scale up its P&A portfolio in the industry. Radico’s P&A portfolio clocks ~15m cases compared to the P&A industry size of ~200m cases and the total IMFL industry size of ~400 million cases. The company is further gearing up to expand its portfolio by launching products in the premium and luxury range where industry cases are high. We believe this portfolio expansion will help Radico expand its target user base and improve its trade confidence on execution, which increases the acceptance level for new products. We estimate 16% revenue CAGR during FY25-28E and EBITDA margin of 16.2% by FY28 (similar to FY19). We believe a ~30% EPS CAGR is good enough for sustaining rich valuations. We value Radico at 60x P/E on Jun’27E EPS to derive a TP of INR3,000.

What has worked well for Radico in the last five years

* Its aim of becoming one of the finest liquor companies with a range of brand innovations has played out well for Radico. P&A volume contribution in IMFL has increased to 41% in FY25 from 28% in FY19. As per our estimates, brands that together contributed ~25% to its P&A portfolio in FY19 now contribute 50% as of FY25. Such an impressive growth has been supported by new launches and a scale-up in those brands.

* Radico has consistently expanded its distribution reach, with retail touchpoints now spanning over 100,000 retail outlets and 10,000 on-premise locations (from 75,000 retail and 8,000 on-premise outlets in FY19).

* The liquor industry faces several entry barriers, including stringent state-wise regulations, restrictions on direct marketing, diverse distribution models across states, and a lack of pricing control. These challenges make it difficult to build strong brand equity. However, Radico has successfully navigated these complexities and established a robust brand presence over the past few years.

Pan-India presence; brand equity further expanding

* Radico has steadily diversified its geographic footprint, with a declining dependence on the CSD channel (down to 11-12% from 17-18%) and rising contributions from key states like Uttar Pradesh (UP), Andhra Pradesh (AP), Telangana, Maharashtra, and Tamil Nadu (TN). Radico continues to strengthen its presence in core markets such as UP, Karnataka, and AP while deepening penetration in premium-focused regions.

* In UP (20-25% of Radico’s volume), the FY26 excise policy is expected to support growth. In AP, its market share rose from ~10% in 1HFY25 to 23% in 4QFY25, aided by policy tailwinds favoring large players. In Karnataka (8-10% of volumes), the premium segment is seeing strong growth after an excise duty cut, though the value segment remains impacted by high taxes. Telangana and Maharashtra are also emerging as strong growth drivers, especially in the premium category. With more and more states making their policies favorable, Radico can expand its brand equity to gain share.

How Radico can sustain double-digit volume growth in the medium term

* Radico has scaled up its volumes from 20m cases in FY15 to 31 million in FY25. It holds an ~8% share in IMFL industry in P&A (refer Exhibit 5), and its P&A portfolio has grown sharply from 4m to ~15m cases. Given the scale-up opportunity in the P&A segment (~15m cases for Radico vs. 200m cases for P&A industry), the company is accelerating its premiumization drive through new launches in the luxury and premium segments.

* For Radico, vodka accounts for ~50% of its P&A portfolio, with an 85% share in the P&A vodka industry. The company has significantly scaled up its premium whiskey portfolio (contributes ~5mn cases), though from the industry point of view, it is still small with a 3% share. The under-penetration in whisky is not due to a lack of capability but rather reflects the untapped potential that Radico is now poised to unlock. Such an opportunity in large cases gives us confidence that the company can sustain its double-digit volume growth in P&A in the medium term.

Missed on margin promises, but that is mainly due to industry headwinds

* Despite a robust P&A volume and value journey, margin delivery was less impressive. The company was looking to improve its operating margin after expanding its manufacturing capacities to drive more in-house mix. However, on account of high inflation in glass and ENA, the company could not attain the desired outcomes. The margin delivery was below its guidance, though it was more due to external (RM-led) challenges.

* We expect a recovery driven by easing raw material prices, richer product mix, operational efficiencies, and supply chain investments. Glass prices are already seeing deflation and ENA inflation pressure is also easing out. Thereby, full mix benefits in operating margin should be visible in the coming years. We estimate gross margin expansion of 100-150bp to ~44% and EBITDA margin expansion of 200-250bp to ~16% during FY25-28E.

Scope of balance sheet strengthening; leveraging FCF to reduce debt

* On the back of strong revenue growth, margin expansion, efficient working capital management, and minimal capex, Radico delivered robust free cash flow (FCF) generation. It had significantly reduced its gross debt from ~INR8.2b in FY16 to ~INR1.9b in FY22. However, the commencement of a new capex cycle in FY23 led to a rise in gross debt to INR7.3b in FY24, which moderated to INR6.3b in FY25.

* With the benefits of this capacity expansion expected to materialize over the next 2-3 years, we anticipate debt levels to decline gradually, supported by steady FCF generation. Consequently, we estimate RoE to improve from 13% to 18% and RoIC to improve from 13% to 21% over FY25-28E.

India-UK free trade agreement

* The India-UK free trade agreement (FTA), finalized in May’25, introduces a phased reduction in customs duties on whisky and gin from 150% to 75% immediately and further to 40% over 10 years. The UK contributes to more than 80% of India’s imports of whiskey. Thereby, duty reduction would have multiple benefits going ahead.

* Lower duties would bring two benefits - reduced taxes on bottle and lower RM costs. Radico is expected to reduce input costs in the premium segment, particularly for brands like Sangam, After Dark, and Ranthambore that use imported spirits for blending.

* For Radico, landed value of imported spirits is expected to exceed INR2,500m in FY26. The duty cut is likely to do saving of INR750m. The company sees luxury spirits as a lifestyle segment where pricing shapes consumer aspiration. It remains firm on its premium brand positioning and is unlikely to take any major price cuts. Radico’s brands enjoy strong perceived value and compete successfully with both domestic and global players, in India and overseas.

Valuation and view: Rich valuations but robust growth potential

* Looking at Radico’s long-term operational journey and the resultant huge stock re-rating, it certainly is a story well cooked at this price. Radico’s valuation gap with UNSP has also significantly narrowed. The market has rewarded Radico well for its P&A success despite a consistent margin contraction, which was driven by external factors.

* Over FY25-28E, we expect Radico to deliver a 16% revenue CAGR, fueled by strong growth in the P&A segment. Overall volume growth is projected at 9%, driven by a robust 15% CAGR in the P&A portfolio. Additionally, the EBITDA margin is expected to improve from 13.9% in FY25 to 16.2% in FY28E (similar to FY19) supported by premiumization. We model an EBITDA and APAT CAGR of 22% and 30% over FY25-28E, respectively.

* Radico is currently trading at 67x/53x FY26E/FY27E P/E with a RoE/RoIC of ~17%/19% in FY27E. We believe a ~30% EPS CAGR is good enough for sustaining rich valuations. We value the company at 60x P/E on Jun’27E EPS to derive a TP of INR3,000

* Key downside risks: a) any steep inflation in ENA and glass prices; b) increase in excise duty as the financial health of many states is under pressure owing to freebies, etc.; and c) increase in competitive intensity.

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