Buy Radico Khaitan Ltd for the Target Rs. 3,395 by ARETE Securities Ltd
Radico Khaitan (RDCK) delivered a strong set of Q2 FY26 results where revenue grew 33.8% YoY to Rs. 1494 Crs and Gross margin remained stable at 43.6%, with sequential improvement from 43% in Q1 FY26, driven by sustained growth in its Prestige & Above (P&A) segment, robust recovery in regular brands, and healthy operating leverage benefits. EBITDA margin expanded 129 bps YoY to 15.9% and PAT grew 73% YoY to Rs. 139 Crs. The company continues to strengthen its brandled premiumization strategy while leveraging its backward integration and wide geographic reach. With favourable raw material trends and supportive state policies, RDCK remains on track to deliver consistent earnings growth and margin expansion over the medium term.
Premium Portfolio Strength - P&A Growth Momentum:
* The P&A portfolio recorded 22% YoY volume growth and achieved its highest-ever quarterly volume, driven by premium consumption trends across states. Realization per case improved 2.1% YoY to Rs. 1,847, supported by a richer product mix and steady pricing discipline, this segment now contributes 44% of overall volumes and 68% of total branded business value,
* The growth came from flagship brands such as Magic Moments Vodka, Royal Ranthambore, After Dark Whisky, and Morpheus Super Premium Whisky, each expanding distribution footprints and category share. The luxury portfolio (Rampur, Sangam, Jaisalmer) is expected to generate Rs. 500 Crs in FY26, up from 340 Crs in FY25
Regular Portfolio Rebound:
* The Regular & Others segment registered 80% YoY volume growth, showing a sharp turnaround after several quarters of subdued performance. This was driven by strong traction in Andhra Pradesh post-retail privatization and sustained demand from semi-urban and rural consumers.
* Management expects this segment to maintain healthy momentum through H2 FY26, aided by improved distribution efficiency, higher off-take in newly privatized markets, and stable realization trends. The recovery in the regular category complements RDCK's premiumization drive, supporting operating leverage and fixed cost absorption.
Andhra Pradesh - Market Inflection:
* Policy reforms in Andhra Pradesh's route-to-market structure have proven transformative for RDCK, driving its market share from 10% to now at 30% YoY and positioning it as the state's market leader. The shift towards retail privatization improved shelf availability, consumer access, and brand visibility across key districts.
* The company sees Delhi and Bihar as potential catalysts for future growth, given ongoing discussions around market reforms and distribution structure. Both states represent largevolume markets with under-penetrated premium segments.
* Bihar, historically a 10-12 mn case market with strong vodka consumption, could emerge as a key growth geography for RDCK's Magic Moments and white spirits portfolio once regulatory clarity improves. These reforms can structurally expand RDCK's addressable market and support its premium brand strategy.
Outlook & Valuation
* Management expects 150 bps EBITDA margin expansion in FY26, followed by another 125 bps per annum improvement over the next two years, targeting late-teen margin levels by FY28 through efficiency gains and premium mix improvement.
* They are also confident of exceeding 20% full-year volume growth, and remains focused on profitable growth with healthy cash flows.
* We value RDCK at 63x 2027E EPS, and maintain our BUY rating with a revised target price of Rs. 3,395 implying a 7% upside from current levels.
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