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Strong execution continues to support valuations

We met the management of Radico Khaitan. Dilip Banthiya, CFO, and Saket Somani, Vice President – Finance and Investor Relations, shed light on the company’s aspirations, growth path, and margin development. We maintain BUY with a Sep-26E TP of Rs3,700, on 60x P/E, as we see Radico executing better and improving its topline/margin which will aid healthy earnings. The management has aligned its portfolio across segments and price points, as it continues to address evolving consumer needs. Competition is likely to remain intense, given the attractiveness of the Indian market vs other global markets. Vodka market’s expansion is likely to be positive for Radico. Its thrust remains on taking India to the world and hence, it plans to continue to enhance its portfolio. With low capex needs (except for sourcing), the management sees a net-cash position by FY27, post which fund generation will be used to reward shareholders.

Execution-driven healthy volume momentum to sustain

Radico is confident of sustaining double-digit volume growth momentum, with 15-20% growth in the prestige and above (P&A) segment. The management is continuously adding product offers, which are likely to address consumer needs better. In the last 5Y, it has strengthened its distribution team, thereby seizing volume opportunities. The management noted healthy growth in vodka offerings. With competitive actions, the vodka category is likely to sustain healthy growth ahead. With the launch of Rampur 1943 Virasat Single Malt, Radico is improving affordability of its single malt offerings. In Andhra Pradesh, it has expanded its market share from +10% to +30% now, with apt portfolio execution. The company will focus on similar aspects in other states as well, to gain share. Aided by a wider portfolio, the management is looking to address consumer demand better, with new policies in Delhi and the possible opening of the Bihar market.

We see gross margin benefits from easing raw material prices

We see Radico benefiting from easing grain prices, given its own ENA capacity. This situation is the reverse of FY23, when Radico had to take a hit in its gross margin. We see the setting being competitively positive for Radico vs players who have large 3P sourcing of ENA. As the mix of P&A expands, we see mix-driven margin expansions. The impact of Maharashtra is relatively lower for Radico, given mid-single-digit volume contribution.

Focus on Indian pride, taking India to the world

The mgmt is looking to take Indian quality offerings to the world. Each of its brands has a story associated with it, helping to position the brand globally. The mgmt does not see merit in M&A for brands, but it can look at opportunities to strengthen sourcing, which should be limited to commodities. With portfolio enhancements recently, the mgmt sees execution being key to achieving its volume aspirations. In D'Yavol Spirits BV, Radico has a controlling position with a 47.5% stake; the portfolio includes tequila and scotch, which enhance Radico’s play in spirits.

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