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Radico Khaitan Ltd Research Report - 12th May 2016

Miscellaneous | Published on May 12th 2016

IT

For 4QFY2016, Radico Khaitan (RKL) outperformed our estimates on the top-line front although the bottom-line came in flat yoy. The company’s top-line grew by ~10% to Rs378cr on back of higher sales of premium products while the bottomline came in flat on a yoy basis at Rs15cr due to higher interest costs and taxes. During the quarter the Karnataka government gave a price increase (Rs35/case) to the company which would be effective from July 1, 2016 and would contribute towards margin improvement. Further, the government of Uttar Pradesh has reduced the excise duty on Indian made foreign liquor (IMFL) by 20-25% with effect from April 1, 2016, which is expected to result in an increase in IMFL sales volume in the state going forward. These policy actions should significantly benefit the company as the two states account for ~20% of its volumes. We believe that the company has the potential to perform better on the bottomline front on back of (a) improvement in volume growth (b) higher sales of premium products (c) anticipation of better price hikes and (d) gradual reduction in debt which should lead to significant savings in interest costs. Hence, we recommend a Buy rating on the stock with a target price of Rs125. Top-line grew ~10% on back of higher sales in premium products: Despite of overall volumes declining by 4.5% during the quarter, the company’s top-line was able to report a ~10% yoy growth to Rs378cr (our estimate was of Rs351cr), mainly due to the company’s shift in focus towards prestige & above products over higher volume mass market products. During the quarter, prestige & above brands’ volume grew ~7% yoy while their contribution to total IMFL volumes increased from 19.5% in 4QFY2015 to 22% in 4QFY2016. OPM improved but PAT was flat yoy: On the operating front, the company’s margin improved by 61bp yoy to 10.3%, primarily on account of lower selling & distribution expenses and other expenditure. However, raw material cost as a percentage of sales increased by 331bp yoy. The company reported a net profit of Rs14.8cr, which is flat yoy, on account of higher interest costs and taxes.

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CMP 92
Target Price 125
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)1,559.35
MCAP NSE (Rs in Cr)1,562.01
P/E (x)18.57
EPS (Rs.)6.31
BV (Rs.)74.76
Div Yield (%)0.68
FV (Rs.)2.00
P/BV (x)1.57
EV/Sales (x)1.56
EV/EBITDA (x)12.75

Shareholding Pattern (%)

Promoter40.0
Public & Others25.0
Foreign21.0
Institution14.0
Corporate0.0
Grand Total100.0

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