3QFY2017 Result Update | Breweries & Distilleries
February 13, 2017
Radico Khaitan
ACCUMULATE
CMP
`128
Performance Highlights
Target Price
`147
Quarterly Data
Investment Period
12 months
(` cr)
3QFY17
3QFY16
% yoy
2QFY17
% qoq
Revenue
415
401
3.6
447
(7.2)
Stock Info
EBITDA
51.4
58
(12.1)
57
(9.5)
Sector
Breweries & Distilleries
Margin (%)
12.4
14.6
(221bp)
12.7
(32bp)
Market Cap (` cr)
1,700
Adj. PAT
20
25
(22.3)
22
(9.7)
Net Debt (` cr)
742
Source: Company, Angel Research
Beta
0.8
Radico Khaitan’s (RKL) results for 3QFY2017 were below our estimates both on
52 Week High / Low
151 / 81
top-line as well as bottom-line fronts. The company’s top-line grew by ~4% yoy to
Avg. Daily Volume
98,071
`415cr owing to the impact of demonetization, which led to a decline in
Face Value (`)
2
consumer spending. Moreover, lower sales volume and subdued operating
BSE Sensex
28,334
performance led to the de-growth in bottom-line by ~22% yoy to `20cr.
Nifty
8,794
Top-line line subdued on back demonetization: Overall, the volume growth
Reuters Code
RADC.BO
during the quarter de-grew by ~7% yoy, which resulted in the subdued top-line
Bloomberg Code
[email protected]
growth i.e. ~4% yoy to `415cr. This subdued volume and top-line performance
was due to the demonetization led decline in consumer spending. The company
Shareholding Pattern (%)
has consciously shifted its focus in favor of Prestige & above products, which
Promoters
40.5
command better margins over higher volume mass market products. Prestige &
above brands’ volume grew by ~0.3% yoy, while their contribution to total IMFL
MF / Banks / Indian Fls
13.3
volumes increased from 24.6% in 3QFY2016 to 26.5% in 3QFY2017.
FII / NRIs / OCBs
21.1
Indian Public / Others
25.1
Lower sales impacted the overall PAT growth yoy: On the operating front, the
company’s margin contracted by 221bp yoy to 12.4%, primarily due to a
combination of lower sales and an increase in ENA prices. The company reported
Abs. (%)
3m 1yr 3yr
~22% yoy fall in its net profit to `20cr for the quarter.
Sensex
3.0
19.3
39.3
RKL
2.7
19.4
(21.1)
Outlook and Valuation: Going forward, we believe that the company has the
potential to perform better on the bottom-line front on the back of (a) volume
growth, (b) higher sales of premium products, (c) anticipation of better price
3-year price chart
hikes, and (d) gradual reduction in debt, which should lead to significant savings
180
160
in interest costs. Hence, we recommend an ACCUMULATE rating on the stock
140
with a target price of `147.
120
100
Key financials
80
60
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
40
Net sales
1,488
1,543
1,636
1,811
20
% chg
2.5
3.7
6.0
10.7
0
Net profit
68
77
86
108
% chg
(5.1)
13.7
11.5
25.7
EBITDA margin (%)
11.4
12.6
13.0
13.2
Source: Company, Angel Research
EPS (`)
5.1
5.8
6.4
8.1
P/E (x)
25.2
22.1
19.9
15.8
P/BV (x)
2.0
1.9
1.7
1.6
RoE (%)
8.1
8.5
8.8
10.1
RoCE (%)
7.8
8.8
9.8
11.0
Amarjeet S Maurya
EV/Sales (x)
1.6
1.6
1.4
1.3
022-39357800 Ext: 6831
EV/EBITDA (x)
14.3
12.6
11.0
9.6
[email protected]
Source: Company, Angel Research; Note: CMP as of February 10, 2017
Please refer to important disclosures at the end of this report
1
Radico Khaitan | 3QFY2017 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
3QFY17
3QFY16
% yoy
2QFY17
% qoq
9MFY17
9MFY16
% chg
Net Sales
415
401
3.6
447
(7.2)
1,293
1,165
10.9
Consumption of RM
209
179
16.4
261
(19.8)
698
535
30.6
(% of Sales)
50.3
44.8
58.2
54.0
45.9
Staff Costs
35
34
2.6
34
2.1
106
85
25.2
(% of Sales)
8.4
8.5
7.6
8.2
7.3
Selling & Administrative Exps.
49
71
(31.8)
58
(16.6)
149
208
(28.4)
(% of Sales)
11.7
17.8
13.0
11.5
17.8
Operating Expense
71
58
24.0
37
90.5
175
182
(4.0)
(% of Sales)
17.2
14.4
8.4
13.5
15.6
Total Expenditure
364
342
6.2
390
(6.8)
1,128
1,010
11.7
Operating Profit
51
58
(12.1)
57
(9.5)
165
156
5.6
OPM (%)
12.4
14.6
12.7
12.7
13.4
Interest
20
20
(0.7)
21
(5.2)
62
62
(0.3)
Depreciation
10
10
4.8
11
(0.4)
32
30
5.0
Other Income
5.96
6.82
(12.6)
4.43
34.6
14
23
(39.1)
PBT
27
36
(23.3)
30
(9.1)
86
87
(2.0)
(% of Sales)
6.6
8.9
6.7
(2.1)
6.6
7.5
Provision for Taxation
8
10
(25.7)
8
0.9
22
25
(12.2)
(% of PBT)
27.9
28.8
25.1
25.9
28.9
Other Comprehensive Inc /Exp (Net of Tax)
1
Reported PAT
20
25
(22.3)
22
(9.7)
63
62
2.2
PATM
4.7
6.3
4.9
4.9
5.3
Source: Company, Angel Research
February 13, 2017
2
Radico Khaitan | 3QFY2017 Result Update
Top-line plunges on the back demonetization
Overall, the volume growth during the quarter de-grew by ~7% yoy, which
resulted in the subdued top-line growth i.e. ~4% yoy to `415cr. This subdued
volume and top-line performance was due to the demonetization led decline in
consumer spending. The company has consciously shifted its focus in favor of
Prestige & above products, which command better margins over higher volume
mass market products. Prestige & above brands’ volume grew by ~0.3% yoy,
while their contribution to total IMFL volumes increased from 24.6% in 3QFY2016
to 26.5% in 3QFY2017.
Exhibit 2: Top-line growth trend
500
25
450
20
400
15
350
10
300
5
250
-
200
(5)
150
100
(10)
50
(15)
0
(20)
Net sales
QoQ growth (%)
Source: Company, Angel Research
Subdued operating performance
On the operating front, the company’s margin contracted by 221bp yoy to 12.4%,
primarily due to a combination of lower sales and an increase in ENA prices.
Exhibit 3: Operating profit and margin trend
70
16
60
14
12
50
10
40
8
30
6
20
4
10
2
0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
February 13, 2017
3
Radico Khaitan | 3QFY2017 Result Update
PAT de-grew by ~22% yoy
The company reported ~22% yoy fall in its net profit to `20cr for the quarter.
Exhibit 4: Net Profit and growth trend
500
25
450
20
400
15
350
10
300
5
250
-
200
(5)
150
100
(10)
50
(15)
0
(20)
Net sales
QoQ growth (%)
Source: Company, Angel Research
February 13, 2017
4
Radico Khaitan | 3QFY2017 Result Update
Investment rationale
Pricing environment expected to be favorable for IMFL industry
Our interaction with liquor companies suggests that prices have now bottomed out.
We expect the industry’s pricing environment to get better going ahead, mainly
because there has not been any significant price hike in products in recent times
due to delay in approval by various state governments. Hence, the industry is now
expecting a significant price hike in the coming financial year. Also, the industry
leader United Spirits has been facing pressure at the operating level and the
company has a huge debt on its balance sheet. Hence, we believe that the
company’s new Management would shift focus on profitability over volume growth,
which in turn, would lead to an increased scope for other liquor companies to hike
prices.
Higher proportion of premium products in volume mix to drive
profitability
In the IMFL segment, more than 20% of the company’s volumes come from
prestige and above products, which is a high margin business, and the balance
volumes come from regular and others brands. Since the last eight years, the
company’s prestige and above brands’ volume has reported a CAGR of ~23%
and their share in the product mix has increased from 7.9% in FY2009 to 24% in
FY2016. We expect volume contribution of prestige and above products in the
IMFL segment to increase further on back of higher ad spends. The company has
roped in celebrity Hrithik Roshan as its brand ambassador. Also, the company’s
presence in the prestige Vodka segment is under penetrated, which leaves scope
for growth. Thus, this would improve the overall margin for the company and
result in higher profitability.
Wide distribution network with strong brands
RKL has a strong sales and distribution network with a presence in retail and off-
trade outlets in the relevant segments in different parts of India. Currently, the
company is selling its products through over 45,000 retail outlets and over 5,000
on-premise outlets. Apart from wholesalers, a total of around 300 employees
divided into four zones, each headed by regional profit centre head, ensure an
adequate on-the-ground sales and distribution presence across the country.
The company has strong brands likes Magic Moments Vodka, Morpheus Brandy,
Verve Vodka, Florence Brandy, After Dark Whisky, etc.
February 13, 2017
5
Radico Khaitan | 3QFY2017 Result Update
Outlook and valuation
The company has not performed well in the last two years due to increasing raw
material costs (ENA is a key raw material) and with it not receiving significant price
hikes from various states. We expect the company to perform well going forward in
anticipation of better price hikes and healthy sales growth in premium products.
This would result in an overall improvement in the operating margin of the
company. We expect the company to report strong earnings CAGR of ~18% to
~`109cr over FY2016-18E. Hence, we recommend an ACCUMULATE rating on
the stock with a target price of `147.
Exhibit 5: One-year forward P/E band
10.0 X
15.0 X
20.0 X
25.0 X
30.0 X
250
200
150
100
50
0
Source: Company, Angel Research
Company Background
Radico Khaitan Ltd is an India-based spirits company engaged in the
manufacturing of liquor. The company has three distilleries and one JV with total
capacity of 150mn litres and 33 bottling units spread across the country. The
company is one of the largest providers of branded IMFL to the Canteen Stores
Department (CSD), which has significant entry barriers. RKL's brands include After
Dark Whisky, Magic Moments Vodka, Morpheus Brandy, Contessa Rum, Old
Admiral Brandy and 8 PM. Its liquor business also includes rectified spirit and
country liquor. Its alcohol products include rectified spirit, silent spirit, cane juice
spirit, malt spirit, grain spirit and ethanol. The company’s PET division produces a
range of PET bottles and jars for industries such as pharmaceutical, cosmetics,
home and personal care, edible oil and confectionery.
February 13, 2017
6
Radico Khaitan | 3QFY2017 Result Update
Profit & Loss Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Total operating income
1,258
1,452
1,488
1,543
1,636
1,811
% chg
10.0
15.4
2.5
3.7
6.0
10.7
Total Expenditure
1,074
1,258
1,318
1,348
1,423
1,571
Raw Material Cost
585
653
717
721
761
838
Personnel Expenses
79
93
107
131
128
141
Selling & Administrative Exp.
235
286
284
273
286
317
Others Expenses
176
226
210
224
249
275
EBITDA
184
193
170
195
213
239
% chg
17.7
5.0
(11.9)
14.2
9.5
12.4
(% of Net Sales)
14.6
13.3
11.4
12.6
13.0
13.2
Depreciation& Amortisation
35
39
38
40
43
45
EBIT
149
155
132
154
170
195
% chg
20.4
3.9
(14.6)
16.8
10.4
14.4
(% of Net Sales)
11.8
10.7
8.9
10.0
10.4
10.8
Interest & other Charges
70
85
90
85
84
76
Other Income
30
36
45
38
40
40
(% of PBT)
27.8
34.3
51.6
35.4
31.7
25.2
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
109
106
87
108
126
158
% chg
25.7
(2.6)
(18.1)
23.6
17.1
25.7
Prior Period & Extra. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
109
106
87
108
126
158
Tax
32
35
19
31
40
51
(% of PBT)
29.3
33.0
22.4
28.6
32.0
32.0
PAT (reported)
77
71
68
77
86
108
% chg
21.4
(7.8)
(5.1)
13.7
11.5
25.7
(% of Net Sales)
6.1
4.9
4.5
5.0
5.2
6.0
Basic EPS (`)
5.8
5.4
5.1
5.8
6.4
8.1
Fully Diluted EPS (`)
5.8
5.4
5.1
5.8
6.4
8.1
% chg
21.2
(7.9)
(5.1)
13.7
11.5
25.7
February 13, 2017
7
Radico Khaitan | 3QFY2017 Result Update
Balance Sheet
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
SOURCES OF FUNDS
Equity Share Capital
27
27
27
27
27
27
Reserves& Surplus
702
754
812
877
950
1,042
Shareholders Funds
728
781
839
904
977
1,068
Total Loans
768
904
849
851
755
700
Deferred Tax Liability
70
85
85
85
85
85
Total Liabilities
1,566
1,770
1,773
1,840
1,816
1,853
APPLICATION OF FUNDS
Gross Block
744
821
831
851
871
891
Less: Acc. Depreciation
214
250
288
329
371
416
Net Block
529
571
542
522
499
475
Capital Work-in-Progress
5
8
8
8
8
8
Investments
109
108
98
98
98
98
Current Assets
1,161
1,330
1,379
1,471
1,500
1,646
Inventories
186
211
212
220
233
258
Sundry Debtors
435
523
538
562
596
660
Cash
16
15
10
11
16
18
Loans & Advances
314
441
470
492
524
565
Other Assets
209
139
149
185
131
145
Current liabilities
249
262
270
274
304
389
Net Current Assets
912
1,067
1,109
1,197
1,195
1,257
Deferred Tax Asset
11
15
15
15
15
15
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
1,566
1,770
1,773
1,840
1,816
1,853
February 13, 2017
8
Radico Khaitan | 3QFY2017 Result Update
Cashflow Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Profit before tax
109
106
87
108
126
158
Depreciation
35
39
38
40
43
45
Change in Working Capital
(242)
(53)
(47)
(87)
6
(59)
Interest / Dividend (Net)
42
50
90
85
84
76
Direct taxes paid
(23)
(26)
(19)
(31)
(40)
(51)
Others
13
22
-
-
-
-
Cash Flow from Operations
(66)
137
149
115
219
169
(Inc.)/ Dec. in Fixed Assets
48
(141)
11
(20)
(20)
(20)
(Inc.)/ Dec. in Investments
(3)
(0)
(10)
-
-
-
Cash Flow from Investing
46
(141)
0.2
(20)
(20)
(20)
Issue of Equity
1
1
-
-
-
-
Inc./(Dec.) in loans
97
99
(55)
2
(97)
(55)
Dividend Paid (Incl. Tax)
(12)
(12)
(10)
(12)
(13)
(16)
Interest / Dividend (Net)
(71)
(84)
(90)
(85)
(84)
(76)
Cash Flow from Financing
15
3
(154)
(94)
(194)
(147)
Inc./(Dec.) in Cash
(5)
(1)
(5)
1
5
2
Opening Cash balances
21
16
15
10
11
16
Closing Cash balances
16
15
10
11
16
18
February 13, 2017
9
Radico Khaitan | 3QFY2017 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
22.0
23.9
25.2
22.1
19.9
15.8
P/CEPS
15.1
15.5
16.1
14.5
13.3
11.2
P/BV
2.3
2.2
2.0
1.9
1.7
1.6
Dividend yield (%)
0.6
0.6
0.6
0.7
0.8
0.9
EV/Sales
1.9
1.7
1.6
1.6
1.4
1.3
EV/EBITDA
12.7
12.8
14.3
12.6
11.0
9.6
EV / Total Assets
1.3
1.2
1.2
1.2
1.1
1.0
Per Share Data (`)
EPS (Basic)
5.8
5.4
5.1
5.8
6.4
8.1
EPS (fully diluted)
5.8
5.4
5.1
5.8
6.4
8.1
Cash EPS
8.5
8.3
8.0
8.8
9.7
11.4
DPS
0.8
0.8
0.8
0.9
1.0
1.2
Book Value
54.8
58.7
63.0
67.9
73.4
80.3
Returns (%)
ROCE
10.0
9.2
7.8
8.8
9.8
11.0
Angel ROIC (Pre-tax)
10.9
9.9
8.4
9.4
10.5
11.8
ROE
10.6
9.1
8.1
8.5
8.8
10.1
Turnover ratios (x)
Asset Turnover (Gross Block)
2.4
2.5
2.7
3.0
3.3
3.8
Inventory / Sales (days)
54
53
52
52
52
52
Receivables (days)
126
132
132
133
133
133
Payables (days)
36
33
33
32
31
31
WC cycle (ex-cash) (days)
144
152
151
153
154
154
February 13, 2017
10
Radico Khaitan | 3QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
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Disclosure of Interest Statement
Radico Khaitan
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
February 13, 2017
11