3QFY2016 Result Update | Breweries & Distilleries
February 6, 2016
Radico Khaitan
BUY
CMP
`113
Performance Highlights
Target Price
`156
Quarterly Data
Investment Period
12 months
(` cr)
3QFY16 3QFY15
% yoy 2QFY16
% qoq
Revenue
401
413
(2.8)
370
8.3
EBITDA
58.5
46
27.1
50
16.6
Stock Info
Margin (%)
14.6
11.2
(344bp)
13.6
(103bp)
Sector
Breweries & Distilleries
Adj. PAT
25
21
19.3
19
36.1
Market Cap (` cr)
1,509
Source: Company, Angel Research
Net Debt (` cr)
741
For 3QFY2016, Radico Khaitan (RKL) outperformed our estimates on the earnings
Beta
0.8
front although the top-line came in flat yoy. On the operating front, the company
52 Week High / Low
131 / 78
reported margin expansion, primarily on account of lower raw material and selling
& distribution expenses. Further, on the bottom-line front, the company reported a
Avg. Daily Volume
1,69,862
healthy growth due to strong operating performance and lower interest cost.
Face Value (`)
2
BSE Sensex
24,617
Regular & others products segment de-grew which restricted overall top-line
growth but healthy volume growth in Prestige & above products segment: For the
Nifty
7,498
quarter, RKL’s top-line grew flat yoy to ~`401cr (our estimate was of ~ `432cr),
Reuters Code
RADC.BO
mainly due to the company’s shift in focus towards prestige and above products
Bloomberg Code
[email protected]
over higher volume mass market products. During the quarter, Prestige & above
brands’ volume grew ~10.7% yoy. Prestige and above brands’ contribution to
total Indian made foreign liquor (IMFL) volumes increased from 21.4% in
Shareholding Pattern (%)
3QFY2015 to 24.6% in 3QFY2016. However, de-growth in Regular & others
Promoters
40.5
products segment which contribute more than 75% of total sales volume, restricted the
overall top-line growth of the company. The company is continuously focusing on the
MF / Banks / Indian Fls
13.3
high-margin Premium products segment to increase revenue.
FII / NRIs / OCBs
21.1
PAT grew ~19% yoy: The reported net profit for the quarter grew by 19% yoy to
Indian Public / Others
25.1
`25.4cr (our estimate was of
`23.4cr) on account of strong operating
performance and lower interest cost (in FY2015 the company has repaid a
Abs. (%)
3m 1yr 3yr
significant amount of its debt; further debt reduction is also on the cards).
Sensex
(6.4)
(14.7)
25.2
Outlook and valuation: RKL has not performed well in the last two years due to
RKL
8.0
19.9
(21.6)
increasing 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 easing material costs and on expectation of
3-year price chart
better price hikes. This would result in an overall improvement in the operating
180
margin of the company. Also, with the company having reduced significant debt
160
140
from its balance sheet, it would be able to report an improvement in its
120
profitability. We expect the company to report strong earnings CAGR of ~18% to
100
~`95cr over FY2015-17E. Hence, we recommend a Buy rating on the stock with
80
60
a target price of `156.
40
20
Key financials
0
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
Net sales
1,452
1,488
1,517
1,635
% chg
15.4
2.5
1.9
7.8
Source: Company, Angel Research
Net profit
71
68
78
95
% chg
(7.8)
(5.1)
14.6
22.1
EBITDA margin (%)
13.3
11.4
12.7
13.4
EPS (`)
5.4
5.1
5.8
7.1
P/E (x)
21.1
22.2
19.4
15.9
P/BV (x)
1.9
1.8
1.7
1.5
RoE (%)
9.1
8.1
8.6
9.6
RoCE (%)
9.2
7.8
8.7
9.8
Amarjeet S Maurya
EV/Sales (x)
1.6
1.5
1.5
1.3
022-39357800 Ext: 6831
EV/EBITDA (x)
11.8
13.2
11.5
10.0
[email protected]
Source: Company, Angel Research, Note: CMP as of February 5, 2016
Please refer to important disclosures at the end of this report
1
Radico Khaitan | 3QFY2016 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
3QFY16
3QFY15
% yoy
2QFY16
% qoq
9MFY16
9MFY15
% chg
Net Sales
401
413
(2.8)
370.03
8.3
1,165
1,145
1.8
Consumption of RM
179
221
(19.2)
178
0.6
535
562
(4.9)
(% of Sales)
44.6
53.6
48.0
45.9
49.1
Staff Costs
29
30
(2.3)
29
0.5
85
80
6.6
(% of Sales)
7.2
7.2
7.8
7.3
6.9
Selling & Administrative Exps.
71.4
77
(6.9)
64.4
10.8
208
217
(3.9)
(% of Sales)
17.8
18.6
17.4
17.8
18.9
Operating Expense
63
39
62.8
49
29.3
182
149
21.9
(% of Sales)
15.8
9.4
13.2
15.6
13.1
Total Expenditure
342
367
(6.6)
320
7.0
1,010
1,008
0.2
Operating Profit
58
46
27.1
50
16.6
156
137
13.5
OPM (%)
14.6
11.2
13.6
13.4
12.0
Interest
20
23
(14.4)
21
(5.3)
62
68
(9.6)
Depreciation
10
9
11.1
10
-
30
30
0.0
Other Income
6.82
10.27
(33.6)
7.01
(2.6)
23
30
(22.2)
PBT
36
24
46.8
26
35.0
87
69
26.7
(% of Sales)
8.9
5.9
7.1
7.5
6.0
Provision for Taxation
10
3
241.7
8
32.3
25
16
55.7
(% of PBT)
28.8
12.4
29.4
28.9
23.6
Minority Interest
Reported PAT
25
21
19.3
19
36.1
62
53
17.8
PATM
6.3
5.2
5.0
5.3
4.6
Source: Company, Angel Research
February 6, 2016
2
Radico Khaitan | 3QFY2016 Result Update
Regular & other products segment’s volume de-grew which
restricted overall top-line growth but healthy volume growth in
Prestige & above products segment
For the quarter, RKL’s top-line grew flat yoy to ~`401cr (our estimate was of
~ `432cr), mainly due to the company’s shift in focus towards prestige and above
products over higher volume mass market products. During the quarter, Prestige &
above brands’ volume grew ~10.7% yoy. Prestige and above brands’ contribution
to total Indian made foreign liquor (IMFL) volumes increased from 21.4% in
3QFY2015 to 24.6% in 3QFY2016. However, de-growth in Regular & others products
segment which contribute more than 75% of total sales volume, restricted the overall
top-line growth of the company. The company is continuously focusing on the high-
margin Premium products segment to increase revenue.
Exhibit 2: Top-line growth trend
450
20
400
15
350
10
300
5
250
-
200
(5)
150
(10)
100
50
(15)
0
(20)
Net sales
QoQ growth (%)
Source: Company, Angel Research
Operating margin expansion due to lower raw material and
selling & distribution expenses
On the operating front, the company’s margin improved by 344bp yoy to 14.6%,
primarily on account of lower raw material and selling & distribution expenses. The
operating profit resultantly grew by ~27% yoy to `58cr. During the quarter, foreign
exchange fluctuation loss was of `1.8cr in 3QFY2016 compared to a loss of
`5.3cr in 3QFY2015.
February 6, 2016
3
Radico Khaitan | 3QFY2016 Result Update
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
PAT grew ~19% yoy
The reported net profit grew by 19% yoy to `25.4cr (above our estimate of
`23.4cr) on account of the strong operating performance and lower interest costs
(in FY2015 the company repaid a significant amount of its debt; further debt
reduction is also on the cards).
Exhibit 4: Net Profit and growth trend
30
80
60
25
40
20
20
15
-
(20)
10
(40)
5
(60)
0
(80)
Net Profit
QoQ growth (%)
Source: Company, Angel Research
February 6, 2016
4
Radico Khaitan | 3QFY2016 Result Update
Investment rationale
Raw material prices expected to ease
We expect the price of extra neutral alcohol (ENA), a key raw material for the
company, to remain stable and potentially even decline going forward. This is
because sugar production during the October 2014 to May 2015 period has risen
by ~16% yoy to 27.9mn tonne, which is an 8-year high production level. As a
result ENA (a by-product of sugarcane) production too would be higher this year.
Pricing environment expected to be favorable for IMFL industry
Our interaction with liquor companies suggests that the industry has now bottomed
out. We expect the industry’s pricing environment to likely 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 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 seven years, the
company’s prestige and above brands’ volume has reported a CAGR of ~26%
and their share in the product mix has increased from 7.9% in FY2009 to 20.7% in
FY2015. We expect volume contribution of prestige and above products in the
IMFL segment to increase further on back of higher ad spend. The company has
roped in celebrity Hrithik Roshan as its brand ambassador. Also, RKL’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.
Apart from this, the company has strong brands likes Magic Moments Vodka,
Morpheus Brandy, Verve Vodka, Florence Brandy, After Dark Whisky etc.
February 6, 2016
5
Radico Khaitan | 3QFY2016 Result Update
Outlook and valuation
RKL has not performed well in the last two years due to increasing 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 easing material costs and on expectation of better price hikes. This
would result in an overall improvement in the operating margin of the company.
Also, with the company having reduced significant debt from its balance sheet, it
would be able to report an improvement in its profitability. We expect the company
to report strong earnings CAGR of ~18% to ~`95cr over FY2015-17E. Hence, we
recommend a Buy rating on the stock with a target price of `156.
Exhibit 5: One-year forward P/E band
250
Share Prices
10.0 X
15.0 X
20.0 X
25.0 X
30.0 X
200
150
100
50
0
Source: Company, Angel Research
Company Background
Radico Khaitan Ltd is an India-based spirits company engaged in the manufacture
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, country liquor and IMFL. 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 6, 2016
6
Radico Khaitan | 3QFY2016 Result Update
Profit & Loss Statement
Y/E March (` cr)
FY2012
FY2013
FY2014
FY2015
FY2016E
FY2017E
Total operating income
1,144
1,258
1,452
1,488
1,517
1,635
% chg
20.9
10.0
15.4
2.5
1.9
7.8
Total Expenditure
987
1,074
1,258
1,318
1,324
1,416
Raw Material Cost
546
585
653
717
699
744
Personnel Expenses
71
79
93
107
114
128
Selling & Administrative Exp.
205
235
286
284
276
286
Others Expenses
166
176
226
210
235
258
EBITDA
157
184
193
170
193
219
% chg
3.9
17.7
5.0
(11.9)
13.1
13.9
(% of Net Sales)
13.7
14.6
13.3
11.4
12.7
13.4
Depreciation& Amortisation
33
35
39
38
41
42
EBIT
124
149
155
132
152
178
% chg
0.1
20.4
3.9
(14.6)
14.9
17.0
(% of Net Sales)
10.8
11.8
10.7
8.9
10.0
10.9
Interest & other Charges
58
70
85
90
84
84
Other Income
21
30
36
45
45
45
(% of PBT)
24.6
27.8
34.3
51.6
40.0
32.3
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
87
109
106
87
112
139
% chg
(12.6)
25.7
(2.6)
(18.1)
28.9
23.9
Prior Period & Extra. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
87
109
106
87
112
139
Tax
23
32
35
19
35
45
(% of PBT)
26.8
29.3
33.0
22.4
31.0
32.0
PAT (reported)
64
77
71
68
78
95
% chg
(12.6)
21.4
(7.8)
(5.1)
14.6
22.1
(% of Net Sales)
5.6
6.1
4.9
4.5
5.1
5.8
Basic EPS (`)
4.8
5.8
5.4
5.1
5.8
7.1
Fully Diluted EPS (`)
4.8
5.8
5.4
5.1
5.8
7.1
% chg
(12.7)
21.2
(7.9)
(5.1)
14.6
22.1
February 6, 2016
7
Radico Khaitan | 3QFY2016 Result Update
Balance Sheet
Y/E March (` cr)
FY2012
FY2013
FY2014
FY2015
FY2016E FY2017E
SOURCES OF FUNDS
Equity Share Capital
27
27
27
27
27
27
Reserves& Surplus
642
702
754
812
878
958
Shareholders Funds
668
728
781
839
904
985
Total Loans
650
768
904
849
840
830
Deferred Tax Liability
65
70
85
85
85
85
Total Liabilities
1,384
1,566
1,770
1,773
1,829
1,900
APPLICATION OF FUNDS
Gross Block
687
744
821
831
851
871
Less: Acc. Depreciation
185
214
250
288
329
371
Net Block
502
529
571
542
521
500
Capital Work-in-Progress
5
5
8
8
8
8
Investments
111
109
108
98
98
98
Current Assets
1,016
1,161
1,330
1,379
1,458
1,570
Inventories
179
186
211
212
216
228
Sundry Debtors
348
435
523
538
553
596
Cash
21
16
15
10
25
35
Loans & Advances
382
314
441
470
482
515
Other Assets
86
209
139
149
182
196
Current liabilities
259
249
262
270
272
292
Net Current Assets
757
912
1,067
1,109
1,186
1,279
Deferred Tax Asset
9
11
15
15
15
15
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
1,384
1,566
1,770
1,773
1,829
1,900
February 6, 2016
8
Radico Khaitan | 3QFY2016 Result Update
Cashflow Statement
Y/E March (` cr)
FY2012
FY2013
FY2014
FY2015
FY2016E FY2017E
Profit before tax
87
109
106
87
112
139
Depreciation
33
35
39
38
41
42
Change in Working Capital
(15)
(242)
(53)
(47)
(63)
(83)
Interest / Dividend (Net)
37
42
50
90
84
84
Direct taxes paid
(18)
(23)
(26)
(19)
(35)
(45)
Others
18
13
22
-
-
-
Cash Flow from Operations
142
(66)
137
149
140
137
(Inc.)/ Dec. in Fixed Assets
(118)
48
(141)
11
(20)
(20)
(Inc.)/ Dec. in Investments
(9)
(3)
(0)
(10)
-
-
Cash Flow from Investing
(128)
46
(141)
0.2
(20)
(20)
Issue of Equity
1
1
1
-
-
-
Inc./(Dec.) in loans
109
97
99
(55)
(9)
(10)
Dividend Paid (Incl. Tax)
(11)
(12)
(12)
(10)
(12)
(14)
Interest / Dividend (Net)
(101)
(71)
(84)
(90)
(84)
(84)
Cash Flow from Financing
(2)
15
3
(154)
(105)
(108)
Inc./(Dec.) in Cash
12
(5)
(1)
(5)
15
10
Opening Cash balances
9
21
16
15
10
25
Closing Cash balances
21
16
15
10
25
35
February 6, 2016
9
Radico Khaitan | 3QFY2016 Result Update
Key Ratios
Y/E March
FY2012
FY2013
FY2014
FY2015
FY2016E FY2017E
Valuation Ratio (x)
P/E (on FDEPS)
23.6
19.4
21.1
22.2
19.4
15.9
P/CEPS
15.5
13.3
13.7
14.2
12.7
11.0
P/BV
2.2
2.1
1.9
1.8
1.7
1.5
Dividend yield (%)
0.7
0.7
0.7
0.7
0.8
0.9
EV/Sales
1.8
1.7
1.6
1.5
1.4
1.3
EV/EBITDA
12.9
11.6
11.8
13.2
11.3
9.8
EV / Total Assets
1.2
1.2
1.1
1.1
1.0
1.0
Per Share Data (`)
EPS (Basic)
4.8
5.8
5.4
5.1
5.8
7.1
EPS (fully diluted)
4.8
5.8
5.4
5.1
5.8
7.1
Cash EPS
7.3
8.5
8.3
8.0
8.9
10.3
DPS
0.8
0.8
0.8
0.8
0.9
1.1
Book Value
50.4
54.8
58.7
63.0
68.0
74.0
Returns (%)
ROCE
9.4
10.0
9.2
7.8
8.7
9.8
Angel ROIC (Pre-tax)
10.4
10.9
9.9
8.4
9.6
10.9
ROE
9.5
10.6
9.1
8.1
8.6
9.6
Turnover ratios (x)
Asset Turnover (Gross Block)
2.3
2.4
2.5
2.7
2.9
3.3
Inventory / Sales (days)
57
54
53
52
52
51
Receivables (days)
111
126
132
132
133
133
Payables (days)
38
36
33
33
32
31
WC cycle (ex-cash) (days)
130
144
152
151
153
153
February 6, 2016
10
Radico Khaitan | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Radico Khaitan
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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 6, 2016
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