4QFY2016 Result Update | Breweries & Distilleries
May 12, 2016
Radico Khaitan
BUY
CMP
`92
Performance Highlights
Target Price
`125
Quarterly Data
Investment Period
12 months
(` cr)
4QFY16 4QFY15
% yoy 3QFY16
% qoq
Revenue
378
343
10.0
401
(5.8)
EBITDA
39
33
17.0
58
33.6
Stock Info
Margin (%)
10.3
9.7
61bp
14.6
(430bp)
Sector
Breweries & Distilleries
Adj. PAT
15
15
(0.8)
25
(41.8)
Market Cap (` cr)
1,221
Source: Company, Angel Research
Net Debt (` cr)
742
For 4QFY2016, Radico Khaitan (RKL) outperformed our estimates on the top-line
Beta
0.8
front although the bottom-line came in flat yoy. The company’s top-line grew by
52 Week High / Low
131 / 78
~10% to `378cr on back of higher sales of premium products while the bottom-
Avg. Daily Volume
71,845
line came in flat on a yoy basis at `15cr due to higher interest costs and taxes.
Face Value (`)
2
During the quarter the Karnataka government gave a price increase (`35/case) to
BSE Sensex
25,597
the company which would be effective from July 1, 2016 and would contribute
Nifty
7,849
towards margin improvement. Further, the government of Uttar Pradesh has
reduced the excise duty on Indian made foreign liquor (IMFL) by 20-25% with
Reuters Code
RADC.BO
effect from April 1, 2016, which is expected to result in an increase in IMFL sales
Bloomberg Code
RDCK@IN
volume in the state going forward. These policy actions should significantly benefit
the company as the two states account for ~20% of its volumes.
Shareholding Pattern (%)
We believe that the company has the potential to perform better on the bottom-
Promoters
40.5
line front on back of (a) improvement in volume growth (b) higher sales of
MF / Banks / Indian Fls
13.3
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
FII / NRIs / OCBs
21.1
recommend a Buy rating on the stock with a target price of `125.
Indian Public / Others
25.1
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
Abs. (%)
3m 1yr 3yr
able to report a ~10% yoy growth to `378cr (our estimate was of `351cr), mainly
Sensex
11.4
(4.8)
30.0
due to the company’s shift in focus towards prestige & above products over higher
RKL
(4.9)
3.8
(21.6)
volume mass market products. During the quarter, prestige & above brands’
volume grew ~7% yoy while their contribution to total IMFL volumes increased
3-year price chart
from 19.5% in 4QFY2015 to 22% in 4QFY2016.
180
OPM improved but PAT was flat yoy: On the operating front, the company’s
160
margin improved by 61bp yoy to 10.3%, primarily on account of lower selling &
140
120
distribution expenses and other expenditure. However, raw material cost as a
100
80
percentage of sales increased by 331bp yoy. The company reported a net profit
60
of `14.8cr, which is flat yoy, on account of higher interest costs and taxes.
40
20
0
Key financials
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
Net sales
1,488
1,543
1,659
1,802
Source: Company, Angel Research
% chg
2.5
3.7
7.5
8.6
Net profit
68
77
84
98
% chg
(5.1)
13.7
9.6
16.4
EBITDA margin (%)
11.4
12.6
13.0
13.2
EPS (`)
5.1
5.8
6.3
7.4
P/E (x)
18.1
15.9
14.5
12.5
P/BV (x)
1.5
1.4
1.3
1.2
RoE (%)
8.1
8.5
8.6
9.3
RoCE (%)
7.8
8.8
9.6
10.4
Amarjeet S Maurya
EV/Sales (x)
1.3
1.3
1.2
1.1
022-39357800 Ext: 6831
EV/EBITDA (x)
11.5
10.1
9.0
8.1
[email protected]
Source: Company, Angel Research, Note: CMP as of May 11, 2016
Please refer to important disclosures at the end of this report
1
Radico Khaitan | 4QFY2016 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
4QFY16
4QFY15
% yoy
3QFY16
% qoq
FY2016
FY2015
% chg
Net Sales
378
343
10.0
401
(5.8)
1,543
1,488
3.7
Consumption of RM
183
155
18.0
179
2.5
721
720
0.1
(% of Sales)
48.5
45.2
44.6
46.7
48.3
Staff Costs
34
28
21.9
29
16.3
131
120
9.6
(% of Sales)
8.9
8.1
7.2
8.5
8.0
Selling & Administrative Exps.
65
67
(3.4)
71.4
(9.2)
273
284
(3.8)
(% of Sales)
17.2
19.5
17.8
17.7
19.1
Operating Expense
57
60
(5.2)
63
(9.8)
224
195
14.7
(% of Sales)
15.1
17.6
15.8
14.5
13.1
Total Expenditure
339
310
9.2
342
(1.0)
1,348
1,318
2.3
Operating Profit
39
33
17.0
58
(33.6)
195
170
14.2
OPM (%)
10.3
9.7
14.6
12.6
11.4
Interest
23
22
6.0
20
16.8
85
90
(5.8)
Depreciation
10
8
24.3
10
3.4
40
38
5.3
Other Income
14.8
14.9
(1.1)
6.8
116.5
38
45
(15.2)
PBT
20
18
11.8
36
(43.1)
108
87
23.6
(% of Sales)
5.4
5.3
8.9
7.0
5.9
Provision for Taxation
6
3
70.1
10
(46.2)
31
19
58.1
(% of PBT)
27.2
17.9
28.8
28.6
22.4
Minority Interest
-
-
-
-
-
-
-
-
Reported PAT
15
15
(0.8)
25
(41.8)
77
68
13.7
PATM
3.9
4.3
6.3
5.0
4.5
Source: Company, Angel Research
May 12, 2016
2
Radico Khaitan | 4QFY2016 Result Update
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 `378cr (our estimate was of
`351cr), 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.
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 selling & distribution
and other expenses
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.
May 12, 2016
3
Radico Khaitan | 4QFY2016 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 was flat yoy
The company reported a net profit of `14.8cr (flat yoy) on account of higher
interest costs and taxes.
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
May 12, 2016
4
Radico Khaitan | 4QFY2016 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 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 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 spend. 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.
May 12, 2016
5
Radico Khaitan | 4QFY2016 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 ~13% to
~`98cr over FY2016-18E. Hence, we recommend a Buy rating on the stock with a
target price of `125.
Exhibit 5: One-year forward P/E band
Series1
10.0 X
15.0 X
20.0 X
25.0 X
30.0 X
200
180
160
140
120
100
80
60
40
20
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 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.
May 12, 2016
6
Radico Khaitan | 4QFY2016 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
1,659
1,802
% chg
10.0
15.4
2.5
3.7
7.5
8.6
Total Expenditure
1,074
1,258
1,318
1,348
1,443
1,564
Raw Material Cost
585
653
717
721
771
834
Personnel Expenses
79
93
107
131
129
141
Selling & Administrative Exp.
235
286
284
273
290
315
Others Expenses
176
226
210
224
252
274
EBITDA
184
193
170
195
216
238
% chg
17.7
5.0
(11.9)
14.2
11.0
10.3
(% 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
173
194
% chg
20.4
3.9
(14.6)
16.8
12.3
11.7
(% of Net Sales)
11.8
10.7
8.9
10.0
10.4
10.7
Interest & other Charges
70
85
90
85
89
89
Other Income
30
36
45
38
40
40
(% of PBT)
27.8
34.3
51.6
35.4
32.3
27.7
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
109
106
87
108
124
144
% chg
25.7
(2.6)
(18.1)
23.6
15.1
16.4
Prior Period & Extra. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
109
106
87
108
124
144
Tax
32
35
19
31
40
46
(% of PBT)
29.3
33.0
22.4
28.6
32.0
32.0
PAT (reported)
77
71
68
77
84
98
% chg
21.4
(7.8)
(5.1)
13.7
9.6
16.4
(% of Net Sales)
6.1
4.9
4.5
5.0
5.1
5.4
Basic EPS (`)
5.8
5.4
5.1
5.8
6.3
7.4
Fully Diluted EPS (`)
5.8
5.4
5.1
5.8
6.3
7.4
% chg
21.2
(7.9)
(5.1)
13.7
9.6
16.4
May 12, 2016
7
Radico Khaitan | 4QFY2016 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
949
1,032
Shareholders Funds
728
781
839
904
976
1,059
Total Loans
768
904
849
851
830
810
Deferred Tax Liability
70
85
85
85
85
85
Total Liabilities
1,566
1,770
1,773
1,840
1,890
1,954
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
1,560
1,684
Inventories
186
211
212
220
232
252
Sundry Debtors
435
523
538
562
604
657
Cash
16
15
10
11
14
15
Loans & Advances
314
441
470
492
518
562
Other Assets
209
139
149
185
192
198
Current liabilities
249
262
270
274
290
326
Net Current Assets
912
1,067
1,109
1,197
1,270
1,358
Deferred Tax Asset
11
15
15
15
15
15
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
1,566
1,770
1,773
1,840
1,890
1,954
May 12, 2016
8
Radico Khaitan | 4QFY2016 Result Update
Cashflow Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Profit before tax
109
106
87
108
124
144
Depreciation
35
39
38
40
43
45
Change in Working Capital
(242)
(53)
(47)
(87)
(70)
(87)
Interest / Dividend (Net)
42
50
90
85
89
89
Direct taxes paid
(23)
(26)
(19)
(31)
(40)
(46)
Others
13
22
-
-
-
-
Cash Flow from Operations
(66)
137
149
115
146
145
(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
(21)
(20)
Dividend Paid (Incl. Tax)
(12)
(12)
(10)
(12)
(13)
(15)
Interest / Dividend (Net)
(71)
(84)
(90)
(85)
(89)
(89)
Cash Flow from Financing
15
3
(154)
(94)
(123)
(124)
Inc./(Dec.) in Cash
(5)
(1)
(5)
1
2
1
Opening Cash balances
21
16
15
10
11
14
Closing Cash balances
16
15
10
11
14
15
May 12, 2016
9
Radico Khaitan | 4QFY2016 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
15.8
17.2
18.1
15.9
14.5
12.5
P/CEPS
10.9
11.1
11.6
10.4
9.6
8.6
P/BV
1.7
1.6
1.5
1.4
1.3
1.2
Dividend yield (%)
0.9
0.9
0.8
0.9
1.0
1.2
EV/Sales
1.5
1.4
1.3
1.3
1.2
1.1
EV/EBITDA
10.1
10.4
11.5
10.1
9.0
8.1
EV / Total Assets
1.0
1.0
1.0
0.9
0.9
0.8
Per Share Data (`)
EPS (Basic)
5.8
5.4
5.1
5.8
6.3
7.4
EPS (fully diluted)
5.8
5.4
5.1
5.8
6.3
7.4
Cash EPS
8.5
8.3
8.0
8.8
9.5
10.7
DPS
0.8
0.8
0.8
0.9
1.0
1.1
Book Value
54.8
58.7
63.0
67.9
73.3
79.6
Returns (%)
ROCE
10.0
9.2
7.8
8.8
9.6
10.4
Angel ROIC (Pre-tax)
10.9
9.9
8.4
9.4
10.2
11.0
ROE
10.6
9.1
8.1
8.5
8.6
9.3
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
51
51
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
153
153
May 12, 2016
10
Radico Khaitan | 4QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
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While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
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Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
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%)
May 12, 2016
11