Radico Khaitan (RDCK) – 1QFY20 – Cost pressure curbs high spirits

Dated :- 9th August 2019

1QFY20 Results

• Radico Khaitan’s (RDCK) revenues grew by 20.8% YoY to Rs 623 Mn driven by 12% YoY volume growth in Indian Made Foreign Liquor (IMFL).
• The higher margin Prestige & Above volumes increased by 16% YoY to 2.0 mn cases and the Regular & Other brands volumes reported an increase of 10.2% YoY to 4.3 mn cases.
• EBITDA improved by 9.3% YoY to Rs 989 Mn. The EBITDA margins declined by ~170 bps to 15.9% impacted by increase in raw material costs.
• PAT grew by 15.6% YoY to Rs 548 Mn driven by reduction in finance cost.

Management Commentary

• The margins in 1QFY20 were lower 18% YoY on account of increase in Extra Neutral Alcohol (ENA) prices and ~15% YoY increase in glass bottles. The restriction on operations at the molasses plant by the Central Pollution Control Board during 1QFY20, led to additional costs of Rs 65mn.
• Rampur Indian Single Malt and Jaisalmer Indian Craft Gin continue to see strong traction in the Indian as well as international markets. RDCK has tripled the manufacturing capacity of Rampur Indian Single Malt which will benefit company in the long run.
• The management guided for ~9% volume growth in IMFL for FY20E led by ~14% YoY in the Prestige & Above category and ~6% YoY growth in the Regular & Other Brands category.
• Raw material price pressure will keep the gross margins at ~47% and the EBITDA margins in the range of 16%-16.5% for FY20E.
• RDCK is expected to be a debt free company within next 18 months.

Consensus Estimate (Source: www.marketscreener.com)

• The closing price of RDCK was Rs 322/- on 09-Aug-19. It traded at 22x / 20x / 16x the consensus EPS for 20E /21E /22E EPS of Rs 14.1/ 15.5 /20.1 respectively.
• Consensus target price of Rs 454/- implies a PE of 23x on FY21E EPS of Rs 20.1.