Buy Radico Khaitan; target of Rs 363: HDFC Securities

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HDFC Securities' research report on Radico Khaitan

Radico’s 4QFY20 performance was strong with 15% yoy growth in net revenues. IMFL revenue and volume growth was 16% and 13%, out of which, P&A clocked 31% and 11% respectively. This was in stark contrast to the industry (flat yoy) which struggled in 4QFY20 (UNSP posted rev/vol decline of 11/13% yoy). Co continued scaling its premium brands (Rampur, Morpheus, 8PM Black, etc) and Morpheus is expected to become a millionaire brand in FY21. EBITDA growth of 13% was not only superior to UNSP but also to other FMCG players. Lockdown and sharp increase in taxes by states are a caveat for FY21 growth for the liquor industry. However, we expect that Radico can sustain its outperformance led by aggressive marketing, successful recent launches and competitive pricing. With ENA prices being steady and expected to be soft in FY21, we believe co will be able to sustain its EBITDA margin. Receivables were high on Mar’20 but co received ~Rs 1bn during April/May from few states (mainly AP).

Outlook

Thereby, working capital stretch was more of timing mismatch. Consumption slowdown will also have its impact on the liquor industry, thereby, we cut EPS estimates by 7/2% for FY21/FY22. We value Radico at 16x on Mar-22E EPS, deriving a TP of Rs 363. Maintain BUY.

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