Radico Khaitan's Q4FY18 results (Outperformer) - All round outperformance!

Q4FY18 result highlights

• Radico Khaitan's net sales increased by 22.3% yoy at Rs4.8bn (est: Rs4.2bn); EBITDA increased 59% yoy at Rs665m (est:Rs616m) and PAT increased by 106% yoy at Rs342m (est:Rs271m). 
• Overall IMFL volumes increased by 12.5% yoy. Prestige & Above segment volumes increased by 10.7% yoy while Regular & other segment volumes increased by 13.1% yoy for the quarter.
• Reported gross margins increased by 460bps yoy led by lower input cost and benefit of price hikes.
• Staff expenses increased by 19% yoy, selling & distribution increased by 26% yoy while other expenses were up 34% for the quarter. Resultant EBITDA increased by 59% yoy with margin expansion of 310bps yoy to 13.8%. 
• Other income increased by 86% yoy while interest expense increased by 7% yoy. Tax rate was up 530bps resulting in PAT growth of 106% yoy

Key positives: Strong IMFL volume growth

Key negative:  Higher tax rate

Impact on financials: Factoring strong operating performance, we increase our FY19/20E earnings by 13%/11% respectively.

Valuations and View

Radico delivered yet another strong quarterly performance led by double digit IMFL volume growth which coupled with strong margin improvement and lower interest cost resulted in PAT growth being sharply ahead of estimates. We expect volume growth trajectory to remain healthy aided by market share gains in the regular segment and innovation led growth in the prestige and above segment. Moreover, full benefit of fall in molasses prices and price hikes in southern states as well as on track reduction in debt, will continue to drive overall earnings growth. Given the consistently improving earnings delivery and growth outlook (strong 22% earnings trajectory over FY18-20E), we believe RKL’s valuation discount to market leader United Spirits, on EV/EBITDA basis, will narrow further. Maintain Outperformer with a target price of Rs467.