Radico Khaitan's Q1FY19 results (Outperformer) - Earnings upgrade cycle continues!
Q1FY19 result highlights
- Radico Khaitan's net sales increased by 25.6% yoy at Rs5.2bn (est: Rs4.9bn); EBITDA increased 47% yoy at Rs912m (est: Rs752m) and PAT increased by 84% yoy at Rs474m (est: Rs374m).
- Overall IMFL volumes increased by 19.1% yoy. Prestige & Above segment volumes increased by 30% yoy while Regular & other segment volumes increased by 14.7% yoy for the quarter.
- Reported gross margins increased by 530bps yoy (100bps qoq) led by lower input cost and benefit of price hikes.
- Staff expenses increased by 8% yoy, selling & distribution increased by 67% yoy while other expenses were up 31% for the quarter. Resultant EBITDA increased by 47% yoy with margin expansion of 260bps yoy to 17.7%.
- Other income decreased by 48% yoy while interest expense decreased by 42% yoy on account of debt reduction. Tax rate was up 210bps resulting in PAT growth of 84% yoy.
Key positives: Strong IMFL volume growth, continued margin expansion and sharp reduction in debt
Impact on financials: Factoring strong operating performance, we increase our FY19/20E earnings by 7%/10% respectively
Valuations and View
Radico continues to beat expectations with 3rd consecutive quarter of double digit IMFL volume growth and sharp acceleration in gross margins. We are factoring a conservative 9% volume CAGR over FY18-21E led by market share gains and successful new launches. With margin drivers remaining intact, improvement in operating cash flows is likely to continue which coupled with better working capital management and lower capex requirements will continue to drive debt and interest cost reduction over FY18-21E. Given the strong execution and higher earnings CAGR of 24% over FY18-21E compared to UNSP (17% CAGR over FY18-21E), we believe RKL’s valuation discount to market leader, on EV/EBITDA basis, will narrow further. Maintain Outperformer with a target price of Rs506
Radico Khaitan Limited. Radico Khaitan Limited manufactures alcohol and alcoholic products. The Company operates through the segment of liquor and related products. It offers various brands of Whisky, including 8PM Whisky, Royal Whytehall Whisky and After Dark Whisky; Rum, including Contessa Rum and 8PM Bermuda Rum; Brandy, including Old Admiral Brandy, 8PM Excellency Brandy and Morpheus Brandy; Vodka, including Magic Moments Vodka, Magic Moments Remix Vodka and Verve, and Ready to Drink, including Electra. It produces extra neutral alcohol from molasses, as well as grain. It produces malt spirit and aged grain spirit, as well as matured malt spirit. It has over 33 bottling units spanning across the entire country, of which over five belong to it and over 28 are contract bottling units. Its Rampur Distillery manufactures various brands of Indian-made foreign liquor (IMFL) and country liquor. It operates over three distilleries and one joint venture with total capacity of over 150 million liters.
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