Radico Khaitan's Q3FY19 results (Outperformer) - Strong revenues drive earnings beat
Q3FY19 result highlights
- Radico Khaitan's net sales increased by 14.6% yoy at Rs5.5bn (est: Rs5.2bn); EBITDA increased 27% yoy at Rs958m (est: Rs902m) and PAT increased by 49% yoy at Rs521m (est: Rs473m).
- Overall IMFL volumes increased by 7.2% yoy. Prestige & Above segment volumes increased by 18.5% yoy while Regular & other segment volumes increased by 3.4% yoy for the quarter.
- Reported gross margins increased by 120bps yoy led by lower input cost, improved mix and benefit of price hikes.
- Staff expenses increased by 7% yoy, selling & distribution increased by 22% yoy while other expenses were up 8% for the quarter. Resultant EBITDA increased by 27% yoy with margin expansion of 160bps yoy to 17.3%.
- Other income decreased by 56% yoy while interest expense decreased by 55% yoy on account of debt reduction (net debt down to 2.92bn Dec’18 vs 5.7bn in Mar’18).
Key positives: Strong volume growth in P&A segment
Key negatives: QoQ moderation in gross margins
Impact on financials: Factoring healthy performance, we have increased FY19/20/21E EPS by 4% each
Valuations & view
Radico delivered yet another strong performance aided by of double-digit P&A volume growth and continued reduction in debt. We are factoring a conservative 8.5% volume CAGR over FY19-21E led by market share gains and continued traction in new brands. With benefit of favourable input cost now in base & ENA prices moving up, the extent of gross margin expansion of is likely to be lower. However, continued traction in P&A portfolio & benefit of price hikes will help sustaining current margin profile. Further, on track reduction in debt & interest cost reduction will continue to boost overall earnings growth. Going forward, uptick in input costs, price hikes and scale up in new brands will be the key monitorables. At current valuations of 14x/12.5x FY20/21E EBITDA are at a significant discount to United Spirits & remain attractive. Maintain Outperformer.
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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