Radico Khaitan's Q4FY19 results (Outperformer) - Inline; strong traction in P&A segment continues
Q4FY19 result highlights
- Radico Khaitan's net sales increased by 6.1% yoy at Rs5.1bn (est: Rs5.05bn); EBITDA increased 7.7% yoy at Rs717m (est: Rs719m) and PAT increased by 14% yoy at Rs391m (est: Rs373m).
- Overall IMFL volumes grew by 6.2% yoy (est: -0.9%), Prestige & Above (P&A) segment volumes increased by 22.1% yoy while Regular & other segment volumes increased by 1.3% yoy for the quarter.
- Despite higher input costs (ENA, glass prices), reported gross margins improved by 210bps yoy led by improved mix (P&A now 26.8% of volumes vs 23.3% in base qtr) and benefit of price hikes.
- Staff expenses increased by 9% yoy, selling & distribution increased by 24% yoy on account of higher investment behind brands (hired Bollywood celebrities) while other expenses were up 2% for the quarter. Resultant EBITDA increased by 7.7% yoy with margin expansion of 30bps yoy to 14.1%.
- Other income decreased by 64% yoy while interest expense decreased by 48% yoy on account of debt reduction (net debt down to Rs3.19bn as on Mar 19 vs Rs5.7bn in Mar’18). Net-debt increased marginally qoq to Rs3.19bn from Rs2.92bn in Dec’18 because of delayed payments from CSD and Govt. departments.
Key positives: Strong volume growth in P&A segment.
Key negatives: Muted volume growth in regular segment.
Impact on financials: Marginally cut FY20/21E by 3%/2%
Valuations & view
Radico’s volume growth was better than expectation aided by of strong double-digit P&A volume growth. 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/glass prices moving up, the gross margin expansion is unlikely. However, with mix improvement & likely price hikes expected post elections; we believe current margin profile can be sustained. Further, on track reduction in debt & interest cost reduction will continue to aid 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 12x/11x FY20/21E EBITDA, it is at a significant discount to United Spirits & remains 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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