RESULTS REVIEW 24 JAN 2019 Radico Khaitan INDUSTRY ALCO BEV. CMP (as on 24 Jan 2019) Rs 428 Target Price Rs 592 Nifty 10,850 Sensex 36,195 KEY STOCK DATA Bloomberg RDCK IN No. of Shares (mn) 133 MCap (Rs bn) / ($ mn) 57/801 6m avg traded value (Rs mn) 246 STOCK PERFORMANCE (%) 52 Week high / low Rs 500/297 3M 6M 12M Absolute (%) 20.8 12.2 12.5 Relative (%) 14.5 13.9 12.4 SHAREHOLDING PATTERN (%) Promoters 40.4 FIs & Local MFs 5.9 FPIs 22.7 Public & Others 30.9 Source : BSE Himanshu Shah himanshu.shah@hdfcsec.com +91-22-6171-7315 Mansi Lall mansi.lall@hdfcsec.com +91-22-3021-2070 Strong performance Radico Khaitan (RDCK) delivered healthy performance in. Revenue/EBITDA/PAT grew by 14.6/27/51% YoY. For 9MFY19, revenue/ebitda/pat grew at 18/37/69%. RDCK's niche segment (Vodka) and geographic presence (UP), premiumisation, price increases, RM tailwinds and distribution changes in the UP market have been the key factors driving superior growth. RDCK has effectively utilized its growth to de-leverage (net debt reduced from Rs 9.5bn to Rs 2.9bn in 3 years); for new launches, branding and promotions. RDCK has registered robust revenue/ebitda/pat CAGR of 12/30/54% over FY17-19E. However, we expect the growth to moderate as the base effect starts catching up. We estimate revenue/ebitda/pat CAGR of 8/10/15% over FY19-21E. Reiterate BUY with revised TP of Rs 592 (32x Dec-20E EPS) vs. 40x for UNSP. RDCK trades at relatively cheap valuation at 25/22x FY20/21E EPS vs. 47/37x for UNSP. With consistent double-digit earnings growth, we expect RDCK to bridge its PE gap with UNSP. BUY Key highlights for the quarter highlights: RDCK reported revenue growth of 14.6% YoY at Rs 5.53bn. RDCK's strong growth is led by its IMFL segment (~78-80% of revenue and 85-90% of EBITDA). IMFL volumes grew by 7.2% YoY to 5.66mn cases, prestige & above (premium) segment grew by 18.4% to 1.57mn cases and regular by 3.4% to 4.1mn cases. Gross margin expanded by 125bps YoY owing to RM tailwinds and price/mix change. QoQ GM declined by 44 bps QoQ owing to ENA costs inflation. Expansion in Premium whisky segment-key trigger: RDCK enjoys healthy market share and growth in the niche segment of vodka and premium brandy. However, in the large category of whisky (~190mn cases market), RDCK s footprint is primarily in the lowmargin regular category; whereas bulk of the profit resides in P&A. RDCK has recently launched 8PM Black whisky in the premium segment that competes with Royal Challenge (UNSP) and Royal Stag (Pernod). New and successful launches in whisky s P&A segment would be a key growth trigger. Near-term outlook remains robust for RDCK led by volume growth and premiumisation. Standalone Financial Summary (Rs mn) YoY (%) QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Sales 5,529 4,825 14.6 5,176 6.8 16,799 18,228 21,020 22,811 24,608 EBITDA 958 755 26.8 917 4.5 2,121 2,698 3,570 3,932 4,332 APAT 521 345 51.0 495 5.2 809 1,235 1,917 2,228 2,539 Diluted EPS (Rs) 3.9 2.6 51.0 3.7 5.2 6.1 9.3 14.4 16.7 19.1 P/E (x) 70.4 46.1 29.7 25.6 22.4 EV / EBITDA (x) 30.3 23.0 16.9 15.1 13.3 RoE (%) 8.1 11.4 15.6 15.6 15.4 HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
IMFL accounts for ~75-80% of RDCK s revenue Strong growth in the revenues of 14.6% was largely led by the Prestige & above volume growth (+18.4% YoY) S&D expenses increased 22.3% YoY. RDCK launched Magic moment campaigns with bollywood actors Quarterly Financial Snapshot: Standalone Rs Mn % chg YoY % chg QoQ 9MFY18 9MFY19 % chg YoY Gross Revenue 17,418 19,061 20,584 18.2 8.0 46,081 60,797 31.9 (-) Excise Duty 12,593 13,884 15,054 19.5 8.4 32,661 44,928 37.6 Net Revenue 4,825 5,176 5,529 14.6 6.8 13,420 15,870 18.3 RM Costs 2,491 2,584 2,785 11.8 7.8 7,114 7,906 11.1 Gross Profit 2,335 2,592 2,744 17.5 5.9 6,306 7,964 26.3 Employee cost 405 465 433 6.9 (6.9) 1,136 1,262 11.1 S&D 591 673 723 22.3 7.5 1,541 2,082 35.1 Other Exps 583 538 630 8.1 17.3 1,596 1,832 14.8 Total Operating Exps 1,579 1,675 1,786 13.1 6.6 4,273 5,177 21.2 EBITDA 755 917 958 26.8 4.5 2,033 2,787 37.1 D&A 103 107 107 3.4 (0.7) 307 316 2.9 Interest costs 169 92 76 (54.8) (16.7) 534 278 (48.1) Other Income 62 42 28 (55.6) (34.5) 166 97 (41.6) PBT 545 760 803 47.2 5.6 1,358 2,291 68.7 Tax 195 265 281 44.2 6.4 465 800 72.3 RPAT 345 495 521 51.0 5.2 878 1,486 69.3 % of Net revenue chg YoY chg QoQ chg YoY 9MFY18 9MFY19 (bps) (bps) (bps) NR/GR ratio 27.7 27.2 26.9 (84) (29) 29.1 26.1 (302) RM Costs 51.6 49.9 50.4 (125) 44 53.0 49.8 (320) Gross Profit 48.4 50.1 49.6 125 (44) 47.0 50.2 320 Employee cost 8.4 9.0 7.8 (56) (115) 8.5 8.0 (51) S&D 12.3 13.0 13.1 83 8 11.5 13.1 164 Other Exps 12.1 10.4 11.4 (69) 102 11.9 11.5 (34) Total Operating Exps 32.7 32.4 32.3 (42) (6) 31.8 32.6 78 EBITDA 15.7 17.7 17.3 167 (39) 15.1 17.6 242 PBT 11.3 14.7 14.5 321 (17) 10.1 14.4 432 RPAT 7.2 9.6 9.4 227 (14) 6.5 9.4 282 Tax as % of PBT 35.8 34.8 35.1 (72) 25 34.2 34.9 72 Page 2
Stable regulatory regime and abolition of monopolistic distribution in UP is leading to strong volume growth for the entire industry Magic Moments (MM) flavoured vodka, MM Verve, 8PM Premium Black and Pluton Bay 1965 Rum have been the key growth drivers in premium segment Led by stellar 9MFY19, we have increased our FY19-21E Operating Performance (IMFL Volumes Mn Cases) Volumes (Mn Cases) Prestige & Above 1.34 1.20 1.19 1.02 1.32 1.28 1.32 1.13 1.71 1.46 1.57 Regular 3.64 3.29 3.30 3.29 3.38 3.40 3.96 3.72 3.87 3.75 4.10 Total 4.98 4.48 4.49 4.31 4.69 4.68 5.29 4.85 5.59 5.21 5.66 Chg YoY (%) Prestige & Above 10.6 13.0 0.3 8.2 (1.7) 6.5 11.2 10.7 30.2 14.6 18.4 Regular 1.3 1.7 (9.0) (1.7) (7.3) 3.5 20.1 13.1 14.7 10.3 3.4 Total 3.6 4.5 (6.7) 0.5 (5.8) 4.3 17.7 12.5 19.1 11.5 7.2 Mix % Prestige & Above 26.9 26.7 26.5 23.7 28.1 27.3 25.0 23.3 30.7 28.1 27.7 Regular 73.1 73.3 73.5 76.3 71.9 72.7 75.0 76.7 69.3 71.9 72.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Revision In Estimates Old New Change % FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 Revenue (Rs Mn) 20,874 22,497 24,060 21,020 22,811 24,608 0.7 1.4 2.3 EBITDA (Rs Mn) 3,465 3,812 4,249 3,570 3,932 4,332 3.0 3.1 1.9 EBITDA Margin (%) 16.6 16.9 17.7 17.0 17.2 17.6 39 bps 29 bps -6 bps PAT (Rs Mn) 1,836 2,112 2,447 1,917 2,228 2,539 4.4 5.5 3.8 AEPS (Rs) 13.8 15.9 18.4 14.4 16.7 19.1 4.4 5.4 3.8 Peer Set Comparison FMCG companies Mcap (Rs bn) CMP* (Rs) Rating TP (Rs) P/E (x) P/BV (x) ROE % FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E Britannia Industries 772 3,217 NEU 3,149 76.9 64.3 53.0 44.0 22.7 25.6 21.4 17.7 32.9 37.4 44.0 44.1 Colgate Palmolive 360 1,322 NEU 1,248 54.2 47.3 41.4 36.1 23.6 24.0 19.8 16.9 47.4 50.3 52.3 50.4 Dabur India 758 430 BUY 477 55.5 48.3 39.1 32.9 13.3 12.7 10.8 9.2 25.9 26.9 29.9 30.1 Emami 190 419 BUY 551 36.1 32.2 26.6 22.4 9.4 8.8 8.3 7.7 27.9 28.3 32.0 35.8 Godrej Consumer 808 791 NR 773 53.6 46.7 39.3 33.3 16.2 16.0 15.2 13.9 41.2 45.0 51.2 54.5 Hindustan Unilever 3,801 1,760 NEU 1,855 74.0 61.4 50.0 40.7 52.2 45.7 9.9 9.3 73.2 79.4 31.0 23.6 ITC 3,414 279 BUY 383 30.3 27.3 24.7 22.4 6.5 5.9 5.4 5.0 22.7 22.8 23.0 23.1 Marico 483 374 BUY 394 59.3 49.2 37.6 31.9 19.0 17.9 16.0 13.6 33.5 37.4 44.9 46.1 United Spirits 416 573 NEU 619 75.3 54.6 46.8 36.8 16.6 13.1 10.2 8.0 24.9 26.8 24.5 24.4 Radico Khaitan 57 428 BUY 592 46.1 29.7 25.6 22.4 5.0 4.3 3.7 3.2 11.4 15.6 15.6 15.4 Source: HDFC sec Inst Research * as on 24 th Jan, 2019 Page 3
25.2 24.7 24.6 22.0 26.9 26.7 26.5 23.7 28.1 27.3 25.0 23.3 30.7 28.1 27.7 1.3 1.7 (9.0) (1.7) (7.3) 3.5 3.4 20.1 13.1 14.7 10.3 74.8 75.3 75.4 78.0 73.1 73.3 73.5 76.3 71.9 72.7 75.0 76.7 69.3 71.9 72.3 (6.7) 0.3 (1.7) 0.5 (5.8) 8.2 6.5 3.6 4.5 4.3 7.2 10.6 13.0 11.2 10.7 12.5 11.5 14.6 18.4 17.7 19.1 30.2 Financials IMFL Volumes (Overall) Overall Volumes Growth % - RHS Prestige & Above (Premium) volumes Prestige & Above Growth % - RHS Radico s double digit volume growth has slowed down in this quarter to 7.2% YoY 6.00 5.60 5.20 4.80 4.40 Mn Cases 20 15 10 5 0-5 1.80 1.60 1.40 1.20 1.00 Mn Cases 35 25 15 5 4.00-10 0.80-5 Share of prestige and above is consistently on upswing and grew by 18.4% YoY for Regular (Popular) volumes P&A vs. Regular Volume Mix (%) Regular Growth % - RHS 4.00 Mn Cases 3.80 3.60 35 100.0 25 80.0 15 60.0 Prestige & Above Regular 3.40 5 40.0 3.20-5 20.0 3.00-15 - Page 4
8.4 (10.6) 8.5 12.2 12.4 11.9 23.5 15.8 15.8 11.1 26.8 14.7 13.8 36.5 13.4 13.3 12.7 47.0 42.0 47.1 39.5 15.1 15.7 17.7 17.7 17.3 (4.0) 2.7 (3.5) (4.0) 0.6 25.2 27.4 (19.2) 21.9 16.9 28.8 10.6 86.5 51.0 16.8 15.5 14.6 79.1 76.3 22.3 25.6 104.8 Financials Financials up to FY15 are basis IGAAP and from FY16 onwards basis IndAS Revenue trend Net Revenue 5,500 Rs Mn % chg YoY (RHS) % 30 PAT trend 500 Rs Mn PAT % chg YoY (RHS) % 120 Decline in realization in FY16 owes to change in accounting from IGAAP to IndAS 5,100 4,700 4,300 3,900 25 20 15 10 5 0 400 300 200 100 80 60 40 20 0 3,500-5 100-20 RDCK s earns a modest margin of 8-10% on Non-IMFL business EBITDA trend EBITDA % chg YoY (RHS) Rs Mn % 1,000 55 EBITDA margin trend 18.0 800 45 35 15.0 600 25 15 12.0 400 5-5 9.0 200-15 6.0 Page 5
Key Revenue Assumptions FY13 FY14 FY15 FY16* FY17 FY18 FY19E FY20E FY21E CAGR FY19-21E Volumes (Mn Cases) P&A 3.08 3.72 4.04 4.40 4.75 5.05 6.06 6.66 7.33 10.0% Popular 15.93 16.64 15.44 13.79 13.51 14.45 15.62 16.40 17.22 5.0% Total 19.01 20.36 19.48 18.19 18.26 19.50 21.67 23.06 24.55 6.4% Growth YoY (%) P&A - 20.8 8.6 8.9 8.0 6.2 20.0 10.0 10.0 Popular - 4.5 (7.2) (10.7) (2.0) 7.0 8.1 5.0 5.0 Total - 7.1 (4.3) (6.6) 0.4 6.8 11.2 6.4 6.4 Mix (%) P&A 16.2 18.3 20.7 24.2 26.0 25.9 27.9 28.9 29.9 Popular 83.8 81.7 79.3 75.8 74.0 74.1 72.1 71.1 70.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Realization (Rs/Case) P&A 1,187 1,220 1,255 1,111 1,120 1,174 1,319 1,359 1,393 2.8% Popular 523 553 541 510 500 543 542 554 560 1.7% Total 631 675 689 656 661 706 759 787 809 3.2% Growth YoY (%) P&A - 2.8 2.8 (11.4) 0.8 4.8 12.4 3.1 2.5 Popular - 5.7 (2.2) (5.7) (2.0) 8.6 (0.3) 2.4 1.0 Total - 7.0 2.1 (4.9) 0.9 6.8 7.4 3.7 2.8 Revenue (Rs Mn) P&A 3,656 4,540 5,070 4,890 5,319 5,922 7,988 9,055 10,209 13.1% Popular 8,331 9,203 8,354 7,036 6,759 7,853 8,457 9,090 9,640 6.8% IMFL subtotal 11,987 13,743 13,424 11,926 12,077 13,775 16,445 18,144 19,849 9.9% Non IMFL 5,176 4,829 5,041 4,592 4,722 4,453 4,575 4,666 4,760 2.0% Total 17,163 18,572 18,465 16,518 16,799 18,228 21,020 22,811 24,608 8.2% Growth YoY (%) P&A 15.4 24.2 11.7 (3.6) 8.8 11.3 34.9 13.4 12.8 Popular 12.1 10.5 (9.2) (15.8) (3.9) 16.2 7.7 7.5 6.1 IMFL 13.1 14.6 (2.3) (11.2) 1.3 14.1 19.4 10.3 9.4 Non IMFL 9.4 (6.7) 4.4 (8.9) 2.8 (5.7) 2.7 2.0 2.0 Total 11.9 8.2 (0.6) (10.5) 1.7 8.5 15.3 8.5 7.9 Mix (%) P&A 21.3 24.4 27.5 29.6 31.7 32.5 38.0 39.7 41.5 Popular 48.5 49.6 45.2 42.6 40.2 43.1 40.2 39.8 39.2 IMFL 69.8 74.0 72.7 72.2 71.9 75.6 78.2 79.5 80.7 Non IMFL 30.2 26.0 27.3 27.8 28.1 24.4 21.8 20.5 19.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 * FY16 onwards revenues are as per IndAS vs. IGAAP earlier ** FY13-15 reported revenues are different from above as in financials revenues from third party were accounted on net basis. For comparison purpose they have are restated. Page 6
Standalone Income Statement (Rs mn) FY17 FY18 FY19E FY20E FY21E Net Sales 16,799 18,228 21,020 22,811 24,608 Growth (%) 1.7 8.5 15.3 8.5 7.9 RM Costs 9,214 9,522 10,459 11,291 12,058 Gross Profit 7,585 8,706 10,561 11,520 12,551 Employee cost 1,403 1,549 1,702 1,824 1,935 S&D 1,979 2,159 2,816 3,070 3,346 Other Exps 2,082 2,300 2,472 2,695 2,937 Total Operating Cost 5,464 6,008 6,990 7,588 8,219 EBIDTA 2,121 2,698 3,570 3,932 4,332 EBIDTA (%) 12.6 14.8 17.0 17.2 17.6 EBIDTA Growth (%) 13.0 27.2 32.3 10.1 10.2 Depreciation 417 409 424 455 487 EBIT 1,704 2,289 3,146 3,477 3,845 Interest 804 682 351 237 145 Other Income 196 267 146 161 177 PBT 1,097 1,873 2,942 3,401 3,877 Tax 288 638 1,025 1,173 1,338 RPAT/APAT 809 1,235 1,917 2,228 2,539 APAT Growth (%) 10.1 52.7 55.2 16.2 14.0 AEPS 6.1 9.3 14.4 16.7 19.1 EPS Growth (%) 10.1 52.7 55.2 16.2 14.0 Standalone Balance Sheet (Rs mn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Share Capital 266 266 266 266 266 Reserves 10,036 11,155 12,939 15,006 17,345 Total Shareholders Funds 10,302 11,421 13,205 15,272 17,611 Long Term Debt 1,033 344 172 86 43 Short Term Debt 6,994 5,597 3,659 2,854 1,855 Total Debt 8,027 5,941 3,830 2,940 1,898 Other Non current liabilities 784 1,034 1,148 1,276 1,420 TOTAL SOURCES OF FUNDS 19,114 18,395 18,184 19,488 20,929 APPLICATION OF FUNDS Net Block 7,060 7,057 6,981 6,851 6,790 Other Noncurrent assets 3,505 2,865 2,865 2,865 2,865 Non Current Assets 10,565 9,922 9,846 9,717 9,655 Inventories 2,930 3,109 3,329 3,702 4,029 Trade Receivables 6,240 6,300 6,579 7,270 7,815 Other Current Assets 1,829 2,257 2,475 2,757 3,205 Current Assets 10,999 11,666 12,383 13,729 15,049 Trade Payables 1,853 2,141 2,577 2,664 2,927 Other CL & Provisions 1,238 1,775 1,790 1,937 2,182 Current Liabilities 3,091 3,916 4,367 4,602 5,110 Net current Assets 7,908 7,750 8,017 9,127 9,940 Cash & Equivalents 641 724 321 645 1,334 TOTAL APPLICATION OF FUNDS 19,114 18,395 18,184 19,488 20,929 Page 7
Standalone Cash Flows (Rs mn) FY17 FY18 FY19E FY20E FY21E PAT from Operations 809 1,235 1,917 2,228 2,539 Interest 804 682 351 237 145 Depreciation 417 409 424 455 487 Working Capital Change 1,359 158 (267) (1,110) (813) OPERATING CASH FLOW ( a ) 3,388 2,485 2,425 1,809 2,359 Capex (164) (406) (349) (325) (425) Free Cash Flow 3,224 2,079 2,076 1,484 1,933 Investments & Others (663) 889 114 128 143 INVESTING CASH FLOW ( b ) (827) 484 (234) (197) (282) Capital Issuance - - - - - Debt Issuance (1,606) (2,087) (2,110) (891) (1,042) Interest (804) (682) (351) (237) (145) Dividend - - - - - Others (138) (116) (132) (160) (201) FINANCING CASH FLOW ( c ) (2,548) (2,885) (2,593) (1,288) (1,387) NET CASH FLOW (a+b+c) 14 83 (403) 324 689 Closing Cash 641 724 321 645 1,334 Key Ratios FY17 FY18 FY19E FY20E FY21E PROFITABILITY (%) GPM 45.2 47.8 50.2 50.5 51.0 EBITDA Margin 12.6 14.8 17.0 17.2 17.6 EBIT Margin 10.1 12.6 15.0 15.2 15.6 APAT Margin 4.8 6.8 9.1 9.8 10.3 RoE 8.1 11.4 15.6 15.6 15.4 Core ROCE 6.7 8.3 11.5 12.4 13.1 RoCE 6.4 8.0 11.2 12.1 12.5 EFFICIENCY Tax Rate (%) 26.3 34.1 34.8 34.5 34.5 Asset Turnover (x) 2.4 2.6 3.0 3.3 3.6 Debtors (days) 136 126 114 116 116 Payables (days) 40 43 45 43 43 Cash Conversion Cycle (days) 172 155 139 146 147 Net Debt/EBITDA (x) 3.5 1.9 1.0 0.6 0.1 Net D/E 0.7 0.5 0.3 0.2 0.0 Interest Coverage 2.1 3.4 9.0 14.7 26.5 PER SHARE DATA EPS (Rs/sh) 6.1 9.3 14.4 16.7 19.1 CEPS (Rs/sh) 9.2 12.4 17.6 20.2 22.7 DPS (Rs/sh) 0.8 0.8 0.8 1.0 1.3 BV (Rs/sh) 77.4 85.8 99.3 114.8 132.4 VALUATION P/E 70.4 46.1 29.7 25.6 22.4 P/BV 5.5 5.0 4.3 3.7 3.2 EV/EBITDA 30.3 23.0 16.9 15.1 13.3 OCF/EV (%) 5.3 4.0 4.0 3.1 4.1 FCF/EV (%) 5.0 3.3 3.4 2.5 3.4 FCFE/Mcap (%) 4.3 2.5 3.0 2.2 3.1 EV/Revenues 3.8 3.4 2.9 2.6 2.3 Dividend Yield (%) 0.2 0.2 0.2 0.2 0.3 Page 8
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 RECOMMENDATION HISTORY Radico 600 500 400 300 200 TP Date CMP Reco Target 12-Jul-18 387 BUY 473 24-Jul-18 381 BUY 484 10-Oct-18 300 BUY 515 9-Jan-19 401 BUY 568 24-Jan-19 428 BUY 592 100 Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 9
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