Making it large on premiumisation…..
About the stock: Radico Khaitan (RKL) is one of the recognised IMFL company in India with portfolio of 8 millionaire brands. It has one of the largest liquor manufacturers in India with a capacity of 321 litres p.a. Prestige & Above contribution has gone up to 67% in Q1FY26 due to strong traction to products.
Investment Rationale:
• Strong portfolio of brands; scaling up well on strong traction: Radico Khaitan has strong portfolio of 8 millionaire brands and various luxury and premium offering across various categories and segments (Regular to Luxury). Magic Moments Vodka leads the Indian Vodka market with 60% market share. With strong traction across segments, Magic moment vodka sales volume reached 7mn cases in FY25 from 5mn cases in FY23. In the whisky space, 8 PM has crossed 10mn cases sales volume achieving market share of 5% in the Indian whisky market. After dark whisky was latest entrant in the millionaires’ club, clocking a sales volume of 1.9mn cases (grew by 100%yoy). In the semi-luxury segment, Royal Ranthambore Heritage Collection Whisky, a premium whisky, is growing at 50%+ (in volume terms) expanding its market presence.
• Premiumisation remains core of growth strategy: Premiumisation is the core of RKL’s long-term growth strategy. Prestige & Above (P&A) registered a strong performance with revenues growing by 21% YoY to Rs.2,340crore (driven by 15% volume growth to 13mn cases). Since FY19, the P&A portfolio has grown at a CAGR of 13% reflecting the sustained momentum of the company’s premiumisation strategy, which is ahead of the industry growth. P&A sales volume contribution improved to 46% in FY25 from 29% in FY21. Some of the new launches in under luxury segment achieved strong traction aiding the segment to grow by 32% YoY to Rs.340crore in FY25. The company is confident of luxury portfolio achieving Rs.500cr+ revenues in FY26. Rising acceptance of premium products and strong scale-up in the luxury portfolio will help, P&A segment volumes and revenues to grow at CAGR of 19% and 21% over FY25-28E.
• EBIDTA margins will consistently improve; likely debt free by FY28: RKL’s EBIDTA margins improved by 160bps YoY to 13.9% in FY25 driven by improved mix and accrued benefits of Backward integration. Management expects EBIDTA margins to improve 100bps in FY26. UK-India FTA will lead to reduction in the imported bulk scotch cost, which will lead to incremental margin benefit. We expect EBIDTA margins to cross 16% in FY28. Strong profitability improvement, stable working capital and no major capex would result in consolidated debt substantially reducing by FY28. RoE & RoCE to improve to 18% and 23% by FY28E.
Rating and Target Price: Premiumisation and benefits from UK-India FTA deal will boost liquor companies’ earnings growth in the medium term. RKL’s revenues and PAT are expected to grow at CAGR of 17% and 35% over FY25-28E. We recommend Buy with a price target of Rs.3,540 (valuing at 62x average FY27- 28E earnings).
