Strong Q3; Margin uptick to sustain
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 321mn litres p.a.
Q3FY26 performance: RKL registered strong performance in Q3FY26 with net revenues growing by 19.5% YoY to Rs.1547cr and EBIDTA growing by 45% YoY to Rs.267.2cr. Revenue growth was driven by 16.6% YoY volume growth (P&A segment volumes grew by 26%). Gross margins expanded by ~350bps YoY aided by favourable input cost and premiumisation. EBITDA margins improved 303bps YoY to 17.3% aided by higher flow through of gross margins. This coupled with lower interest cost led to 69% YoY growth in Adjusted PAT to Rs.162.2cr.
Investment Rationale:
• P&A – double digit volume growth sustains; Volume growth to stabilise in mid-teens ahead: P&A registered 3rd consecutive quarter of midtwenties volume growth (26+% YoY) driven by steady volume growth in millionaire brands and strong traction in new brands. Royal Ranthambhore reported ~50% YoY growth while Magic Moments reported 18% YoY volume growth in Q3. After Dark whisky and 8PM Dark Whisky sustained strong growth with ~40% YoY growth. Luxury portfolio is growing at annual revenue run rate of Rs500cr. The regular segment sales volume has grown by 32.8% YoY to 5.70mn cases in Q3FY26. Overall, the benefits of route-to-change market in Andhra Pradesh are expected to stabilise in the upcoming quarters. Hence, we expect the P&A segment volumes to grow in mid-to-high teens and regular segment to record high single digit growth in the upcoming quarters. Overall, we expect RKL’s revenues to grow at CAGR of 19% over FY25-28E.
• Margins expansion to continue; driven by benign input cost and premiumisation mix: RKL reported ~350bps YoY expansion in gross margins to 46.5% and ~306bps YoY expansion in EBITDA margins to 17.3%. Gross margin expansion was driven 1) benign input prices (contributing 225bps YoY and 2) premiumisation driving (adding 125bps). The management guided for stable input prices in the quarters ahead, which will result EBIDTA margins standing in the range of 17-18% in Q4FY26. With growing salience of premium portfolio, improved cost efficiencies and sustained double-digit growth in the P&A segment we expect RKL’s operating EBITDA margins to improve by ~300bps over FY25-28E to 16.9% and operating EBIDTA to grow at 27% CAGR over FY25-28E.
• RKL to become debt free company by FY27: RKL’s net debt stood at Rs.365cr in 9MFY26; reduced by Rs.208cr since Mar’25. With no major capex plan, the company expects to become debt free by FY27. Higher cash generation will be utilised to reward shareholders with consistent dividend payout.
Rating and Target Price: RKL’s revenues and PAT are expected to grow at CAGR of 19% and 38% over FY25-28E. We recommend Buy with a price target of Rs.3,710 (valuing at 55x average FY28E earnings).
