Radico Khaitan

Oct 24, 2013 No Comments by

Radico Khaitan was started in 1943. Today it is the 3rd largest Indian Manufactured Foreign Liquor spirits company in India. It has 32 bottling units in India, out of which it owns 5. Its major brands are Magic Moments Vodka, 8PM whisky, Old Admiral Brandy, Contessa Rum, Morpheus Brandy, After Dark Whisky and Eagle Dare Whisky. Out of these the first four are millionaire brand.

Radico’s strength is in its distribution system. It has about 400 wholesalers who cater to about 95% of the retail outlets in India. IMFL contributes 70% of the revenue while the rest 30% is from country liquor. Talks are abuzz about Radico offloading 26% of its stake to Japanese players for a sum of Rs 800 crore. For this purpose it is planning to make IMFL as a complete subsidiary of the company.

Magic Moments has a total market share of 30% in the vodka segment.  The management is expected to see a strong growth in Magic Moments, Morpheus Brandy and After Dark Whisky. The company reported a 21% growth in its net profit year on year at Rs 30 crore. Net sales rose to Rs 467 crore from Rs 421.5 crore in the same quarter last year. The best part is that the high margin vodka segment has grown by 19%. The price of extra neutral alcohol has increased. But the company has discounted this as shown by the growth in the net profit. The margins have also improved from 12.4% to 13.1%. The Prestige and premium brands have shown strong growth of 18.8%.If we talk in terms of volume, 58% of volume comes from country liquor. It is the largest exporter of Extra Neutral Alcohol from India.

Radico is also planning a price hike which would increase its margins. Besides the price increase, factors like stable molasses prices, revival in flagship brands, rising demand in tier 2 and tier 3 cities are important positives for the company.

As of today, financial institutions/banks hold 0.36% shares, FII holds 28.21% and mutual funds hold 7.43%. The promoter holding is 40%. 26% of promoter’s holding is pledged as of now. There has been no significant increase in interest cost. It was around Rs 20 crore in the last quarter. The total debt stands at about Rs 720 crore.

All in all the fundamentals of the company look intact. The PE ratio is 25 which is very less as compared to the industrial PE of 93. The share is very slow to react. It is not a high beta share. So, it will move slowly. It has moved up from Rs 90 levels to Rs 150 levels. Still we think that the share is undervalued. The liquor market is growing. The change in lifestyle has led to an increase in   consumption of alcohol.  The best thing is the wide distribution network and the growth seen in premium brands which have higher margins.  The debt is a bit of concern but seeing the growth in the core business of the company that can be nullified.

So, from long term perspective the share can move to the levels of Rs 250- Rs 300.


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