8 November 2012
2QFY13 Results Update | Sector: Retail
Radico Khaitan
BSE SENSEX
S&P CNX
18,846
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,739
RDCK IN
132.6
135/92
-1/-20/-12
15.6
0.3
CMP: INR118
TP: INR152,054
Buy
Radico Khaitan's (RDCK IN) 2QFY13 results met our expectations with 15.6% YoY net sales growth to INR2.9b.
Volumes grew 7.8% YoY; premium brands continued to outperform with 19.6% volume growth led by Morpheus
brandy, which grew 36% in volumes.
Price hikes and mix improvement contributed to the balance sales growth. Radico effected price hikes in
Kerala and Orissa and expects price hikes in AP and Karnataka in 3QFY13.
Gross margins expanded 310bp YoY despite 5% YoY increase in ENA cost; the latter is expected to soften due
to commencement of crushing season.
Operating margins declined 30bp YoY to 12.2% due to 250bp increase in selling and distribution expenses and
130bp rise in overhead costs. The higher ad cost is due to the recent launch of Verve Vodka in the super
premium category in UP, Haryana and Delhi. Management stated it will expand the brand to adjacent states,
going forward.
Interest cost, excluding forex gains, remained flat QoQ.
Recurring PAT stood flat QoQ (up 3% YoY) due to higher ad spends and overheads. Reported PAT was up 49%
due to a forex loss of INR54m in base and INR13m of forex gain in current quarter.
The stock trades at 17.1x FY13 EPS of INR6.9 and 13.2x FY14 EPS of INR8.9. Maintain
Buy
with a target price of
INR152.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P V S
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Radico Khaitan
Net sales up 14%; premiumization strategy works; gross margins expand
310bp despite firm ENA cost
2QFY13 net sales increased 16% to INR2.88b led by 7.8% volume growth to 4.49m
cases.
Premium brands grew 19.6% YoY to 725,000 cases and form 16% of the portfolio.
Despite the 5% YoY increase in ENA cost, gross margins expanded 310bp led by
price hikes and improved mix.
Operating margins declined 30bp YoY to 12.2% due to a 250bp increase in selling
and distribution expenses and 130bp increase in overhead costs. EBITDA increased
by 10.7% to INR491m.
Higher advertising cost is due to the recent launch of Verve Vodka in super premium
category. Company also increased discounts and rebates to trade to promote the
premium brands.
Overheads include impact of currency as export receivables got adversely
impacted by INR40m.
The 19% fall in interest and 59% increase in other income resulted in a reported
PAT growth of 49% to INR221m.
Adj PAT grew 3% to INR208m (adjusting for a forex gain of INR13m in 2QFY13 and
forex loss of INR54m in base).
…premium brands constitute 16% of portfolio
Overall volumes up 7.8% to 4.49m cases
Gross margins expand 310bp YoY…
…and molasses prices
Source: Company, MOSL
8 November 2012
2

Radico Khaitan
…despite firm ENA prices (up 5% YoY)
Source: Company/MOSL
Continues to expand footprint in premium segment
Radico has launched Verve in the super premium Vodka segment. Verve is a
premium version of Magic Moments vodka, which has 29% share of India's vodka
market.
It has been launched in select North Indian states - Delhi, UP, Haryana - and will be
rolled out gradually in other markets.
Brand-wise volumes (lac cases)
Magic Moments Vodka
Morpheus Brandy
Premium Brands
Other Main Line Brands
Total main line brands
Other brands
Total
1QFY11
5.1
0.5
5.6
24.7
30.4
12.0
42.4
2QFY12
4.4
0.6
5.0
22.5
27.5
10.4
38.0
3QFY13
5.0
0.6
5.6
25.7
31.4
9.6
40.9
4QFY14
4.4
0.6
5.0
21.3
26.2
13.5
39.8
1QFY12
6.2
0.7
6.9
27.7
34.6
13.0
47.6
2QFY12
5.2
0.9
6.1
24.5
30.6
11.1
41.7
3QFY12
5.8
1.1
6.9
25.7
32.6
12.6
45.2
4QFY12 1QFY13 2QFY13
5.1
7.3
6.0
0.9
1.1
1.2
6.0
8.4
7.3
24.5
29.9
26.2
30.5
38.3
33.4
11.9
13.3
11.5
42.5
51.5
44.9
Source: Company/MOSL
Valuation and view: Premiumization thesis playing out; further margin
recovery in 2H led by price hikes and stable input costs; Reiterate Buy
Our core BUY thesis on Radico Khaitan is playing out as premium brands continue
to outperform the other mainline brands in the portfolio.
Strong 310bp YoY gross margin expansion reflects the benefit of premiumization
strategy, which we expect to accelerate in the medium term given the changing
focus of industry leader.
Anticipated price hikes in AP and Karnataka (28% of Radico's sales) augur well for
2H margins. As articulated in our initiation note ("In
High Spirits", dated 31st
October 2012),
we believe the pricing environment in the IMFL industry is turning
incrementally favorable.
Commencement of crushing season will keep input prices in check, in our view.
We retain our estimates and
reiterate Buy
with a target price of INR152. Potential
UNSP-Diageo transaction can provide a window of opportunity to Radico to
incrementally enhance its trade presence during the transition phase.
Key risks:
Spike in input costs and slowdown in volumes.
The stock trades at 17.1x FY13 EPS of INR6.9 and 13.2x FY14 EPS of INR8.9. Maintain
Buy
with a target price of INR152.
3
8 November 2012

Radico Khaitan
Radico Khaitan: an investment profile
Company description
Radico Khaitan (RDCK) is India's oldest alcoholic
beverage company. It entered the IMFL segment in 1999,
with the launch of its flagship brand, 8PM. RDCK has
three distilleries in Rampur, UP and holds 36% interest
in a JV in Aurangabad, Maharashtra. It owns six bottling
units and maintains 27 contract bottling units. It holds
8% market share in the IMFL industry and ~24% market
share in the CSD segment. The company offers all types
of liquor, except for beer and wine, in regular and
premium categories.
Key investment risks
Increasing competition can reduce the success rate
for new launches in premium segment as many mid-
sized players are eyeing this segment.
Firm molasses prices and higher glass bottle costs
could restrict margin expansion going ahead.
Govt regulations regarding distribution, pricing and
taxes on IMFL and inputs (Molasses and Grain) are a
threat to industry profitability and cash flows.
Recent developments
Key investment arguments
Radico is a pure India play on the huge growth
opportunity in the IMFL space.
Rising sales of Magic Moments Vodka and new
launches (After Dark Whisky, Morpheus brandy) in
the premium segment will reduce dependence on
mass segment and improve profitability.
A large spirits capacity, a pan India distribution
(second only to United Spirits) and increasing focus
on premium segment gives Radico an edge over other
emerging IMFL players.
Radico effected price hikes in Kerala and Orissa and
expects price hikes in AP and Karnataka in 3QFY13.
Valuation and view
The stock trades at 17.1x FY13 EPS of INR6.9 and 13.2x
FY14 EPS of INR8.9. Maintain
Buy
with a target price
of INR152.
Sector view
Long term potential remainfavorable given
demographics, high entry barriers andconsolidation
of the industry.
Companies with wide product portfolio, premium
brands and presence across segments will lead the
growth rates and marginexpansions.
Comparative valuations
Radico Khaitan
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
17.1
13.2
10.7
8.9
1.8
1.5
2.0
1.8
United Spirits
69.7
38.3
19.3
15.7
2.6
2.3
3.3
3.1
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
6.9
8.9
Consensus
Forecast
6.8
8.6
Variation
(%)
1.8
3.2
FY13
FY14
Target price and recommendation
Current
Price (INR)
118
Target
Price (INR)
152
Upside
(%)
29.0
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
8 November 2012
40.55
7.83
27.45
24.17
Jun-12
40.35
10.13
26.4
23.13
Sep-11
39.94
15.31
26.25
18.5
4

Radico Khaitan
Financials and Valuation
8 November 2012
5

Radico Khaitan
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Radico Khaitan
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8 November 2012
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