4 Novemeber 2016
Q2FY17 Results Update | Sector: Consumer
Radico Khaitan
Neutral
BSE SENSEX
27,274
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
S&P CNX
8,437
RDCK IN
133.0
18.2 / 0.3
151 / 84
12/49/24
81
59.5
CMP: INR135
TP: INR140(+4%)
Performance slightly better than expectation
Radico Khaitan’s (RDCK) net sales increased 11.1% YoY
(est. of +9%) to
INR4.5b (Ind-AS), with underlying volume growth of 4.5% YoY to 4.48m cases.
EBITDA grew 15.8% YoY to INR568m as operating margin expanded 50bp YoY
to 12.7%. Adj. PAT rose 26.8% YoY to INR225m.
Gross sales rose 18.9% YoY to INR12.0b,
while excise duty increased 23.7% YoY
(excise duty in 2QFY17 was 63.5%, +250bp YoY). Overall volumes rose 4.5% YoY
to 4.48m cases, partly aided by healthy 10% volume growth in UP after excise
cut in April. Premium brands volumes grew 13% YoY to 1.2m cases, accounting
for 26.7% of portfolio volumes in 2QFY17 (+200bp YoY).
Gross margin contracted 200bp YoY to 41.8%
in 2QFY17. Increase in raw
material prices and higher selling & distribution cost (+230bp YoY) were offset
by a fall in other expenses (-430bp YoY) and lower staff costs (-50bp YoY),
aiding EBITDA margin expansion of 50bp YoY to 12.7%.
Management call takeaways:
a) Local Body Tax in Maharashtra affected
margins in 2QFY17; have taken price hike in October to offset this impact. b)
While ENA prices have increased ~10% YoY, costs are likely to be stable. c)
Electra, the ready-to-drink product launched last year, has seen good traction.
Valuation and view:
We marginally change our estimates for FY17 and FY18.
RDCK continues to focus on driving its premium portfolio, given challenging
margin dynamics of the regular portfolio. We downgraded the stock recently
after its run-up by more than 40% post 1QFY17 results. We also roll forward
our estimates to Sep-2018E to arrive at a revised target price of INR140 (15x
Sep-18 EPS). Spike in ENA and molasses prices are key risks.
Neutral.
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
16.4
17.8
20.3
EBITDA
2.1
2.1
2.4
PAT
0.9
0.8
1.1
EPS (INR)
6.9
6.3
8.4
Gr. (%)
3.9
-8.7
34.1
BV/Sh (INR)
69.5
75.1
82.1
RoE (%)
10.3
8.7
10.7
RoCE (%)
8.6
7.5
8.6
P/E (x)
19.6
21.5
16.0
P/BV (x)
1.9
1.8
1.6
Estimate change
TP change
Rating change
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
 Motilal Oswal Financial Services
Radico Khaitan
Key quarterly charts
Exhibit 1: Volumes grew 4.5% in 2QFY17
Volume Growth (%)
8.2 7.8
6.5 7.2 7.6 7.2
9.9
3.5
(3.5)
(3.9) (4.2)
(5.6)
(10.3)
(7.2)
(3.8)
(4.9)
4.5
3.6
Exhibit 2:
..with premium brands share was up 200bp YoY
Premium brand volume as % of total volumes
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: 2Q17 volumes up 4.5%, premium brands volumes up 13%
Brands (cases in lacs)
Magic Moments Vodka
Morpheus Brandy
Premium Brands
Other Main Line Brands
Total main line brands
Other brands
Total
2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17
NA
NA
8.9
27.4
36.2
11.9
48.1
NA
NA
10.2
42.7
52.9
0.0
52.9
NA
NA
8.2
38.9
47.1
0.0
47.1
NA
NA
11.1
42.4
53.6
0.0
53.6
NA
NA
9.8
36.5
46.2
0.0
46.2
NA
NA
10.7
39.3
50.0
0.0
50.0
NA
NA
8.8
36.3
45.1
0.0
45.1
NA
NA
12.1
35.9
48.1
0.0
48.1
NA
NA
10.6
32.3
42.9
0.0
42.9
NA
NA
11.9
36.3
48.1
0.0
48.1
NA
NA
9.4
33.4
42.9
0.0
42.9
NA
NA
13.4
36.4
49.8
0.0
49.8
NA
NA
12.0
32.9
44.8
0.0
44.8
Source: Company, MOSL
Exhibit 4: ENA prices up 10% YoY; 5% QoQ
ENA Price (INR/BL)
Source: Company, MOSL
Valuation and view
We have marginally changed our estimates for FY17 and FY18. RDCK continuous
to focus on driving premium portfolio given the challenging margin dynamics of
Regular portfolio.
We had recently downgraded the stock as the stock had run up by more than
40% post the 1QFY17 results. We also roll forward our estimates to Sept’2018E
to a revised target price of INR140 (15x Sept’18 EPS). Spike in ENA and molasses
prices are key risks.
4 November 2016
2
 Motilal Oswal Financial Services
Radico Khaitan
Exhibit 5: Marginal changes to FY17/FY18 estimates
Old
2017E
17,572
1,984
851
2018E
20,106
2,315
1,104
New
2017E
17,760
2,076
837
2018E
20,324
2,419
1,122
Change (%)
2017E
2018E
1.1
1.1
4.6
4.5
-1.7
1.7
Source: Company, MOSL
Sales
EBITDA
PAT
Exhibit 6: Radico P/E (x)
80.0
60.0
40.0
20.0
0.0
11.5
24.8
18.2
PE (x)
Peak(x)
Avg(x)
75.4
Min(x)
Exhibit 7: Radico P/E premium vs. Sensex
Radico Khaitan PE Relative to Sensex PE (%)
360
240
120
0
-120
45.6
7.1
LPA (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 8: Valuation Matrix of coverage universe
Company Reco
Price
Mkt Cap EPS Growth YoY (%)
(INR)
(USD M) FY16 FY17E FY18E
Asian Paints Neutral 1,043
Britannia
Buy
3,300
Colgate
Buy
984
Dabur
Neutral 297
Emami
Buy
1,195
Godrej
Neutral 1,525
GSK
Neutral 5,865
HUL
Neutral 847
ITC
Buy
249
Jyothy Labs Neutral 348
Marico
Neutral 263
Nestle
Neutral 6,637
Page
Buy
15,766
Parag Milk Neutral 299
Pidilite Inds. Buy
695
P&G Hygiene Buy
7,018
Radico
Neutral 137
United Brew. Buy
876
United Spirits Buy
2,050
Jubilant
Neutral 960
Shopper's
Neutral 350
Titan
Neutral 369
14,986
5,932
4,010
7,843
4,065
7,780
3,696
27,472
45,056
945
5,078
9,589
2,635
377
5,339
3,414
273
3,472
4,464
947
431
4,902
26.3
46.3
8.7
17.2
17.7
24.4
20.4
12.9
-3.5
-41.6
26.1
-7.3
18.7
-66.7
47.3
22.3
3.9
13.6
LP
-11.7
19.3
-13.4
16.0
12.5
1.3
6.6
3.8
22.9
4.8
6.9
16.5
102.3
12.9
2.0
28.2
38.2
23.7
9.5
-8.7
30.1
105.7
-1.4
48.9
11.4
18.8
25.0
31.3
18.5
26.8
25.8
10.0
12.7
16.9
16.2
23.7
25.8
37.0
37.9
18.2
21.6
34.1
26.3
50.8
67.3
30.9
21.0
P/E (x)
FY16 FY17E FY18E
55.7
47.1
44.0
41.8
47.4
46.0
35.1
44.5
32.3
84.9
46.9
55.4
75.6
44.5
47.1
53.9
19.6
78.5
122.5
64.2
60.1
45.9
48.0
41.9
43.4
39.2
45.7
37.4
33.5
41.6
27.7
42.0
41.5
54.3
59.0
32.2
38.1
49.2
21.5
60.4
59.6
65.1
40.4
41.2
40.4
33.5
33.1
33.1
36.1
29.7
30.5
36.9
23.7
36.1
33.6
43.1
43.0
23.3
32.2
40.4
16.0
47.8
39.5
38.9
30.8
34.0
EV/EBITDA (x)
RoE (%) Div.
FY16 FY17E FY18E FY16
FY16
35.3
33.7
27.9
33.5
40.5
34.1
23.2
31.0
20.5
30.4
32.2
39.0
46.8
16.8
28.7
35.9
12.6
32.2
38.5
23.5
14.4
37.9
30.6
29.7
26.1
31.5
34.0
28.7
23.8
29.1
18.5
24.2
28.9
32.7
37.8
15.3
24.6
31.7
12.7
27.4
30.9
21.9
11.9
31.2
25.9
23.2
20.1
26.4
28.3
23.6
21.0
25.8
15.6
20.8
23.5
25.9
28.0
12.2
20.7
25.4
11.3
22.7
23.4
15.3
9.8
25.5
34.7
55.9
67.9
33.3
43.4
23.4
30.8
82.4
29.3
9.1
36.9
40.9
46.0
19.5
29.9
30.9
10.3
14.9
19.8
13.4
6.3
21.3
0.9
0.6
1.1
0.7
0.7
0.6
0.9
1.9
2.7
1.1
1.3
0.7
0.5
0.0
0.6
0.6
0.6
0.1
0.0
0.3
0.0
0.7
Note: For Nestle FY16 means CY15 Source: Company, MOSL
4 November 2016
3
 Motilal Oswal Financial Services
Radico Khaitan
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Financial Other Income
Profit before Taxes
Change (%)
Margin (%)
Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Extraordinary Income
Reported PAT
2011
9,469
12.9
7,975
1,494
9.3
15.8
271
293
47
977
94.7
10.3
257
26.3
720
72.4
7.6
8
728
2012
11,445
20.9
9,714
1,731
15.9
15.1
328
611
237
1,028
5.3
9.0
229
22.3
799
11.0
7.0
-163
637
2013
12,599
10.1
10,632
1,967
13.7
15.6
353
701
289
1,203
17.0
9.5
320
26.6
883
10.4
7.0
-110
773
2014
14,533
15.4
12,373
2,161
9.8
14.9
388
848
348
1,273
5.9
8.8
427
33.5
846
-4.1
5.8
-134
713
2015
14,895
2.5
12,974
1,921
-11.1
12.9
383
899
439
1,077
-15.4
7.2
195
18.1
882
4.2
5.9
-206
676
2016
16,367
9.9
14,275
2,092
8.9
12.8
403
847
371
1,212
12.5
7.4
296
24.4
917
3.9
5.6
-257
660
(INR Million)
2017E
17,760
8.5
15,684
2,076
-0.8
11.7
459
780
310
1,146
-5.4
6.5
310
27.0
837
-8.7
4.7
0
837
2018E
20,324
14.4
17,905
2,419
16.6
11.9
480
712
310
1,537
34.1
7.6
415
27.0
1,122
34.1
5.5
0
1,122
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Tax
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Current
Non-current
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Misc. Exp./Others
Application of Funds
E: MOSL Estimates
2011
265
6,249
6,514
4,935
498
11,947
5,728
1,539
4,189
219
1,207
529
678
8,059
1,269
3,191
94
3,506
1,728
840
295
593
6,332
0
11,947
2012
265
6,687
6,953
6,547
563
14,063
6,870
1,847
5,022
48
1,113
530
584
10,139
1,774
3,478
218
4,669
2,528
1,187
1,148
193
7,611
268
14,063
2013
266
7,350
7,616
7,710
588
15,915
7,437
2,143
5,294
53
1,086
502
584
11,597
1,849
4,354
175
5,219
2,450
1,172
1,024
253
9,147
334
15,915
2014
266
7,950
8,216
9,083
695
17,994
8,206
2,501
5,705
81
1,084
500
584
13,287
2,103
5,233
173
5,778
2,568
1,276
854
439
10,719
405
17,994
2015
266
8,346
8,612
8,526
715
17,853
8,705
2,977
5,727
8
981
500
481
14,161
2,130
4,778
103
7,149
3,343
1,255
1,610
478
10,818
320
17,853
2016
266
8,983
9,249
8,514
744
18,507
9,127
3,356
5,771
19
981
500
481
14,668
2,327
5,489
114
6,738
3,141
1,490
1,114
536
11,527
210
18,507
(INR Million)
2017E
266
9,727
9,993
8,214
562
18,770
10,927
3,815
7,112
59
1,554
0
1,554
13,642
2,471
4,338
-247
7,080
3,807
1,950
1,282
575
9,835
210
18,770
2018E
266
10,653
10,919
7,914
716
19,549
11,427
4,295
7,132
59
1,554
0
1,554
14,465
2,620
5,341
-1,423
7,927
3,871
1,749
1,474
649
10,594
210
19,549
4 November 2016
4
 Motilal Oswal Financial Services
Radico Khaitan
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
5.4
7.5
49.1
0.9
12.9
2012
6.0
8.5
52.4
0.8
13.3
2013
6.6
9.3
57.3
0.8
13.1
2014
6.4
9.3
61.8
0.8
12.6
2015
6.6
9.5
64.7
0.8
11.5
2016
6.9
9.9
69.5
0.7
10.8
(INR Million)
2017E
6.3
9.7
75.1
0.9
15.0
2018E
8.4
12.0
82.1
1.3
15.0
24.9
18.0
2.4
15.2
2.7
0.6
22.4
15.9
2.1
14.0
2.6
0.6
20.3
14.5
2.0
12.9
2.4
0.6
21.2
14.6
1.8
12.4
2.2
0.6
20.4
14.2
1.8
13.7
2.1
0.6
19.6
13.6
1.6
12.6
1.9
0.6
21.5
13.9
1.5
12.7
1.8
0.7
16.0
11.2
1.3
11.3
1.6
0.9
11.6
8.2
8.9
47
0.8
11.9
9.8
9.0
42
0.8
12.1
9.3
8.4
42
0.8
10.7
8.3
7.3
44
0.8
10.5
9.0
7.3
40
0.8
10.3
8.6
7.3
38
0.9
8.7
7.5
6.7
32
0.9
10.7
8.6
7.7
35
1.0
0.8
0.9
1.0
1.1
1.0
0.9
0.8
0.7
Cash Flow Statement
Y/E March
OP before Tax
Int./Div. Received
Depn & Amortzn.
Interest Paid
Direct Taxes Paid
Incr in WC
CF from Operations
Extraordinary Income
Incr in FA
Free Cash Flow
Other Assets
Pur of Investments
CF from Invest.
Issue of Shares
Interest Paid
Incr in Debt
Dividend Paid
Others Inflows
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2011
977
-47
271
293
257
1,256
-18
8
-88
78
13
314
-217
-7
293
474
79
-98
-3
-239
332
94
2012
1,028
-237
328
611
229
1,155
347
-163
971
-787
268
-94
-1,040
-70
611
1,612
93
-21
817
123
94
217
2013
1,203
-289
353
701
320
1,579
68
-110
573
-614
66
-27
-655
17
701
1,163
106
171
544
-42
218
175
2014
1,273
-348
388
848
427
1,574
160
-134
797
-771
71
-2
-929
14
848
1,372
116
344
767
-2
175
173
2015
1,077
-439
383
899
195
169
1,557
-206
425
926
-86
-103
-528
0
899
-557
107
464
-1,099
-70
173
103
2016
1,212
-371
403
847
296
698
1,098
-257
433
408
-110
0
-690
0
847
-11
101
563
-397
11
103
114
(INR Million)
2017E
1,146
-310
459
780
310
-1,331
3,097
0
1,840
1,257
0
573
-2,414
-27
780
-300
99
162
-1,044
-361
114
-247
2018E
1,537
-310
480
712
415
1,935
70
0
500
-430
0
0
-500
0
712
-300
126
392
-746
-1,176
-247
-1,423
4 November 2016
5
 Motilal Oswal Financial Services
Radico Khaitan
Corporate profile
Company description
Exhibit 1: Sensex rebased
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.
Exhibit 2: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
Others
40.5
16.0
19.6
23.9
Jun-16
40.5
16.4
23.0
20.2
Sep-15
40.5
13.3
21.1
25.1
Source: Capitaline
Source: MOSL/Bloomberg
Exhibit 3: Top holders
Holder Name
RELIANCE EMERGENT INDIA FUND
TIMF HOLDINGS
CITIGROUP GLOBAL MARKETS MAURITIUS P
LTD
SBI FMCG FUND
BIRLA SUN LIFE TRUSTEE CO PVT LTD
% Holding
9.6
7.0
3.0
2.8
1.6
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Lalit Khaitan
Abhishek Khaitan
Amit Manchanda
Designation
Chairman & Managing
Director
Managing Director
Company Secretary
Exhibit 5: Directors
Name
Ashutosh Patra
Raghupati Singhania
Shailja Saraf
Name
Karna Singh Mehta
Sarvesh Srivastava
K P Singh
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Ernst & Young
S N Balasubramanian
V Sankar Aiyar & Co
Grant Thornton
S N Balasubramanian
Internal
Cost Auditor
Statutory
Internal
Cost Auditor
Source: Capitaline
Type
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
6.3
8.4
Consensus
forecast
7.3
8.8
Variation (%)
-13.3
-4.9
Source: Bloomberg
4 November 2016
6
 Motilal Oswal Financial Services
Radico Khaitan
NOTES
4 November 2016
7
 Motilal Oswal Financial Services
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RADICO KHAITAN
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8