Maintain ADD on Radico Khaitan - Outperformance continues - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Radico delivered a strong result as net revenue grew by 11% YoY amid weak industry growth (9% YoY down). P&A val/vol growth was at 11/4% YoY, well supported by exports as domestic growth was 1-1.5%. Popular val/vol growth was at 2/5% YoY. Gross margin was up by 90bps to 49% but saw a sharp dip QoQ (1Q was benefited by favourable state mix and export). Strong growth in non-IMFL (29% YoY) also impacted margin. Market share gains continue for Radico in major states like UP, Karnataka and Telangana. Radico can sustain a strong earnings show in 2HFY21, led by (1) recovery in the industry, (2) market share gain for Radico, (3) GM expansion on falling ENA prices, (4) strong traction in exports, and (5) reducing interest cost. We increase our EPS estimate by 6% for FY21 (revenue recovery and lower interest) while maintaining it for FY22/FY23. We roll forward our target price to Sep-22E EPS and value Radico at 18x P/E to derive a target price of Rs 461. Maintain ADD.

Healthy recovery in domestic, exports shine: Net revenue grew by 11% YoY (+10% in 2QFY20 and -34% in 1QFY21), beating our expectation of 1% YoY decline. P&A/Regular saw growth of 11/2% YoY while non-IMFL grew by 29% YoY. IMFL volumes grew by 5% YoY (+11% in 2QFY20 and -44% in 1QFY21). However, growth in IMFL was driven primarily by Exports (+70% YoY) while domestic volumes remained muted (+1% YoY).

Slower gross margin expansion: GM expanded by 91bps YoY (-343bps in 2QFY20 and +666bps in 1QFY21) vs an expectation of +300bps YoY expansion. GM was at 49% vs 54.6% in. 1QFY21. Slower P&A growth vs non-IMFL impacted margin, although ENA pricing remained favourable. Revenue mix was impacted by the uneven recovery across states, as well as the delayed reopening of pubs and bars.

Strong 24% EBITDA growth: Employee expenses declined by 7% YoY while S&D/Other expenses grew by 8/17% YoY. A&P declined by 24% YoY (6% of IMFL sales vs 7% of IMFL in FY20). EBITDA margin saw an expansion of 184bps YoY to 24% (-253bps in 2QFY20 and +242bps in 1QFY21). EBITDA grew by 24% YoY (HSIE 20%). High other income and lower interest resulted in 37% YoY growth in PBT. APAT (ex-exceptional & tax credit in 2QFY20) grew by 37% YoY to Rs 724mn (HSIE Rs 647mn).

Call takeaways: (1) UP, Karnataka, Telangana saw strong growth during the quarter with 25% YoY volume growth in Karnataka; (2) Rajasthan, AP and Maharashtra remained muted. Maharashtra declined 6% YoY while Rajasthan declined 20% YoY; (3) ENA prices continued to decrease and are expected to remain stable; (4) online ordering has not had any significant impact so far; (5) net debt stood at Rs 2.5bn in June vs. Rs 3.8bn in March.

Shares of RADICO KHAITAN LTD. was last trading in BSE at Rs.438.4 as compared to the previous close of Rs. 446.6. The total number of shares traded during the day was 10459 in over 822 trades.

The stock hit an intraday high of Rs. 459 and intraday low of 431. The net turnover during the day was Rs. 4603787.

Source : Equity Bulls

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