RADICO KHAITAN
India's fourth
largest & third most profitable spirits company, Radico Khaitan was among
the companies added in the ASM list since June 1, 2018. While the BSE Statement
on ASM does state, ”the shortlisting of securities under ASM Framework is
purely on account of market surveillance and it should not be construed as an
adverse action against the concerned company/entity”, the street was fairly
nervous about the stock’s inclusion in this list. As a result of which, the
share price of Radico Khaitan fell -15% since June 1, 2018 and has corrected
about -21% from record high of `495 on May 30, 2018. Remember, it has been a
big wealth creator before being enlisted the SEBI Watchlist, the market cap of
Radico Khaitan almost quadrupled b/w June 2017 & June 2018
RADICO
KHAITAN
In ASM
List since Jun 1, 2018
Down
15% since Jun 1, 2018
Down
21% since Record High of 495 May 30th 2018
RADICO
KHAITAN
B/w Jun
1, 2017 and Jun 1 2018: Stock Up 285%
Radico Khaitan has
transformed from bulk & country liquor manufacturer to IMFL seller. The
market knows this company via brands such as 8 PM Whiskey, Magic Moments Vodka,
Morpheus Brandy and it’s latest entry in the super premium Single Malt offering
Rampur. Analysts & market watchers stand positively surprised when the
company claims it commands 50% share of India's entire Vodka market.
RADICO
KHAITAN
IMFL
Brands: 8 PM Whiskey, Magic Moments Vodka, Morpheus Brandy, Rampur Single Malt
The Company’s
financials have shown a decent improvement in the last 5 Yrs. The liquor
maker’s topline has compounded at a rate of ~5% between FY15 to FY18. Radico’s
Ebitda margin improvement from 11.5% to 15% has ensured 16% growth in
profitability over last half-decade. The company’s deleveraging efforts have
further boosted Radico’s EPS. For the Future, Radico’s Management aims to make
the company Debt Free by FY21 and targets 150 bps margin rise with 10% volume
growth in FY19.
RADICO
KHAITAN
REVENUE
FY15
1488 Cr
FY16
1543 Cr
FY17
1680 Cr
FY18
1823 Cr
EBITDA
MARGINS
FY15
11.4%
FY16
12.6%
FY17
12.6%
FY18
14.8%
NET
PROFIT
FY15 68 Cr
FY15 68 Cr
FY16
77 Cr
FY17
80 Cr
FY18 123 Cr
RADICO
KHAITAN
DELEVERAGING
Finance
Expense Total Debt
FY15 90 Cr 738 Cr
FY16 85 Cr 708 Cr
FY17 80 Cr 654 Cr
FY18 68 Cr 522 Cr
Triggers for the
company in future include better margins due to improving product mix, higher
volumes in Uttar Pradesh. UP is one of the company’s strongest markets and with
the Govt ending distribution monopoly last year, the case for higher volumes in
UP strengthens.
MGMNT
GUIDANCE
FY19:
10% volume growth in premium and 4% in regular segment
FY19:
Margin Expansion of 150 Bps
Co to
become debt free by FY20-21
However, a high
working capital/receivables cycle would feature as the key concern for the
future. It takes an average of 4 months for the company to receive cash for
sales it has made. It would be important to see this process hasten. Another
hanging sword on the industry is applicability of GST on ENA (key input for
liquor companies). If indeed, it happens, as suggested by the Attorney
Solicitor General, analysts peg a risk of 10-15% to industry EBITDA.
CONCERNS:
Year
Receivable days
FY15
117
FY16
135
FY17
135
FY18
126
Also, FY19 is a year
full of state elections leading up to the big General Elections. Liquor is a
politically sensitive subject and any adverse announcement from political
leadership on the same may hinder the industry’s growth expectations.
CONCERNS:
Lower
than expected pick-up in volumes
If GST
is applied on ENA
Regulatory
Risk
Having said that, the
foreign institutional investors have been upping stake in Co and analysts peg
(pun intended) Radico’s FY20 EPS to be higher by 45% than what it was in FY18.
Despite a 4X move, Radico still trades at a discount to industry leader United
Spirits. So is this decline of 20% from record high a time to enter or is the
valuation glass overflowing already, only time will tell.
RADICO
KHAITAN:
EPS
TRAJECTORY
FY17
- 6
FY18
- 9.3
FY19e
- 11
FY20e
- 13.5
RADICO
KHAITAN:
FY20e
VALUATIONS
USL
48X
RADICO
KHAITAN 30X
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