buy khaitan... · expected to resume expansion from 2020 - margins will begin expanding from fy21...

RESULTS REVIEW 3QFY20 24 JAN 2020

Radico Khaitan BUY

Surging ahead with vigourRadico Khaitan saw a blockbuster performance in 3Q with P&A saw 21% volume growth (beating estimates). Liquor industry facing multiple headwinds (slowdown, flooding, liquidity stress and policy changes) in 9MFY20, despite, Radico posted 16% P&A volume growth to 5.5mn cases. Ease in RM inflation and sustaining healthy volume should re-rate the stock. We value Radico at 22x (45% discount to UNSP) on Dec-21 EPS, arriving at a TP of Rs 527. Maintain BUY. HIGHLIGHTS OF THE QUARTER Radico’s net revenues grew by 17% at a time when

growth was challenged for the industry. Radico’s IMFL volumes grew by 14% (exp 9%) led by 21% growth in P&A (18% in 3QFY19; exp 11%) and 11% growth in popular (3% in 3QFY19; exp 9%). Volume growth for the co was broad based across the portfolio and region. New brands like 8PM Premium Black and 1965 Spirit of Victory continued their growth momentum.

Radico has aggressively spent behind its brands to drive premiumisation and gain market share. Thereby, volume growth has been consistent despite liquor industry posted mere 1.5/2.5% volume growth in 3Q/9MFY20. Co plans to launch 2 more brands in the premium Whiskey to further strengthen the portfolio.

Gross margins expanded by 11bps vs. expectation of a 200bps decline (>300bps dip in 1HFY20) owing strong

growth in P&A and better back-end support. Adj EBITDA (IND AS) grew by 5% to Rs 1,006mn (exp Rs 1,009mn).

Other expenses increase sharply on account of cow cess (Rs 70mn) and a few non-recurring overheads (Rs 60-70mn) which was not seen in 3QFY19. Adjusted for the same, the underlying EBITDA grew by around 18%. With ease in RM inflation and healthy volume growth, Radico can sustain strong EBITDA growth in the coming quarters.

Net debt increased to Rs 3.6bn vs. Rs 3.1bn in Mar-19 due to rise in working capital loans (delays in payment from creditors). Management does not anticipate any credit risk and expect large dues will be released in the coming few months. The co aims to be debt free by FY22.

STANCE

During FY17-19, Radico enjoyed an earnings upcycle which has moderated in 9MFY20. However, co’s focus on investing in new launches, driving premiumisation and deleveraging B/S has kept the growth momentum steady.

Robust cash flow generation over the last 2 years (Rs 5bn cumulative FCF) was redeployed to repay debt (Rs 3.6bn in Dec-19 as compared to Rs 7.9bn in Mar-17). We expect deleveraging to sustain, making the co debt free by FY22. Healthy cash flow and deleveraging will re-rate the stock.

Financial Summary (Standalone) (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Sales 6,479 5,529 17.2 5,702 13.6 18,228 20,969 24,234 26,789 29,672 EBITDA 1,025 958 7.0 866 18.4 2,698 3,503 3,736 4,434 4,929 APAT 623 521 19.6 505 23.4 1,235 1,881 2,188 2,842 3,306 Diluted EPS (Rs) 4.7 3.9 19.6 3.8 23.4 9.3 14.1 16.4 21.4 24.8 P/E (x) 41.2 27.0 23.2 17.9 15.4 EV / EBITDA (x) 20.8 15.4 14.0 11.4 9.7 RoIC (%) 8.4 11.5 15.1 15.5 16.7 Source: Company, HDFC sec Inst Research

INDUSTRY ALCOBEV CMP (as on 24 Jan 2020) Rs 380 Target Price Rs 527 Nifty 12,248

Sensex 41,613

KEY STOCK DATA

Bloomberg RDCK IN

No. of Shares (mn) 134

MCap (Rs bn) / ($ mn) 51/711

6m avg traded value (Rs mn) 134

STOCK PERFORMANCE (%)

52 Week high / low Rs 449/260

3M 6M 12M

Absolute (%) 22.0 24.4 (11.2)

Relative (%) 15.3 14.5 (26.2)

SHAREHOLDING PATTERN (%)

Sep-19 Dec-19

Promoters 40.4 40.4 FIs & Local MFs 8.2 8.1 FPIs 20.5 20.5 Public & Others 30.9 30.9 Pledged Shares* 1.8 1.8

Source : BSE, * % of total

Naveen Trivedi [email protected] +91-22-6171-7324

Aditya Sane [email protected] +91-22-6171-7336

HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

RADICO KHAITAN : RESULTS REVIEW 3QFY20

Radico Quarterly Commentary Topics 1QFY20 2QFY20 3QFY20 Industry/Co Strategy/Mkt

- Despite slowdown in the economy, industry volume saw robust growth - AP govt taking over retail market is likely to have a favourable impact - UP market grew well, especially CL which saw double digit growth

- IMFL Volume growth was flat y-o-y - Consumer sentiment is expected to improve due to improved monsoon and govt initiatives - UP and southern markets have been showing strong growth - Capex for the year is expected to be in the range of Rs 650-700mn

- IMFL industry vol grew at 1.5% for 3QFY20 and 2.5% in 9MFY20 - Inventory levels are normal and channel filling has not happened - UP grew by 17-18%, Uttaranchal, Maharashtra also posted strong double digit growth - AP and Telangana despite several headwinds have done well for Radico. AP is not seeing any phasing out of consumers due to policy change - Whiskey contributes 60% IMFL industry

Revenue

P&A - Rampur and Jaisalmer continued to gain strong traction and penetrated US & Europe market. Jaisalmer now available in 20 countries - Demand for Rampur exceeds the supply - Jaisalmer is one of the highest priced gins globally and it available in 20-25 duty free stores around the world - P&A led the growth for the co with 8PM Premium and 1965 gaining momentum and making significant contribution - 8PM Premium is available in 11 states and will be rolled out to 4 more in 2QFY20

- Rampur and Jaisalmer continued to gain strong traction and penetrated US & Europe market. Jaisalmer now available in 22 countries - Both brands could become a sizeable part of business due to increased capacity and focus on quality - 8PM Premium and 1965 continued a strong growth trajectory - 8PM Premium is currently available in 11 states and will be rolled out to 4 more in FY20 - Magic Moments has been performing very well - Focus is on driving premiumisation by introducing new products like flavors in MM - Target is for P&A growth to go in the range of 12-15% in 3 to 5 years

- Growth has been broad based across all brands and geographies - Telangana liquor industry degrew by 30% but premiumisation and price positioning in the state enabled Radico to gain share - Launched Jaisalmer in select states in India - 8PM Premium Black (now available in 14 states) and 1965 Rum continued growth. 8PM Black can achieve 1mn cases in FY21. - Co launched semi luxury variant "Morpheus Blue Brandy" - Co plans to launch 2 new whisky brand in the next 2 years which will be premium to 8PM Premium Black. One of the new launch will be by July'20

Regular (Popular) & Country Liquor

- Regular category provided respectable growth but lagged behind P&A - Growth is Regular has been driven by 8PM - CL has been growing rapidly in UP with no build-up of inventories. As people's incomes grow, they will deviate towards products of better quality and could boost the Regular segment

- Regular is being sold only in states where the brand is profitable - 8PM and Old Admiral Brandy are the best performing brands within Regular

- Healthy growth in popular segment continues across markets - Breakthrough in price rise could happen in FY21

Margin

GM - RM prices continue to rise with ENA expected to remain under pressure for all of FY20 - Price increase in ENA impacted GM by ~150bps - With inflation in ENA ongoing, price hikes are likely in multiple states - Glass bottle prices also ran up but are expected to remain stable at these levels - However, due to product mix change and price hikes, GM expansion trajectory remains unchanged

- ENA prices increased significantly. However, they appear to have peaked in October and are consolidating - Glass prices also saw inflation but are expected to remain stable going forward - GM suffered as alcohol for the manufacture of country liquor was purchased from third parties due to the restricted capacity of Rampur plant - GM saw improvement due to a favourable product mix and should stay stable or improve from here

- Excise duty in Telangana has shifted from manufacturers to retailer. It has impacted gross revenue growth in 3Q. (Telangana contributes 8-9% in volume) - ENA prices up 2% QoQ and 22% YoY. Have consolidated since Nov/Dec. Expect inflation to remain muted - Grain prices up by 20% while Molasses inflation has been benign - Co has taken 1.3-1.4% price increase on a blended basis and may take price hike in FY21 (in southern markets)

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Topics 1QFY20 2QFY20 3QFY20 EBITDA Margin - Co has undertaken a comprehensive exercise to

identify areas of cost optimization - As a result of this cost push, EBITDA margins will be under consolidation in FY20 - The co is confident of sustaining the EBITDAM level in FY20 and will begin expanding the margin from next year

- Co continues to make marketing investment, with marketing for P&A being the main focus - Due to the cost push, EBITDA margin is under pressure. It is expected to resume expansion from 2020 - Margins will begin expanding from FY21 onwards at a rate of ~110-150bps per year

- EBITDA margins to expand going forward from FY21 onwards - Higher other expenses was due to Rs 70mn cow cess (Rs 200mn in 9M), Stock transfer duty of Rs 40mn, provision for bad debts & inventory loss Rs 75mn (100mn in 9M)

Others - Andhra and Telangana saw a working capital buildup as well as a temporary buildup in CSD - This is expected to return to normalcy within 3-6 months - FCF of Rs 1,000-1,500mn is expected to be generated in FY 20 - Net debt as on June 19 stood at Rs 3bn - The co is on course to become a debt free company over the next 1.5-2 years

- Co saw short term delays in receivable collection leading to a temporary working capital buildup in specific markets - Debt reduction in FY20 is not expected to be significant due to the temporary investment in receivables - FCF is expected to be in excess of Rs 1,000mn for FY20 - The debt reduction in FY20 is expected to be Rs 1,000mn - Net debt as on Sep-19 stood at Rs 3.5bn. The co plans to be deleveraged and debt free by 2021-22

- Working capital increase is on account of delay in payments. It is temporary and co expects pressure will ease in the coming quarters - Total overdues are at Rs 1,500mn, co plans to recover Rs 1,000mn over the next few months. These overdues are from CSD channel and state govts, thereby, co does not see any credit risk - Co plans to debt free in FY22. Rs 400-500mn debt reduction in 4QFY20

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Quarterly Financial Snapshot: Standalone Rs Mn 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) 9MFY20 9MFY19 YoY (%) Net Revenue 6,479 5,529 17.2 5,702 (3.0) 18,417 15,870 16.1 RM Costs 3,256 2,785 16.9 2,942 (5.3) 9,488 7,835 21.1 Gross Profit 3,223 2,744 17.4 2,760 (0.6) 8,929 8,035 11.1 Employee cost 496 433 14.5 464 (6.8) 1,381 1,262 9.4 S&D 782 723 8.1 745 (2.9) 2,325 2,113 10.0 Other Exps 921 630 46.0 685 (7.9) 2,328 1,873 24.3 Total Operating Exps 2,198 1,786 23.1 1,894 (5.7) 6,034 5,248 15.0 EBITDA 1,025 958 7.0 866 10.7 2,895 2,787 3.9 Adj. EBITDA (IND-AS 116) 1,006 958 5.0 847 13.1 2,895 2,787 3.9 D&A 131 107 22.7 132 (19.3) 391 316 24.0 Interest costs 81 76 6.1 77 (0.6) 232 278 (16.6) Other Income 18 28 (34.1) 19 47.0 70 97 (27.7) PBT 831 803 3.6 675 18.8 2,342 2,291 2.3 Exceptional item (86) - na (58) na - - na Tax 188 281 (33.0) (169) na 296 800 (63.0) RPAT 557 521 6.9 786 (33.7) 2,047 1,490 37.3 Adjustment 66 - na (281) na (361) - na APAT 623 521 19.6 505 3.2 1,685 1,490 13.1 Source: Company, HDFC sec Inst Research

% of Net revenue 3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (%) 9MFY20 9MFY19 YoY (bps) RM Costs 50.3 50.4 (11) 51.6 (123) 51.5 49.4 215 Gross Profit 49.7 49.6 11 48.4 123 48.5 50.6 (215) Employee cost 7.6 7.8 (18) 8.1 (32) 7.5 8.0 (46) S&D 12.1 13.1 (101) 13.1 1 12.6 13.3 (69) Other Exps 14.2 11.4 281 12.0 (60) 12.6 11.8 84 Total Operating Exps 33.9 32.3 162 33.2 (91) 32.8 33.1 (31) EBITDA 15.8 17.3 (151) 15.2 214 15.7 17.6 (184) Adj. EBITDA (IND AS 116) 15.5 17.3 (180) 14.9 247 15.7 17.6 (184) PBT 12.8 14.5 (168) 11.8 267 12.7 14.4 (172) RPAT 8.6 9.4 (83) 13.8 (436) 11.1 9.4 172 Tax as % of PBT 22.7 35.1 (1,239) (25.0) 6,004 12.6 34.9 (2,231) APAT 9.6 9.4 20 8.9 56 9.2 9.4 (24) Source: Company, HDFC sec Inst Research

IMFL revenue was up by 21% (est 14%) with volumes grew by 14% (est 9%) Gross margins expanded by 11bps vs. exp decline of 200bps owing to favourable product mix IND AS Adj. EBITDA grew by 5%. Other expenses saw share jump on account of cow cess and few non-recurring overheads, adjusting for the same, underlying EBITDA grew by 18%. A&P spends were by up 14.5% to Rs 325mn to support new launches Exceptional items account for Rs 86mn on account of Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 Lower taxes owing to re-measurement of DTA led to 20% growth in APAT to Rs 623mn vs. exp of Rs 634mn

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Operating Performance Particulars 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Revenue Split (Rs Mn) P&A 2,089 1,973 2,147 1,796 2,544 2,244 2,666 Regular 2,032 2,054 2,271 2,330 2,444 2,431 2,666 IMFL 4,121 4,027 4,418 4,127 4,989 4,675 5,332 Non IMFL 1,043 1,149 1,111 973 1,247 1,026 1,140 Total 5,164 5,176 5,529 5,100 6,236 5,702 6,473 Rev Growth YoY (%) P&A 36.4 28.6 29.0 34.4 21.8 13.7 24.2 Regular 29.5 12.7 9.4 3.9 20.3 18.4 17.4 IMFL 32.9 20.0 18.1 15.3 21.1 16.1 20.7 Non IMFL 3.1 2.2 2.4 (20.8) 19.6 (10.7) 2.3 Total 25.6 15.5 14.6 6.1 20.8 10.1 17.1 Revenue Mix (%) P&A 50.7 49.0 48.6 43.5 51.0 48.0 50.0 Regular 49.3 51.0 51.4 56.5 49.0 52.0 50.0 IMFL 79.8 77.8 79.9 80.9 80.0 82.0 82.4 Non IMFL 20.2 22.2 20.1 19.1 20.0 18.0 17.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 IMFL Volume details (Mn Cases) Prestige & Above 1.7 1.5 1.6 1.4 2.0 1.6 1.9 Regular 3.9 3.7 4.1 3.8 4.3 4.2 4.6 Total 5.6 5.2 5.7 5.1 6.3 5.8 6.5 Chg YoY (%) Prestige & Above 30.2 14.6 18.4 21.7 16.1 11.3 21.3 Regular 14.7 10.3 3.4 1.6 10.3 10.7 11.1 Total 19.1 11.5 7.2 6.3 12.1 10.9 13.9 Mix % Prestige & Above 30.7 28.1 27.7 26.7 31.8 28.2 29.5 Regular 69.3 71.9 72.3 73.3 68.2 71.8 70.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Realization/case (Rs) P&A 1,219 1,348 1,370 1,306 1,279 1,377 1,403 Regular 525 548 554 618 572 586 586 Blended 738 773 780 802 797 809 827 Chg YoY (%) P&A 4.7 12.2 8.9 10.5 4.9 2.1 2.4 Regular 12.9 2.2 5.8 2.3 9.1 6.9 5.7 Blended 11.6 7.6 10.2 8.5 8.0 4.7 6.0

Magic Moments (MM) Verve, 8PM Premium Black and Pluton Bay 1965 Rum have been the key growth drivers in premium segment Following the success of Jaisalmer Craft Gin in the international markets, it has been launched in select markets in India

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Story in charts P&A and Popular Volume Growth P&A and Popular Revenue Growth

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

IMFL vs. Non-IMFL Volume Mix P&A vs. Popular Volume Mix


We expect P&A volume growth to sustain even on a high base led by new launches and brand investments Share of IMFL and within that share of P&A is consistently on an upswing

21

9 9 8 6

21

16 13 13

4

(7)(11)

(2)

7 7 11

6 6

(12)(9)(6)(3)-3 6 9

12 15 18 21

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

P&A Popular

15

24

12

(4)

9 14

32

19 17 16

12 10

(9)(16)

(4)

14 13 18

9 9

(20)(15)(10)

(5)-5

10 15 20 25 30 35

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

P&A Popular

69%

70%

74%

73%

72%

72%

76%

80%

82%

83%

85%

31%

30%

26%

27%

28%

28%

24%

20%

18%

17%

15%

0%

20%

40%

60%

80%

100%

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

IMFL Non IMFL

30%

30%

33%

38%

41%

44%

44%

48%

48%

50%

52%

70%

70%

67%

62%

59%

56%

56%

52%

52%

50%

48%

0%

20%

40%

60%

80%

100%

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

FY20

E

FY21

E

FY22

E

P&A Popular

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Revenue trend: P&A is driving revenue growth PAT trend: Earnings growth is moderating


EBITDA trend: Higher Scale and richer product mix led growth

GM and EBITDA margin trend: RM pressure to keep a lid on EBITDAM expansion


Revenue trajectory remained healthy in 9MFY20 despite heavy base of FY19 RM inflation will moderate in the coming quarters. Co has taken 1.3% price hike in 9MFY20 and may take more price hike in 1HFY21

(15)

(10)

(5)

-

5

10

15

20

-

4,000

8,000

12,000

16,000

20,000

24,000

28,000

32,000

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

Revenue Revenue Growth(Rs Mn)%

(15)

-

15

30

45

60

-

500

1,000

1,500

2,000

2,500

3,000

3,500

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

PAT PAT GrowthRs Mn%

(15)

-

15

30

-

1,000

2,000

3,000

4,000

5,000

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

EBITDA EBITDA GrowthRs Mn%

10.0

12.0

14.0

16.0

18.0

42.0

46.0

50.0

54.0

58.0

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

Gross Margin EBITDA Margin - RHS%

Page | 7


Key Revenue Assumptions

FY13 FY14 FY15 FY16* FY17 FY18 FY19 FY20E FY21E FY22E Volumes (Mn Cases) P&A 3.08 3.72 4.04 4.40 4.75 5.05 6.12 7.09 8.05 9.10 Popular 15.93 16.64 15.44 13.79 13.51 14.45 15.49 17.16 18.19 19.28 Total 19.01 20.36 19.48 18.19 18.26 19.50 21.61 24.25 26.24 28.38 Growth YoY (%) P&A - 20.8 8.6 8.9 8.0 6.2 21.3 15.9 13.5 13.0 Popular - 4.5 (7.2) (10.7) (2.0) 7.0 7.2 10.8 6.0 6.0 Total - 7.1 (4.3) (6.6) 0.4 6.8 10.8 12.2 8.2 8.1 Mix (%) P&A 16.2 18.3 20.7 24.2 26.0 25.9 28.3 29.3 30.7 32.1 Popular 83.8 81.7 79.3 75.8 74.0 74.1 71.7 70.7 69.3 67.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Realization (Rs/Case) P&A 1,187 1,220 1,255 1,111 1,120 1,202 1,308 1,348 1,387 1,428 Popular 523 553 541 510 500 533 561 598 613 628 Total 631 675 689 656 661 707 772 817 850 885 Growth YoY (%) P&A - 2.8 2.8 (11.4) 0.8 7.4 8.8 3.0 2.9 3.0 Popular - 5.7 (2.2) (5.7) (2.0) 6.6 5.1 6.6 2.5 2.5 Total - 7.0 2.1 (4.9) 0.9 6.8 9.3 5.8 4.0 4.0 Revenue (Rs Mn) P&A 3,656 4,540 5,070 4,890 5,319 6,067 8,006 9,563 11,163 12,993 Popular 8,331 9,203 8,354 7,036 6,759 7,710 8,686 10,258 11,145 12,109 IMFL subtotal 11,987 13,743 13,424 11,926 12,077 13,776 16,693 19,821 22,309 25,102 Non IMFL 5,176 4,829 5,041 4,592 4,722 4,453 4,277 4,407 4,480 4,570 Total 17,163 18,572 18,465 16,518 16,799 18,230 20,969 24,227 26,789 29,672 Growth YoY (%) P&A 15.4 24.2 11.7 (3.6) 8.8 14.1 32.0 19.4 16.7 16.4 Popular 12.1 10.5 (9.2) (15.8) (3.9) 14.1 12.7 18.1 8.7 8.7 IMFL 13.1 14.6 (2.3) (11.2) 1.3 14.1 21.2 18.7 12.6 12.5 Non IMFL 9.4 (6.7) 4.4 (8.9) 2.8 (5.7) (4.0) 3.0 1.7 2.0 Total 11.9 8.2 (0.6) (10.5) 1.7 8.5 15.0 15.5 10.6 10.8 Mix (%) P&A 21.3 24.4 27.5 29.6 31.7 33.3 38.2 39.5 41.7 43.8 Popular 48.5 49.6 45.2 42.6 40.2 42.3 41.4 42.3 41.6 40.8 IMFL 69.8 74.0 72.7 72.2 71.9 75.6 79.6 81.8 83.3 84.6 Non IMFL 30.2 26.0 27.3 27.8 28.1 24.4 20.4 18.2 16.7 15.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC sec Inst Research * FY16 onwards revenues are as per IndAS vs. IGAAP earlier ** FY13-15 reported revenues are different from above as in financials revenues from third party were accounted on net basis. For comparison purpose they are restated.

Page | 8


Peer Set Comparison

Companies MCap

(Rs bn)

CMP (Rs) Reco. TP

(Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

HUL 4,423 2,073 NEU 2,021 33.8 41.3 46.1 61.4 50.2 45.0 42.5 35.1 31.3 37.5 27.5 31.6 ITC 2,654 238 BUY 366 12.9 13.8 15.2 18.4 17.2 15.7 13.0 11.7 10.3 46.1 48.6 51.5 Nestle 1,499 15,548 NR 13,842 233.3 277.4 317.7 66.6 56.1 48.9 46.4 39.8 34.5 112.2 128.8 162.2 Dabur 881 500 BUY 512 9.2 11.4 13.3 54.6 43.8 37.6 42.9 36.4 30.9 53.4 60.1 66.7 Britannia 766 3,189 BUY 3,678 58.9 70.8 85.4 54.1 45.0 37.4 39.6 32.6 27.0 42.7 48.7 55.3 Marico 440 341 NEU 370 8.1 9.5 11.1 41.8 35.9 30.6 29.4 26.1 23.0 44.4 49.6 55.2 United Spirits 419 577 BUY 752 12.4 15.9 19.0 46.7 36.3 30.4 27.3 23.3 19.8 18.1 21.2 23.3 Colgate 411 1,510 NEU 1,433 31.9 36.9 42.4 47.4 41.0 35.7 30.9 27.0 23.6 73.5 82.5 95.5 Jubilant Food 239 1,811 BUY 2,175 32.6 40.8 49.5 55.6 44.4 36.6 34.7 27.5 23.0 34.8 24.8 30.8 Emami 156 335 BUY 462 12.3 14.0 15.9 24.7 21.6 19.1 17.7 15.7 13.9 24.9 30.5 37.9 Radico Khaitan 51 382 BUY 527 16.4 21.4 24.8 23.2 17.9 15.4 14.0 11.4 9.7 15.1 15.5 16.7 Source: HDFC sec Inst Research

Revision In Estimates

Particulars Old New Change %

FY20 FY21 FY22 FY20 FY21 FY22 FY20 FY21 FY22 Revenue (Rs Mn) 23,728 26,197 28,964 24,234 26,789 29,672 2.1 2.3 2.4 EBITDA (Rs Mn) 3,648 4,200 4,735 3,736 4,434 4,929 2.4 5.6 4.1 EBITDA Margin (%) 15.4 16.0 16.3 15.4 16.6 16.6 4 bps 52 bps 27 bps APAT (Rs Mn) 2,127 2,676 3,170 2,188 2,842 3,306 2.9 6.2 4.3 AEPS (Rs) 16.0 20.1 23.8 16.4 21.4 24.8 2.8 6.2 4.3

Page | 9


1 year forward P/E band

Source: HDFC sec Inst Research

-

100

200

300

400

500

600

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan -

18

Jan-

19

Jan-

20

P/E Mean +1 SD -1 SD CMP (RHS)(x) (Rs)

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Income Statement (Standalone) (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Revenues 18,228 20,969 24,234 26,789 29,672 Growth (%) 8.5 15.0 15.6 10.5 10.8 RM Costs 9,522 10,283 12,368 13,452 14,797 Gross Profit 8,706 10,687 11,866 13,336 14,875 Employee cost 1,549 1,714 1,869 2,069 2,276 S&D 2,159 2,879 3,137 3,552 4,032 Other Exps 2,300 2,591 3,124 3,281 3,638 Total Operating Cost 6,008 7,183 8,130 8,902 9,946 EBITDA 2,698 3,503 3,736 4,434 4,929 EBITDA Margin (%) 14.8 16.7 15.4 16.6 16.6 EBITDA Growth (%) 27.2 29.9 6.6 18.7 11.2 Adj. EBITDA (IND-AS 116) 2,698 3,503 3,660 4,354 4,849 Adj. EBITDA Margin (%) 14.8 16.7 15.1 16.3 16.3 Depreciation 409 424 524 552 584 EBIT 2,289 3,079 3,212 3,882 4,346 Interest 682 355 307 215 73 Other Income (Including EO Items) 267 133 110 130 145 PBT 1,873 2,857 3,015 3,797 4,418 Tax 638 976 465 956 1,112 RPAT 1,235 1,881 2,550 2,842 3,306 RPAT Growth (%) 52.7 52.3 35.6 11.4 16.3 Adjusted PAT 1,235 1,881 2,188 2,842 3,306 APAT Growth (%) 52.7 52.3 16.3 29.8 16.3 AEPS 9.3 14.1 16.4 21.4 24.8 EPS Growth (%) 52.7 52.3 16.3 29.8 16.3

Source: Company, HDFC sec Inst Research

Balance Sheet (Standalone) (Rs mn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital 266 266 266 266 266 Reserves 11,155 12,884 15,209 17,794 20,811 Total Shareholders Funds 11,421 13,150 15,475 18,060 21,077 Long Term Debt 344 217 108 54 - Short Term Debt 5,597 3,158 2,865 1,490 - Total Debt 5,941 3,375 2,973 1,544 - Other Non current liabilities 1,034 1,151 1,277 1,418 1,575 TOTAL SOURCES OF FUNDS 18,395 17,675 19,725 21,022 22,652 APPLICATION OF FUNDS Net Block 7,057 7,299 7,469 7,523 7,566 Other Non current assets 2,865 2,753 2,753 2,753 2,753 Non Current Assets 9,922 10,052 10,222 10,276 10,319 Inventories 3,109 3,597 4,040 4,543 5,023 Trade Receivables 6,300 6,417 7,436 8,073 8,780 Other Current Assets 2,257 2,063 1,856 1,949 2,047 Total Current Assets 11,666 12,077 13,332 14,566 15,849 Trade Payables 2,141 2,448 2,855 3,144 3,481 Other CL & Provisions 1,775 2,183 2,312 2,665 2,887 Total Current Liabilities 3,916 4,631 5,167 5,809 6,368 Net current Assets 7,750 7,446 8,165 8,757 9,481 Cash & Equivalents 724 177 1,339 1,989 2,852 TOTAL APPLICATION OF FUNDS 18,395 17,675 19,725 21,022 22,652


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Cash Flows (Standalone) (Rs mn) FY18 FY19 FY20E FY21E FY22E PBT 1,873 2,857 3,015 3,797 4,418 Non-operating & EO items (162) (35) - - - Interest 682 355 307 215 73 Depreciation 409 424 524 552 584 Working Capital Change 712 259 (719) (591) (725) Tax Paid (357) (773) (465) (956) (1,112) OPERATING CASH FLOW ( a ) 3,158 3,087 2,662 3,016 3,238 Capex (228) (717) (694) (606) (627) Free Cash Flow (FCF) 2,930 2,370 1,968 2,411 2,611 Investments & Others 20 651 127 141 158 INVESTING CASH FLOW ( b ) (208) (65) (567) (465) (469) Capital Issuance 29 11 - - - Debt Issuance (2,127) (1,739) (401) (1,429) (1,544) Interest (699) (370) (307) (215) (73) Dividend paid (128) (161) (193) (225) (257) Others (32) (32) (32) FINANCING CASH FLOW ( c ) (2,926) (2,259) (933) (1,901) (1,906) NET CASH FLOW (a+b+c) 24 762 1,162 651 862 Closing Cash 724 177 1,339 1,989 2,852


Key Ratios

FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 47.8 51.0 49.0 49.8 50.1 EBITDA Margin 14.8 16.7 15.4 16.6 16.6 EBIT Margin 12.6 14.7 13.3 14.5 14.6 APAT Margin 6.8 9.0 10.5 10.6 11.1 RoE 11.4 15.3 17.8 16.9 16.9 RoIC (or Core RoCE) 8.4 11.5 15.1 15.5 16.7 RoCE 8.0 11.2 14.5 14.3 14.9 EFFICIENCY Tax Rate (%) 34.1 34.2 15.4 25.2 25.2 Asset Turnover (x) 2.6 2.9 3.2 3.6 3.9 Debtors (days) 126 112 112 110 108 Payables (days) 43 43 43 43 43 Cash Conversion Cycle (days) 155 130 123 119 117 Net Debt/EBITDA (x) 1.9 0.9 0.4 (0.1) (0.6) Net D/E 0.5 0.2 0.1 (0.0) (0.1) Interest Coverage 3.4 8.7 10.5 18.1 59.3 PER SHARE DATA EPS (Rs/sh) 9.3 14.1 16.4 21.4 24.8 CEPS (Rs/sh) 12.4 17.3 23.1 25.5 29.2 Dividend 1.0 1.2 1.4 1.6 1.8 Book Value 85.8 98.8 116.3 135.7 158.4 VALUATION P/E (x) 41.2 27.0 23.2 17.9 15.4 P/BV 4.4 3.9 3.3 2.8 2.4 EV/EBITDA (x) 20.8 15.4 14.0 11.4 9.7 OCF/EV (%) 5.6 5.7 5.1 6.0 6.8 FCF/EV (%) 5.2 4.4 3.8 4.8 5.4 FCFE/Mcap (%) 4.4 3.9 3.3 4.3 5.0 EV/Revenues (x) 3.1 2.6 2.2 1.9 1.6 Dividend Yield (%) 0.3 0.3 0.4 0.4 0.5


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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 9-Jan-19 401 BUY 568

24-Jan-19 428 BUY 592 10-Apr-19 382 BUY 586 3-May-19 362 BUY 478 9-Jul-19 287 BUY 481

9-Aug-19 322 BUY 492 22-Sep-19 320 BUY 557 11-Oct-19 300 BUY 496 8-Nov-19 324 BUY 498 9-Jan-20 324 BUY 504

24-Jan-20 380 BUY 527

RECOMMENDATION HISTORY

100150200250300350400450500550600

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

Oct

-19

Nov-

19

Dec-

19

Jan-

20

Radico TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171-7330 www.hdfcsec.com

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