Kotak Securities is bullish on Radico Khaitan has recommended buy rating on the stock with a target price of Rs 440 in its research report dated May 06, 2019.
Kotak Securities' research report on Radico Khaitan
The net revenue for the quarter grew by 6.1% yoy to Rs 5.1 bn and was ahead of our estimates, driven by 6.2% yoy growth in IMFL volume which was at 5.1 mn cases. Volume in Prestige and above category grew at 22.1% yoy while Regular category grew at a slower pace of 1.3% yoy. Volume growth in regular category were slower due to company reducing focus on low price category. EBITDA margin at 14% was below our estimates of 14.8% due to 24% yoy increase in sales and distribution expenses. Gross margin improved by 200 bps on yoy despite rise in ENA and glass bottle prices due to better product mix. The company has maintained volume growth guidance of 8-9% with prestige and above category expected to grow at 13-15% in volume terms in FY20E. But, due to rise in raw material prices and continued focus on brand building, EBITDA margin for FY20E is expected to be flattish.
Outlook
We have cut our margin estimates for FY20E by 130 bps and also reduced the volume growth estimates in regular category resulting in 9% reduction in EPS estimates. We have also introduced FY21E estimates. Based on FY20E/FY21E EPS of Rs 16.7/20, the stock is trading at PE of 21.7/18.1x. We maintain our BUY rating on the stock with revised target price of Rs 440 (Vs Rs460 earlier), valuing the stock at 22x FY21E EPS (Vs 25x FY20E), as we roll forward our valuation multiple to FY21E.
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