Buy Radico Khaitan; target of Rs 593: Dolat Capital Market

Dolat Capital Market's research report on Radico Khaitan

Radico Khaitan (RDCK) Q2FY21 was healthy on operating front in backdrop of Covid, discretionary category, lack of on-trade sales and steep rise in taxes. RDCK’s volume grew by 4.6% YoY (-42% in Q1FY21). RDCK’s revenue/EBITDA/APAT grew by 10.5/24/36% YoY. Over the last three years, RDCK experienced robust volume growth, price increases, premiumisation, RM tailwinds, and thus de-leveraging. RDCK’s revenue/EBITDA/PAT grew at an impressive CAGR of 13/21/41% over FY17-20. Net debt declined from Rs 9.5bn in FY16, to Rs 2.5bn as of Sep-20. We remain constructive on RDCK story due to expansion in addressable opportunity in premium whisky, premiumisation, and deleveraging trajectory. RDCK is ~1/4th of UNSP in volumes/revenue/EBITDA/APAT but 1/6 th in Mcap. RDCK’s discount vs. UNSP should narrow with better growth trajectory. We believe this is feasible.

Outlook

With improved operating performance, we increase our EBITDA estimate by 16/7% and PAT estimate by 24/9% for FY21/22E. Reiterate BUY with revised TP of Rs 593 @ 24x Sep-22E EPS (40% discount to UNSP). RDCK is trading at attractive 20/17x FY22/23E EPS vs. 37/30x for UNSP.

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