Broker’s call: Radico Khaitan (Buy)

Target: ₹720

CMP: ₹645.75

Radico Khaitan has delivered a strong performance in Q4, with sales growing 19 per cent to ₹690 crore, 8 per cent ahead of our expectations on strong 16 per cent volume growth in the P&A segment. EBITDA grew 23 per cent but was in line due to higher ad spends.

Despite high comparables, the company has posted strong volume growth with 2-year CAGR of 10 per cent vs. flat growth of peers. Strong traction in P&A, new launches and increased appetite to expand presence in the super-premium segment should sustain stronger growth ahead.

Management pointed to a largely stable input cost outlook and expects premiumisation to improve margins. Our estimates remain conservative – forecast margin change of -40bps in FY22 and +40bps over FY22-24 – which can see upsides. Radico Khaitan will likely turn net cash positive in FY22. Any further reduction in working capital will be positive.

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Factoring in Q4 performance and Q1 lockdown, our FY22/23 EPS change by -4 per cent/+3 per cent. Valuations at 23x FY23 EPS are attractive and can re-rate with improving performance. We maintain out Buy and increase the target price from ₹640 to ₹720, rolling forward to June-23 EPS.