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.

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.