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Radico Khaitan Share Price Rises As Goldman Sachs Initiates Coverage With A ‘Buy’

Goldman Sachs initiates coverage on Radico Khaitan with a target of Rs 1,144. Goldman Sachs in their first note on Radico have sounded a very positive tone as they like the market share momentum and cash flow generation of the company.
KEY HIGHLIGHTS
  • Goldman notes the market leadership of Radico in the vodka category and their emergence in the Whisky, Brandy, Rum and Gin category too
  • The company’s EBITDA margins have expanded substantially as they have increased the mix of the premium portfolio in their sales
  • Goldman also notes the attractive valuation that it trades at making the risk reward more favorable

 Mumbai: Goldman Sachs has initiated coverage on alco beverage maker Radico Khaitan, with a buy, target price of Rs. 1,144/share. They note 3 key reasons behind their positive coverage – continued market share momentum, expansion in EBITDA margins, attractive risk-reward ratio.

Goldman says that Radico is already a market leader in Vodka with a 45% volume and value share – and an emerging competitor whiskey, brandy, rum, and gin.

It says that Radico has gained 120bp market share in the Prestige & Above category between FY21-24driven by new launches in vodka, whiskey, and gin. “We forecast P&A volume growth of 9% between FY20-25E despite a dip in FY21 due to the COVID-19 driven lock-downs”, says Goldman in the note.

The other trigger is the expansion in EBITDA margins. The P&A mix has improved and Goldman expects that segment to contribute 35% of sales in FY25 vs 29% in FY21. Its gross margins are seen expanding to 51.0% in FY25, compared with 50.3% in FY21, largely due to improving the mix.

However, Goldman does not assume any reduction in advertising and promotions spend as Radico reinvests behind its brands, especially with a slew of new launches planned for the next 12 months.

Goldman says Radico has seen a steady improvement in cash generation and repaid most of its debt, leaving it well-placed to invest more behind its existing brands and premium innovation.

And finally, Goldman likes the valuation. With Radico trading at 28.5X FY23E P/E, a 21% discount to UNSP and 48% discount to our coverage, which we view as unwarranted, says Goldman.

 

Aabkari Times Editorial Teamhttps://aabkaritimes.com
Aabkari Times is a monthly news magazine on Liquor, Excise and Alcohol allied industry; being published since 2009 by the expertise of retired excise dept. associates and alco-bev industry professionals as our editorial team. Our magazine contains different new alco-bev strategic and new brand launch articles as well as news on recent govt. policies, trends on alcohol industry and other important data relevant to the distilleries and industry at the mass.

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