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Radico Khaitan
Premiumization to lead strong
structural growth
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Volume growth supported by mainline brands
Mainline brands are growing significantly ahead of the base brands. Revival in
sales of the flagship brand 8PM after its relaunch its encouraging. Magic
Moments vodka continues to grow ahead of company and category growth
leading to market share gains and gross margin expansion from improved mix
Expect margin gains going forward
Margins have not yet seen the benefit of premiumization due to increased
investment behind brands and rise in overhead costs. Expect improvement going
forward as gross margin gains continue and A&P spends are moderated
Molasses prices holding steady
Molasses production is running at a high level but impact on prices has not been
significant as of now. Expect raw material prices to remain steady or lower going
forward.
Launch of After Dark whisky could be huge
National launch of After Dark whisky is moving ahead smoothly. Initial consumer
response is positive. If successful, this could be a huge positive boost. This is a
premium whisky which provides significantly higher margins and the category size
is quite big.
Price objective basis & risk
Radico Khaitan (RKHAF)
Our price objective is Rs200/share. We value Radico on target P/E of 18x FY12E
and EV/EBITDA multiple of 11x FY12E. This is at 20% discount to the FMCG
sector which we believe is justified given the cyclicality of its earnings, smaller
business scale and weaker market share. This multiple we believe is justified
given 1) earnings growth is set to rise 2) balance-sheet health is now not a cause
for concern, and 3) the company is strategically improving its product/brand
portfolio. Upside risks: Higher-than-expected fall in molasses prices, strongerthan-expected volume growth and a better pick up in new product launches.
Downside risks: Lower-than-expected fall in molasses prices and failure of new
product launches.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Radico Khaitan
Premiumization to lead strong
structural growth
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Volume growth supported by mainline brands
Mainline brands are growing significantly ahead of the base brands. Revival in
sales of the flagship brand 8PM after its relaunch its encouraging. Magic
Moments vodka continues to grow ahead of company and category growth
leading to market share gains and gross margin expansion from improved mix
Expect margin gains going forward
Margins have not yet seen the benefit of premiumization due to increased
investment behind brands and rise in overhead costs. Expect improvement going
forward as gross margin gains continue and A&P spends are moderated
Molasses prices holding steady
Molasses production is running at a high level but impact on prices has not been
significant as of now. Expect raw material prices to remain steady or lower going
forward.
Launch of After Dark whisky could be huge
National launch of After Dark whisky is moving ahead smoothly. Initial consumer
response is positive. If successful, this could be a huge positive boost. This is a
premium whisky which provides significantly higher margins and the category size
is quite big.
Price objective basis & risk
Radico Khaitan (RKHAF)
Our price objective is Rs200/share. We value Radico on target P/E of 18x FY12E
and EV/EBITDA multiple of 11x FY12E. This is at 20% discount to the FMCG
sector which we believe is justified given the cyclicality of its earnings, smaller
business scale and weaker market share. This multiple we believe is justified
given 1) earnings growth is set to rise 2) balance-sheet health is now not a cause
for concern, and 3) the company is strategically improving its product/brand
portfolio. Upside risks: Higher-than-expected fall in molasses prices, strongerthan-expected volume growth and a better pick up in new product launches.
Downside risks: Lower-than-expected fall in molasses prices and failure of new
product launches.
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