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Key Takeaways
Mid-teens volume growth target, focus on profitability over next few years
Radico Khaitan's (RDCK) IMFL aims at volume growth of 13-15% over the next few
years, led by higher growth rates in its high contribution brands. Its mainline brands
constitute 73% of IMFL volumes compared with less than 60% in FY09.
RDCK is focused on improving profitability. Brands like Magic Moments, Morpheus
Brandy and After Dark whisky have 4-8x contribution margins compared with 8PM
and RDCK believes margins can be significantly enhanced with thrust on these brands.
Molasses prices rule firm; Price increases to aid margin expansion
Contrary to expectations, molasses prices have not come off due to increased spirit
demand for ethanol blending. However, glass bottle prices increased 18%.
Price increases of 3-3.5% were taken so far in FY12. RDCK believes they are sufficient
to pass on input cost pressure. Further price increases are awaited in Andhra Pradesh
and Karnataka. The management expects 100bp expansion in FY12.
Magic Moments, new launches to drive growth in the premium segment
In 1QFY12, RDCK's IMFL division's volume grew 12.3%. Magic Moments continues
to drive growth, increasing volumes 21% with 8PM whisky growing 17% by volume.
RDCK is banking on new launches Morpheus Brandy and After Dark to drive
incremental growth. Morpheus is expected to sell 300,000 cases in FY12
(up 35-40%).
After Dark is at an initial stage. The company plans to launch a national campaign
around Diwali to promote the product. It is more than satisfied with its performance
thus far and will only share growth outlook for this brand in the forthcoming year.
Debt in check, FCCB replaced by low cost ECB
RDCK maintained its debt since its QIP last year. Net debt was INR4.3b as of June
2011. RDCK plans to fund its capex of INR400m-500m through internal accruals.
It also redeemed its FCCB by paying USD44.22m and replacing it with a seven-year
tenure ECB with interest rate of ~5%.
Valuation and view
RDCK is a pure play on India's IMFL consumption story. RDCK's strategy to move up
the value chain in terms of premium brands and greater profitability will be a function
of the success of new launches such as Morpheus Brandy and After Dark Whisky.
Being in a position in fund its own growth and not increase debt significantly over
next few years will be a big positive if it can execute this strategy as IMFL players in
India have been constantly looking for external sources of funding to do so.
The stock trades at 23.5x FY11 EPS of INR5.5. Not Rated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Mid-teens volume growth target, focus on profitability over next few years
Radico Khaitan's (RDCK) IMFL aims at volume growth of 13-15% over the next few
years, led by higher growth rates in its high contribution brands. Its mainline brands
constitute 73% of IMFL volumes compared with less than 60% in FY09.
RDCK is focused on improving profitability. Brands like Magic Moments, Morpheus
Brandy and After Dark whisky have 4-8x contribution margins compared with 8PM
and RDCK believes margins can be significantly enhanced with thrust on these brands.
Molasses prices rule firm; Price increases to aid margin expansion
Contrary to expectations, molasses prices have not come off due to increased spirit
demand for ethanol blending. However, glass bottle prices increased 18%.
Price increases of 3-3.5% were taken so far in FY12. RDCK believes they are sufficient
to pass on input cost pressure. Further price increases are awaited in Andhra Pradesh
and Karnataka. The management expects 100bp expansion in FY12.
Magic Moments, new launches to drive growth in the premium segment
In 1QFY12, RDCK's IMFL division's volume grew 12.3%. Magic Moments continues
to drive growth, increasing volumes 21% with 8PM whisky growing 17% by volume.
RDCK is banking on new launches Morpheus Brandy and After Dark to drive
incremental growth. Morpheus is expected to sell 300,000 cases in FY12
(up 35-40%).
After Dark is at an initial stage. The company plans to launch a national campaign
around Diwali to promote the product. It is more than satisfied with its performance
thus far and will only share growth outlook for this brand in the forthcoming year.
Debt in check, FCCB replaced by low cost ECB
RDCK maintained its debt since its QIP last year. Net debt was INR4.3b as of June
2011. RDCK plans to fund its capex of INR400m-500m through internal accruals.
It also redeemed its FCCB by paying USD44.22m and replacing it with a seven-year
tenure ECB with interest rate of ~5%.
Valuation and view
RDCK is a pure play on India's IMFL consumption story. RDCK's strategy to move up
the value chain in terms of premium brands and greater profitability will be a function
of the success of new launches such as Morpheus Brandy and After Dark Whisky.
Being in a position in fund its own growth and not increase debt significantly over
next few years will be a big positive if it can execute this strategy as IMFL players in
India have been constantly looking for external sources of funding to do so.
The stock trades at 23.5x FY11 EPS of INR5.5. Not Rated.
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