Radico Khaitan_IC

Raising Toast to Premiumization

15-Mar-12 Please refer to the disclaimer towards the end of the document P a g e | 1

II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

4

Recommendation BUY Investment Rationale Back on sustainable growth and focusing on margin improvement: The

Company with the help of strong sales and distribution network has been able to develop four millionaire brands in the highly regulated environment. We believe earnings growth will be led by 1) revival of its flagship brand 8PM, 2) We expect margin to gain on the upping ante in product portfolio, and 3) Setting-up a dual feed distilleries to cushion volatility in input-prices. We expect Radico to register a gross revenue growth of 17% and 19% in FY12E and FY13E respectively.

Focus on Premium brands to aid margins: Radico Khaitan is focused on strengthening its position in the premium category to further aid margins. The recent brand launches in the premium category are in line with the company’s well established premiumization strategy. Radico has smartly evolved as an economy and regular segment IMFL participant entity to a semi-premium and premium category (since FY06) with a series of successful launches in this segment. The contribution from the premium segment is 5x of margins to that of regular segment. Currently, premium

brands contribute 13% to the total IMFL volumes and 45% to the gross margins. With the launch of premium brands, we feel it could provide strong fillip to margins and profitability.

Vodka clamor too loud to ignore: Radico had launched Magic Moments under the vodka brand in 2006 and since then the brand is growing 35%+. In India, the white spirits base comprises 5% of the total spirit industry and any increase in the consumption of white spirit will drive the volume growth for the company hence, boosting top-line.

Change in demographic profile in India is driving demand: With the increase in disposable income, up-trading to relatively premium category, social acceptance, changing lifestyle and aspirations are driving the overall growth of spirits industry in India. We believe Radico, been an established player with 8% market share and presence in every category with different price point, will get benefit from the industry growth driver going forward.

Operating environment turning in favor of incumbents: Regulatory hurdles spanning production and distribution are an entry barrier to the industry. Each state has its own excise & tax structures, levies & regulations regarding licensing fees and labeling requirements restricting free inter - state trade. In addition, the ban on advertising creates a major hurdle for newer brands to gain a critical customer base. This restricts entry of global players and provides much needed advantage to already established local manufacturers.

Valuation & Recommendation We believe that improving fundamentals and the scalability of the Indian spirits industry holds potential for the company. We initiate coverage on Radico Khaitan with a “BUY” rating based on a 12-month price target of Rs. 155 per share, implying a 12x EV/EBITDA multiple for FY13E.

CMP Rs. 122

Target Price Rs. 155

Sector Breweries &

Distilleries

Stock Details

BSE Code 532497

NSE Code RADICO

Bloomberg Code RDCK IN

Market Cap (Rs cr) 1622

Free Float (%) 60.1%

52- wk HI/Lo (Rs) 148/108

Avg. volume BSE (Quarterly) 131545

Face Value (Rs) 2.0

Dividend (FY 11) 0.7 per share

Shares o/s (Crs) 13.3

Relative Performance 1Mth 3Mth 1Yr

Radico 4.2% 4.4% -7.4%

Sensex 0.4% 13.2% -1.4%

Shareholding Pattern 31st

Dec 2011

Promoters Holding 39.9%

Institutional (Incl. FII) 39.1%

Corporate Bodies 13.6%

Public & others 7.4%

Ruchita Maheshwari –Research Analyst

(+91 22 3926 8023) [email protected]

Year Consolidated

Net Sales (Rscr)

Growth (%)

EBITDA (Rs cr)

Margin (%)

PAT (Rs cr)

Margin (%)

EPS (Rs)

PE (x)

ROE (%)

FY10 835.6 20% 130.2 15.6% 67.6 5.0% 3.2 38.8 10.0%

FY11 996.5 19% 149.0 15.0% 102.8 7.3% 5.5 22.3 11.7%

FY12E 1159.1 16% 174.0 15.0% 78.7 6.8% 5.9 20.6 11.5%

FY13E 1376.0 19% 215.7 15.7% 102.9 7.5% 7.8 15.8 13.5%

100

110

120

130

140

150

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

Radico Khaitan

mailto:[email protected]


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Investment Rationale

Back on sustainable growth and focusing on margin improvement Radico suffered stagnation in its volume growth over FY07-09, before registering a healthy 14% growth in FY10. The company registered a volume growth of 10% in FY11 and 10.9% growth in 9MFY12E. Key reason for the revival was the improved performance of its main brand, 8PM. This improvement was led by a change in product and packaging which has helped to reposition it in a higher and faster growing segment. Due to issues surrounding its key brand 8PM, Radico had missed much of the strong growth seen in the sector in FY07-09 as its volumes remained flat. However, with the revamp of 8PM, the strong growth by Magic Moments and Old Admiral and new product launches, we believe the 14% volume growth, in line with the sector average, should now be sustainable going forward.

Radico Khaitan is one of the largest spirits companies in India. Over the years, the Company has successfully developed and promoted several highly recognizable brands including After Dark Whisky, Magic Moments Vodka, Morpheus Brandy, Contessa Rum, Old Admiral Brandy and 8 PM. We expect the gross revenue to grow by 16.3% in FY12E led by 10% volume growth, 3-4% premiumization benefit and 2- 3% price hikes. The revenue is expected to grow by 18.7% comprising 12% volume growth, 4-5% premiumization benefit and 2-3% price increase in FY13E.

Five key factors which will induce the much desired growth and margins are:

Revival of its flagship brand 8PM 8PM still remains the key brand, accounting for 25% of Radico’s total volume. However, during FY07-09 the brand had suffered, as its positioning suffered with its consumer base trading upwards. To revive the brand, Radico has improved the product by shifting to grain-based alcohol and also revamped the packaging to make it more premium. The brand now compares favorably to the more premium brands to which it had lost its consumers. With this improved positioning, there are signs of revival, with the brand growing 5% in FY10 after two years of decline. The 8PM has grown by 12.9% in FY11 and by 9.2% in 9MFY12. We expect the growth rate to pick up to 10% - 12% as consumers accept the improved offering and migrate back.

Mainline brands growing at a healthy rate Mainline brands contribute 70% to the total IMFL sales. We expect Radico’s mainline brands to grow at

15% - 17% v/s a 10% growth in second strong brands. Of these, we expect Magic Moments, Old Admiral brandy and Whytehall whisky to grow 25-30% given the strong management push and consumer demand.


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Brand Sales of Radico for the past three years (million cases): Source: Company & Nirmal Bang Research

New product launches to provide boost to the top-line In a highly regulated environment, with stringent inter-state duty transfer, ban on advertising, Radico has emerged as brand creator. Radico has a successful track record of creating millionaire brands (selling more than a million cases in a year) from the flagship 8PM whiskey to Magic Moments Vodka. Radico has created four premium-brands and owns six of the 20 relevant brands launched industry-wide over the past decade. The company takes 2-3 years to develop any brand since the manufacturing to the finally creating a brand in the market. Radico launched its first successful brand in 1998 with 8PM Whisky and Contessa Rum. Subsequently, Radico launched Old Admiral Brandy in 2002 and Magic Moments Vodka in 2006, besides several variants like 8PM Excellency Brandy, 8PM Bermuda Rum, etc. We are very much confident about the new product launches done by Radico looking at the previous track record of developing and reaping benefits of new products. Radico has launched its Morpheus luxury brandy in 2009 and is uniquely positioned as there is no competing brand in that segment. Initial response is encouraging and we believe Radico could be on the verge of creating another successful brand after its success with 8PM and Magic Moments. The company has launched After Dark whiskey in the premium range. There was a gap in Radico’s product portfolio as it does not have a premium whisky and the success of these brands could help to fill the gap. We are of the view that, Radico has posted a commendable performance in terms of brand creation in such a highly regulated market. We are positive on the company’s ability to create more millionaire brands and to drive growth in its revenue from the consumer shift in country liquor to IMFL. We expect Radico to register a gross revenue growth of 16.3% and 18.7% in FY12E and FY13E respectively. Brand Launch by Radico Khaitan Source: Company & Nirmal Bang Research

Brands FY09 FY10 FY11 CAGR (%)

8 PM Whiskey 3.39 3.57 4.03 9.1 Contessa Rum 2.49 2.25 2.41 (1.7) Magic Moments 1.02 1.42 1.89 35.9 Morpheus XO Brandy 0.00 0.08 0.23 0.0 Old Admiral Brandy 2.00 2.73 3.00 22.5 Others 3.97 4.57 4.55 7.0 Total 12.87 14.62 16.1 11.85

Year 2004 2005 2006 2009 2010

Brands Whytehall Brihands Magic Moments Morpheus After Dark Category Whiskey Brandy Vodka Brandy Whiskey


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Contribution from CSD to provide a steady revenue to the top-line

Radico Khaitan has well entrenched brands in the Canteen Stores Department (CSD), a governmental discount store for defense personnel, which sells liquor at a discount (excluding excise). In FY06, the company acquired eight main brands of Brihans Maharashtra Sugar Syndicate Ltd, (BMSS), which are registered with CSD, giving the company a further foothold in CSD markets; (registering a brand with CSD is a difficult process). The company has got its 19 brands registered in the CSD having lifetime validity. The Company holds a dominant position in this segment, as the CSD market offers very strong barriers to entry to new players due to stringent qualification and registration requirements. Currently, CSD sales contribute about 12% to the company’s revenue. The company has over 22% share of CSD’s market with its Contessa Rum being one of the top-selling brands across all categories in CSD. CSD is expected to continue to grow volume at a modest growth rate of about 7%-10% and will continue to drive a steady stream of revenue, albeit at a higher margin for Radico Khaitan.

Expanding distribution network in South India

Radico has traditionally been strong in North and East India and has a healthy market share with the Defense Services. However, in India ~65% of the liquor market lies in the South where United Spirits has a strong foothold. Radico off-lately has strengthened its operations in Tamil Nadu to aid volumes. Though, Radico covers 95% of retail outlets in India, we believe there is still some way to go before it can achieve a level playing in the South. Thanks to tie-ups with distilleries in Tamil Nadu, the successful launch of Morpheus brandy (South is the key market for brandy) and the general premiumization of its portfolio, we believe it is moving in the right direction to address this issue. We believe that the company would be able to register 20% growth in Tamil Nadu for the next two years.

Grain-based liquor provides hedge against increase in molasses prices

With the increase in molasses prices, grain-based extra-neutral alcohol (ENA) has gained momentum in the past few years. Grains such as broken rice, maize and bajra, which are relatively cheap, are being used for grain-based ENA. Grain-based alcohol enjoys a premium over the molasses-based alcohol, owing to its better taste and quality. Over the past few years, most alcohol companies have built dual-feed distilleries, which helps to change the feed as desired. Currently, an estimated 30% of the IMFL is grain-based. We believe this trend will enable companies to hedge against volatility in molasses prices.

Source: United Spirits & Nirmal Bang Research

70%

30%

IMFL production based on sourcing in India

Molasses based Grain Based


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Molasses availability / prices is dependent on the sugarcane cycle and since liquor companies do not have pricing power in two-third of the markets, their margins are cyclical. Since grain prices are fairly stable, cost of production using grains is fairly predictable. However, it is costlier to use grains and, unless molasses prices are running quite high, it is not economical to use grains. Radico has put up dual substrate facilities, which gives it flexibility to use molasses during the down- and shift to grains when the cycle turns. Radico has 74% Molasses based and 26% Grain based of the total 150 million liters manufacturing facility based at Rampur (Uttar Pradesh) and Aurangabad (Maharashtra).

Focus on Premium brands to aid margins Radico Khaitan is focused on strengthening its position in the premium category to further aid margins. The recent brand launches in the premium category are in line with the company’s well established premiumization strategy. Radico has smartly evolved as an economy and regular segment IMFL participant entity to a semi-premium and premium category (since FY06) with a series of successful launches in this segment. The contribution from the premium segment is 5x of margin to that of regular segment. To cater to the semi-premium and premium category, Radico has launched Magic Moments under Vodka category, registering a growth of 35.9% (FY09-FY11) and Morpheus Brandy under Brandy category which has recorded 0.23mn cases in FY11 as against 0.08mn cases in FY10; a growth of 188%. These brands were the launch-pad for the company premiumization category for the last three years. With the successful launches in premium category, Radico has launched After Dark Whiskey under the premium whiskey category in 2010. The successful product launch in premium category has increased the contribution from the premium product portfolio from 6.3% in FY09 to 13.2% in FY11. With the launch of premium brands, we feel it could provide strong fillip to margins and profitability. The company is also making conscious efforts to reduce the contribution from Non-IMFL sales or bulk spirits in its product portfolio which in our view will increase the margins going forward. The Non-IMFL (Bulk spirits and Country Liquor) sales reduced from 30% in FY09 to 24.5% in FY11 whereas, the contribution from IMFL sales increased from 70% in FY09 to 75.5% in FY11.

Source: Company & Nirmal Bang Research

0.0%

20.0%

40.0%

60.0%

80.0%

FY08 FY09 FY10 FY11

67.5% 70.0% 74.5% 75.5%

32.5% 30.0% 25.5% 24.5%

...gradual increaing contribution of IMFL sale to Radico's total sales

IMFL Sales Non IMFL Sales


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Comprehensive presence across categories Radico Khaitan has a strong product portfolio and has a comprehensive presence across categories (regular to super premium) with different price points. Around 60-65% of the IMFL sales in India is contributed by the regular and economy segment. India has a majority of middle income population which falls in the drinking range of regular and economy category. We feel that with the potential up trading in the semi-premium and premium segment due to changing lifestyle and aspirations, Radico is poised enough to tap the customers by launching various products under the semi-premium and premium range. The company had launched Magic Moments under vodka category in 2006, Morpheus brandy in 2009 and After Dark Whiskey in 2010. This will help the company to cater to the customers up-trading to the higher range and also to the customers of the regular category.

Broad Consumer Choice with focus on Premium brands (Radico Khaitan)

Source: Radico Khaitan & Nirmal Bang Research

Product Regular <Rs. 150

Upper Regular Rs. 150-300

Semi-Premium Rs. 300-450

Premium Rs. 450-550

Super Premium >Rs. 550

Whiskey Big Hit, Windies, Radico Choice,

Radico Gold Supreme, Special

Appointment

8PM, Old Admiral, Whytehall

After Dark

Rum Big Hit, Windies, Black Cat, Rampur No. 1, Tropicana

White

Contessa, Bermuda, Load

Nelson, Old Admiral,

Bermudda White, Contessa White

Brandy Brihans Grape, Whitefiled, Old Admiral, 8 PM

Excellency

Brihans Gold, Napolean

Morpheus

Vodka Whitefield, Big Hit Special Appointment, Red

Russian

Magic Moments, Magic Moments

Remix

Gin Contessa, Blue Bird, Goa Dry Gin


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Vodka clamor too loud to ignore (shift from brown spirits to white spirits) Radico had launched Magic Moments under the vodka brand in 2006 and since then the brand is growing 35%+ and achieved a status of millionaire brand. The brand contributes 12% to the total IMFL sales and is one of the fastest growing brands in Radico’s portfolio. The Indian vodka market across all categories is nearly seven million cases per annum. Backed by a favorable demographics and socio-cultural trends, vodka category in India had been growing at the rate of 28% YOY – one of the fastest amongst any spirits category. India’s white spirits consumption as a part of total alcohol consumption is very low compared to global consumption. White spirits stand at 48% of the global spirits market; in India, they form only 5% of total spirits in volume terms.

Source: Industry & Nirmal Bang Research As against 12-13% growth in overall IMFL market, Vodka is growing at a rate of 25-30%, according to IWSR (international Wine & Spirit Research) study. This offers a tremendous opportunity and growth potential for premium brands of vodka. According to IWSR study, India is likely to overtake both Germany and the UK to become one of the top five markets for vodka worldwide by 2015 and Russia by 2013. Not only foreign players, even the traditional spirits companies, whose portfolio had nothing but whisky earlier, have woken up to this reality. Precisely why the flavored vodka segment is the next big thing for vodka makers. Though a late entrant to the Indian market, they are all set to provide momentum in the next round of growth along with Ready to Drink vodka which will provide another growth vertical. We feel that In the vodka category, there will continue to be a meteoric growth - on account of a smaller base as well as the changing tastes of the Indian youth, who is more receptive to different types of alcoholic beverages. With innovative packaging and marketing, coupled with the fact that there are inbuilt product benefits greatest of them being mix ability and hence can be used in a variety of cocktails, Vodka is appealing to an ever wider audience (across men and women). We feel that, Radico has developed its Magic Moments brand amongst the consumer and as the white spirits base is small (comprising only 5% of the total spirit), a small growth will act as an advantage to the company. To further up-ante the product portfolio, Radico has launched flavored vodka named “Remix” under the brand name Magic Moments, an already established vodka brand. This provides an added advantage to Radico as it has increased the product base available for every genre. We feel this will further boost the premiumization efforts for the company and will aid margins going forward.

0%

20%

40%

60%

80%

100%

120%

Global India

25%

59% 15%

20%

13%

16% 48%

5%

Composition of Spirits: Global vs India (Volumes)

Whiskey Rum Brandy Whites


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Change in demographic profile in India is driving demand Indians’ changing consumption patterns and choice of alcoholic beverages is fueling the growth of the market Driven by increasing disposable income levels and growing social acceptance of alcohol consumption, the alcoholic beverages market in India is estimated to cross the $39 billion (over Rs 1,75,950 crore) mark by 2014, as per research firm Datamonitor. According to a study by the firm, the sector grew at a compound annual growth rate of 12 per cent between 2004 and 2009, with the industry turnover touching $21.7 billion (over Rs 97,910 crore) in 2009.

Lowest per capita consumption The per capita consumption (PCC) in India for alcoholic beverages remains low at 0.9 litres, providing a huge growth opportunity in the long term as compared to other countries. Given the large population base in India in the age group of 15-59 years (60% of population), a small increase in PCC is likely to enhance Industry size.


Rising income levels and urbanization Increase in income levels and expansion in the middle class population would lead to increase in the number of consuming class. This coupled with the rising urbanization is expected to lead to change in lifestyles and higher growth for alcoholic beverages.

0

1

2

3

4

5

6

7

8

9

10

Russia Brazil Thailand USA UK India World

9.5

8.5

5 4.7 4.5

0.9

4.6

Per Capita Consumption (litres per annum)


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22


Increase in working population, improving affordability Higher number of people in the working population and lower dependency would also aid growth in alcoholic beverages. The growth in working population will improve affordability thus driving the growth for alcoholic beverages.

Young population to boost consumption The change in outlook of the youth towards alcohol shall drive the demand for consumption growth of alcoholic beverages. More than 60% of India’s population is in the age-group of 15-64. Nearly 485 million people are in the drinking age. Another 150 million are likely to be added to this target population in the next five years. We believe that following these favorable demographics, demand for alcoholic beverages is set to rise. Source: Radico Khaitan & Nirmal Bang Research

0 20 40 60 80 100 120

2009-10

2001-02

1989-90

Income Distribution (million households)

Low (<$1000) Lower Middle ($1000) Middle High (>$2000)

58

60

62

64

66

68

Y2001 Y2011 Y2021 Y2031 Y2041 Y2051

60.9

64.1

65.7 66.4 66.2

65.4

% of total population in the age group of 15-64


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Social acceptability and western influence Increasing overseas travel and influence of western media in India post liberalization, have led to a perceptible shift in terms of aspirations and lifestyles. Consumption of alcohol by women in public is also increasingly gaining social acceptability in metropolitan cities. This has encouraged manufacturers to launch drinks which are specially targeted at women. These trends would play an important role to boost liquor consumption in India over the next decade.

Shift from Country Liquor (CL) to Indian Made Foreign Liquor (IMFL) An increasing number of consumers are expected to shift from country liquor to IMFL branded products due to heightened awareness of health risks associated with country liquor consumption and increased regulation by state governments on the sales of country liquor. A few southern states in India, including Kerala, Andhra Pradesh, Karnataka and Tamil Nadu, have banned homemade country liquor, which has lead to a consumption growth for IMFL in these states. With increased purchasing power as the economy grows and disposable income rises, consumers are expected to move from low-end country liquor to IMFL.

Source: Tilaknagar Industries & Nirmal Bang Research

Premiumization has been the key growth driver for IMFL industry. Consumers are climbing a ladder from economical to the semi - premium and premium category due to the rise in income levels, changing lifestyles and aspirations. Radico Khaitan is firmly focused on growing its Indian Made Foreign Liquor (IMFL) business, growth in the country liquor and rectified spirits business will moderate over time. We feel that the volume growth remains muted in country liquor in India where geographic expansion is difficult given the increasing government pressures to ban country liquor and the strong dominance of regional players within their area of influence. Radico Khaitan has cautiously increased its contribution from IMFL to 75.5% in FY11 from the earlier 70% in FY09. In our view, this will boost the revenue growth for the company going forward.

0%

10%

20%

30%

40%

50%

60%

70%

FY04 FY05 FY06 FY07 FY08 FY09 FY10

68% 66% 60% 61%

57% 53% 51%

32% 34% 40% 39%

43% 47% 49%

Increase in IMFL share of spirits in India (%)

Country Liquor IMFL


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22


Operating environment turning in favor of incumbents The industry is still characterized by strong entry barriers like ban on advertising, duty on inter-state movement of products, licensing and very high taxes. This works to the advantage of existing players. In the recent years, several states have moved away from the practice of auctioning distribution rights to state-controlled distribution or to a free market. This has reduced prices by 20-25% and improved product availability significantly, thus boosting demand as also the profit margins of existing players.

High entry barriers; steady growth for established players There are stiff entry barriers that make it difficult for new players to enter the alcoholic beverages market in India. We enumerate some of these below. Strong brands: The alcoholic beverages industry is characterized by presence of strong brands and

strong consumer affinity with these. Strong consumer affinity results in very high degree of repeat purchase.

Ban on direct advertising: Media advertising of alcoholic beverages is banned in India. This has

thwarted the attempts of many global majors to make a strong entry. Established players undertake surrogate advertising and sponsorships of various sports events to create brand awareness.

Licensing: A license is required to set up a new manufacturing unit. While one can readily expand

existing units, getting a fresh license is cumbersome. Also, for a meaningful presence, a new entrant would require multiple licenses - there are restrictions and duties on inter-state movement of alcoholic beverages.

125 133 158

190 214

233 254

0

0.05

0.1

0.15

0.2

0.25

0

50

100

150

200

250

300

FY05 FY06 FY07 FY08 FY09 FY10 FY11

IMFL Volumes are growing at a CAGR of 13% in India

Volume (mn cases) Growth (%)


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

High taxes: Liquor taxes are among the top revenue generators for various state governments. Taxes

and duties constitute up-to 60% of the final consumer price. In addition to excise duties imposed by various states, there are also high taxes on inter-state movement of liquor. States impose several types of taxes on liquor in India.

High import duties: Liquor is subject to 100% import duty and 150% countervailing duty. The total incidence of taxes on imported liquor increases significantly due to presence of numerous state level taxes.

Logistics and distribution, a nightmare: There are high taxes on inter-state movement of alcoholic

beverages. To gain a nation-wide presence, manufacturers have to establish or contract small bottling units in various states, thus creating inefficiencies in manufacturing.

Operating in India is akin to operating in 29 different countries. Besides, in several states, distribution rights are auctioned and manufacturers have no choice but to deal with the successful bidders. This brings down their bargaining power considerably.

Stringent Requirements for Sales to the CSD (Canteen Stores Department): The CSD serves the requirements for alcoholic products of the defense forces in India and is a significant source of consumption of spirits products in India. Sales of spirits products to the CSD is subject to the satisfaction of stringent qualification and registration requirements due to the fact that the spirits are supplied to the defense forces and are consumed in large quantities by the troops. Once a brand is registered with the CSD, the registration of such brand continues to remain valid unless the product‘s sales and sales volume account for less than 2% of the total sales or sales volume in the CSD segment.

Distribution Mechanism

Types of Distribution Systems Implementation in States

Open Market Maharashtra, West Bengal, J&K, Goa, Assam, Meghalaya, Tripura, Andhra Pradesh

Auction Market UP, Rajasthan, MP, Bihar, Punjab, Chandigarh, Haryana

Government Controlled Tamil Nadu, Delhi, Kerala, Andhra Pradesh

Prohibition States Gujarat, Manipur, Mizoram, Nagaland Source: Tilaknagar Industries & Nirmal Bang Research

Due to the above entry barriers, only a few foreign liquor majors have had success in the Indian market. The MNCs find JV an easy route to increase their presence in Indian market. Radico Khaitan enjoys 8% market share and has strong distribution strength and product portfolio. The company has emerged as a preferred choice amongst the international players and has formed JV with many foreign companies off lately. In 2011, Radico Khaitan has tied up with Japan’s Suntory Liquors Ltd for marketing and distributing two of its super premium brands in India. Radico Khaitan already has a marketing tie-up with California-based Ernest & Julio Gallo and a joint venture with UK-based Diageo Plc to make and sell liquor products in India. Radico Khaitan has also formed joint ventures with local liquor companies in the UK and Africa to get into sales, marketing and distribution in those markets. With the increase in product portfolio in the super premium category, we feel that the company will enjoy the boost in margins in near term.


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Financial Analysis Volume and rich product portfolio to drive sales Radico Khaitan has grown at a CAGR of 22.4% over FY04-06, while witnessing moderation during FY06-09 with a CAGR of 12.5%, owing to a change in focus and certain blending issues with its flagship 8PM brand. However, net sales have grown 20% in FY10, with volumes growing 13.6% during the same period. The net sales grew by 19.3% in FY11 and 15.8% in 9MFY12. We expect net sales to grow at a CAGR of 17.5% and net profit at a CAGR of 18.9% over FY11-13E on continued strong volume growth and improvement in the sales mix.


EBITDA margins to remain flat in FY12E and up by 70bps in FY13E on account of premiumization and rich product mix We believe that the margins will remain flat to 15% in FY12E and will expand by 70bps to 15.7% in FY13E from FY11 on account of increasing premiumization plus the function of price hike and rich mix of product portfolio. We expect the EBIDTA to increase by 16.8% to Rs. 174 crores and by 24% to Rs. 215.7 crores for FY12E and FY13E respectively.

-13%

20% 19% 16% 19%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1000

1200

1400

1600

FY09 FY10 FY11 FY12E FY13E

Rs.

in c

rs

Net Sales & Growth %

Net Sales Growth


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22


Return ratios to improve

The increasing profitability and reduction in debt to improve the return ratios going forward. We expect ROCE to improve from 6.2% in FY09 to 14.1% in FY13E and ROE from 2.8% in FY09 to 13.5% in FY13E.


6.6%

15.6% 15.0% 15.0% 15.7%

0.9%

5.0%

7.3% 6.8% 7.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

0.0

50.0

100.0

150.0

200.0

250.0


EBITDA, PAT & Margins

EBITDA PAT EBIDTA% PAT%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%


Return ratios expected to improve

ROCE ROE


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Peer Comparison We expect Indian IMFL players such as United Spirits and Radico Khaitan to trade at a premium to international spirits players, owing to a host of factors including strong entry barriers, favorable Indian demographics, and the strong growth opportunity in the Indian market. We expect a re-rating in Radico as the company will be able to improve its return ratio by focusing on higher end of the market. Though, we still believe that USL remain strong in operations compared to Radico due to its size, however, financial problem in group will continue to keep the investor away from the stock. This is likely to benefit Radico, since this is the third largest company in the space after USL and UBL (United Breweries Ltd). Source: Bloomberg Estimates & Nirmal Bang Research

One Year Forward PE Band


0

50

100

150

200

250

300

Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

PE Band

Price PER-15 PER-19 PER-23 PER-27 PER-31

Company Currency

Domestic FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

Radico Khaitan INR (crs) 1159 1376 174 216 15.0% 15.7% 79 103 6.8% 7.5% 11.2 9.2 1.1 0.9 20.6 15.8 11.5% 13.5%

United Spirits INR (crs) 8788 10147 1301 1537 14.8% 15.1% 440 558 5.0% 5.5% 10.5 8.9 1.6 1.3 19.6 15.4 8.6% 10.0%

United Brewries INR (crs) 3724 4607 405 575 10.9% 12.5% 185 253 5.0% 5.5% 37.1 26.1 4.0 3.3 76.6 56.5 14.1% 15.8%

International players (June ending)

Pernod Ricard SA Euro (mn) 8145.9 8695 2262 2445 27.8% 28.1% 1220.9 1366.6 15.0% 15.7% 13.9 12.8 3.8 3.6 17.9 16.0 12.2% 12.6%

Diageo USD (mn) 17051 18057 5676 6115 33.3% 33.9% 3766 4133 22.1% 22.9% 8.5 7.9 2.8 2.7 16.7 15.1 40.9% 35%

EV/Sales (x)EV/EBITDA (x) PE(x) ROESales EBITDA EBITDA% PAT PAT%


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Valuation & Recommendation The revival in the Indian economy, underlying strong latent demand and premiumization will continue to drive strong volume growth for the Indian spirits industry. Radico Khaitan, being the second largest domestic spirits player, is well geared up now to reap the benefits of surging IMFL consumption. At the CMP of Rs. 122, the stock is trading at a PE of 20.6x FY12E and 15.8x FY13E and on an EV/EBITDA basis, it is trading at 11.2x FY12E and at 9.2x FY13E. We believe that improving fundamentals and the scalability of the Indian spirits industry holds potential for the company.

We initiate coverage on Radico Khaitan with a “Buy” rating based on a 12-month price target of Rs. 155 per share, implying a 12x EV/EBITDA multiple for FY13E.

Risks & Concerns Inflation in input prices: Lower-than-anticipated sugarcane production and/or any sharp rise in

prices of molasses or ENA will have an impact on the company’s gross margin and our earnings. We also feel that, inflation in glass prices and significant increase in packing costs will impact our estimates.

Failure of new brand launches: Radico has launched After Dark Whiskey and Morpheus luxury brands. Radico has invested heavily on these brands and any failure will lead to lower profitability and our estimates.

Weak volume growth by 8PM will drag down the estimates: Post the product revamp and

packaging, 8PM has revived and is the highest selling brand contributing 20% to the total volume. Any decline in the volume lead by 8PM will dampen our projection.

Regulatory risk: Liquor in India being subject to state laws where it involves high degree of government regulation. The company fails to take any price hike despite of any increase in taxes, change in distribution structure or prohibition of liquor in any of the state will hurt Radico’s financials and our estimates.

Easing of entry barriers: In India, alcohol market commands a huge entry barrier leading to the global players not making any significant presence. If the government reduces the barriers, this will lead to the entry of global players resulting into the increased competition and hurting established players like Radico Khaitan.


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Business Description

Radico Khaitan is one of India's oldest and largest liquor manufacturers. Formerly known as Rampur Distillery which was established in 1943. Radico Khaitan Ltd today has four millionaire brands in its portfolio. The millionaire brands are 8PM, Magic Moments Vodka, Contessa Rum and Old Admiral Brandy.

In FY11, it sold 16.1mn cases of IMFL. IMFL accounts for 75% of its turnover.

Business segments Radico has two main business segments:

Indian made foreign liquor (IMFL): This is Radico’s branded business which accounts for ~75% of its sales. The company has been strongly focused on growing this business segment given the better margins and strong growth potential led by rising consumer demand. Country liquor & Rectified Spirits: This has been Radico’s traditional business spread, mainly in the North Indian states of Uttar Pradesh, Punjab and Haryana. It has clear market leadership in this business in its states of operation. This is not a focus area for Radico and over time contribution from this business is expected to come down. This accounts for ~25% of the business.

Brands and Market Positioning Radico’s brands are positioned primarily in the economy segment. Its flagship brand – 8PM whisky – sold 4.03mn cases in FY11. Its other key brands are Contessa rum (2.41m cases), the largest selling rum brand in the large defense services segment, Magic Moments Vodka (1.89mn cases) and Old Admiral brandy (3mn cases). The company’s presence in the semi-premium category is small but growing. It currently has two brands here; Whytehall whisky and Magic Moments vodka. These are the fastest-growing brands in the company’s portfolio; particularly, Magic Moments which is priced at a premium to United Spirits’ vodka brands. Radico also has a large number of regional brands in the discount segment. Collectively, they accounted for 28% of volume in FY11.

Distribution Strength The company traditionally has been very strong in North and East of India. However, South India, which is the key market with a 65% market share, has been a relatively weaker area. Radico has worked on this over a period of time and has now managed to cover 95% of the retail outlets in India. Radico has entered into tie-ups with local distilleries in Tamil Nadu market (10-12% of Indian market size), which will enable it to directly market its products in the state. While 95% coverage of retail outlets is commendable, Radico in our view might still have to cover some ground in terms being one of the preferred suppliers of IMFL, especially in South India. This should be achievable as the firm moves up the value ladder through new brands and improves its customer-pull factor. Also, the success in brandy (Old Admiral and Morpheus) should help improve its clout as South Indian markets are currently witnessing strong growth in brandy.


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Manufacturing Capacity Radico has a distillery capacity of 102mn liters p.a. in Rampur, Uttar Pradesh (UP). Molasses-based capacity is 75mn liters and the balance is grain-based. The company has set up distillery in UP; India’s prime sugar-producing region, is beneficial from the perspective of proximity to key input – molasses, a by-product of sugar. The company has also set up a distillery in Aurangabad, Maharashtra in 2008. This facility has 48mn liters of which 36mn liters is Molasses based and rest is Grain based. This distillery helped it save on the freight cost for sales to the key southern markets. In addition, the company has five own-bottling units and 28 contract-bottling units, which give it a wide distribution network.

History Radico was set up in 1943 as Rampur Distillery, and for more than five decades it was a bulk-spirits manufacturer. The turning point for the company was 1999, when it launched its first whisky brand, 8PM which has sold one million cases in the first year of its launch. This was a very successful launch and many more brands followed. As a result, over FY1999-2011, Radico’s IMFL volumes catapulted to 16.1mn cases, making it one of the fastest-growing liquor companies in the world.

Ownership and Management The promoters – Khaitan family – hold 39.9% of the equity in the company with the balance held by domestic institutions, FIIs and the public. The company is led by Mr. Lalit Khaitan, the Chairman and Managing Director who has over 45 years of experience in the liquor industry. His son, Mr. Abhishek Khaitan, the Managing Director, joined the company in 1997.


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Financials

Profitability (Rs. In Cr) FY10 FY11 FY12E FY13E Financial Health (Rs. In Cr) FY10 FY11 FY12E FY13E

Y/E - March Share Capital 26.4 26.5 26.5 26.5

Revenues - Net 835.6 996.5 1159.1 1376.0 ESOP 2.6 0.9 0.9 0.9

% change 20.0% 19.3% 16.3% 18.7% Reserves & Surplus 566.2 624.0 692.1 783.1

EBITDA 130.2 149.0 174.0 215.7 Net Worth 595.2 651.4 719.5 810.5

% change 185.4% 14.5% 16.8% 24.0% Total Loans 446.1 491.2 671.2 646.2

Interest 61.7 33.5 54.0 59.3 Net Deferred Tax Assets 45.1 49.8 49.8 49.8

Other Income 7.10 11.12 18.00 18.00 Total Liabilities 1086.5 1192.3 1440.4 1506.4

EBDT 75.5 126.6 138.0 174.5 Net Fixed Assets 413.9 418.9 505.2 516.8

Depreciation 25.6 27.1 30.2 33.5 Investments 89.4 70.9 70.9 70.9

Extraordinary/Exceptional 0.0 0.0 0.0 0.0 CWIP 53.0 71.5 0.0 0.0

PBT 49.9 99.5 107.8 141.0

Foreign Currency Monetary items

translation difference account -1.3 0.0 0.0 0.0

Tax 8.4 26.7 29.1 38.1 Inventories 123.0 127.5 167.1 185.2

PAT 41.5 72.8 78.7 102.9 Sundry Debtors 235.6 319.1 390.0 443.1

Shares o/s ( No. in Cr.)* 13.2 13.3 13.3 13.3 Cash & Bank 33.2 9.4 69.7 47.8

EPS 3.2 5.5 5.9 7.8 Loans & Advances 285.1 350.3 426.0 477.5

Adj EPS* 3.2 5.5 5.9 7.8 C A L&A 677.0 806.3 1052.8 1153.7

Cash EPS 4.1 7.5 8.2 10.3 CL & P 145.5 175.2 188.5 234.9

DPS (Rs.) 0.5 0.7 0.8 0.9 Working Capital 531.5 631.1 864.3 918.8

Quarterly (Rs. In Cr) Mar.11 Jun.11 Sep.11 Dec.11 Total Assets 1086.5 1192.3 1440.4 1506.4

Revenue including OI 257.4 312.9 272.0 318.5 Cash Flow (Rs. In Cr) FY10 FY11 FY12E FY13E

EBITDA 36.5 42.8 37.8 44.9 Operating

Interest 10.4 10.9 13.1 15.3 Profit Before Tax 49.9 99.5 107.8 141.0

EBDT 26.0 31.9 24.8 29.6 Direct Taxes paid 0.0 0.0 0.0 0.0

Dep 6.5 7.3 7.5 7.8 Depreciation 25.6 27.1 30.2 33.5

Other Inc. 5.5 3.1 5.3 8.5 Change in WC -88.1 -100.7 -172.9 -76.3

Extraordinary 0.0 0.0 0.0 0.0 Interest Expenses 61.5 27.6 54.0 59.3

PBT 25.1 27.7 22.6 30.4 Other Operating Activities 0.5 -14.1 -29.1 -38.1

Tax 7.7 7.0 7.8 6.7 CF from Operation 49.4 39.4 -10.0 119.4

PAT from ordinary activities 17.4 20.7 14.8 23.7 Investment

Exceptional Items 0.0 0.0 -3.5 2.4 Capex -28.3 -62.7 -45.0 -45.0

PAT 17.4 20.7 18.3 21.2 Other Investment -46.7 -9.9 0.0 0.0

EPS (Rs.) 1.3 1.6 1.1 1.8 Total Investment -75.0 -72.6 -45.0 -45.0

Adjusted EPS (Rs.) 1.3 1.6 1.4 1.6 Free Cash Flow -25.6 -33.2 -55.1 74.4

Operational Ratio FY10 FY11 FY12E FY13E Financing

EBITDA margin (%) 15.6% 15.0% 15.0% 15.7% Equity raised/(repaid) 333.0 6.0 0.0 0.0

Adj.PAT margin (%) 5.0% 7.3% 6.8% 7.5% Inc/Dec in Reserves 0.0 0.0 0.0 0.0

Adj.PAT Growth (%) 538.5% 75.3% 8.1% 30.8% Proceeds from Issue of Shares 0.0 0.0 0.0 0.0

Price Earnings (x) 38.8 22.3 20.6 15.8 Debt raised/(repaid) -254.2 45.0 180.0 -25.0

Book Value (Rs.) 45.2 49.1 54.2 61.1 Dividend (incl. tax) paid -3.6 -9.2 -10.6 -11.9

ROCE (%) 11.3% 12.2% 12.8% 14.1% Deferred Revenue Exp. 12.9 1.1 0.0 0.0

RONW (%) 10.0% 11.7% 11.5% 13.5% Interest Expenses -71.3 -33.5 -54.0 -59.3

Debt Equity Ratio 0.7 0.8 0.9 0.8 Cash Flow from Financing Activities 16.8 9.4 115.3 -96.2

Price / Book Value (x) 2.7 2.5 2.3 2.0 Net Cash Flow -8.7 -23.8 60.3 -21.9

EV / Sales 1.3 1.2 1.1 0.9 Beginning Cash Flow 42.0 33.2 9.4 69.7

EV / EBIDTA 14.1 12.7 11.2 9.2 Add: Deposits in Banks 0.0 0.0 0.0 0.0

Add: Foreign Currency in Hand 0.0 0.0 0.0 0.0

Cash as reported in Balance Sheet 33.2 9.4 69.7 47.8


II nnii tt

ii aatt ii

nngg

CCoo

vvee

rr aagg

ee

tt iiaa

tt iinn

gg CC

oovv

eerr aa

ggee

tt iinn

gg CC

oovv

eerr aa

ggee

gg CC

oovv

eerr aa

ggee

CCoo

vvee

rr aagg

ee

vvee

rr aagg

ee

rr aagg

ee

ggee

Radico Khaitan Ltd

IINN

II TT

II AA

TTII NN

GG CC

OOVV

EERR

AAGG

EE ––

1155

MMaa

rrcc

hh 22

0011

22

Disclaimer:

This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities PVT LTD). The information, analysis and

estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This

document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for

general information only. Nirmal Bang Research, its directors, officers or employees shall not in anyway be responsible for the contents stated

herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This

document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affil iates and their employees

may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or

perform investment banking or other services for any company mentioned in this document.

Nirmal Bang Research (Division of Nirmal Bang Securities Pvt. Ltd.)

B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park

Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-400013 Board No. : 91 22 3926 8000/8001

Fax. : 022 3926 8010

Radico Khaitan_IC

Documents

Transcript of Radico Khaitan_IC