Sharekhan has issued a BUY recommendation for Radico Khaitan Ltd. (RKL) with a revised target price of ₹2,489, reflecting a strong growth outlook in the Indian Made Foreign Liquor (IMFL) industry. The company’s stellar performance in FY2024, driven by premiumisation, operational efficiency, and expansion in luxury brands, solidifies its position as a leader in the alcoholic beverages market. Below is a detailed analysis of RKL’s growth prospects, financial performance, and investment potential.

Impressive Financial Performance in FY2024

Radico Khaitan posted strong growth in revenue and profit, with a notable increase in premium product sales.
In FY2024, net revenues surged by 31% year-on-year (YoY) to ₹4,119 crore, driven by the company's Prestige & Above (P&A) segment, which grew by 29% in revenue. This was coupled with a volume growth of 20.6%. The luxury portfolio, including brands like Rampur Indian Single Malt and Jaisalmer Indian Craft Gin, grew by 61%, while the semi-luxury and super-premium categories also showed robust growth at 52% and 12%, respectively.

Premiumisation as a Key Growth Driver

The company’s focus on premiumisation has significantly boosted its market presence and financial performance.
RKL’s strategy to focus on its premium and luxury portfolio is yielding significant results, with the Prestige & Above category now contributing 46% of IMFL sales volume and 69% of sales value. Premium brands like Royal Ranthambore Whisky and Magic Moments Vodka have consistently outperformed, with Magic Moments Vodka achieving a sales milestone of 6.3 million cases and crossing ₹1,000 crore in sales value.

Operational Efficiency and Backward Integration

The company’s focus on backward integration and cost management has enhanced profitability despite rising input costs.
Radico Khaitan’s commissioning of its Sitapur distillery secures long-term supplies of Extra Neutral Alcohol (ENA), a critical raw material for IMFL production. This move is expected to support the company’s growth for the next six to seven years. Additionally, despite the volatility in grain and glass prices, the company improved its gross margin by 70 basis points to 42.5% in FY2024, aided by a better product mix and price increases.

Debt Reduction and Financial Health

RKL’s commitment to reducing debt is expected to significantly improve its financial health by FY2026.
With a total debt of ₹737 crore at the end of FY2024, the company’s debt-to-equity ratio remains comfortable at 0.3x. The management plans to make RKL debt-free by FY2026, supported by strong cash flow generation. This will enable the company to improve its return ratios, with RoE and RoCE projected to rise to 17.2% and 22.3%, respectively, by FY2027.

Expansion in Global Markets

Radico Khaitan continues to gain international recognition for its premium brands.
The company’s luxury portfolio, particularly its Rampur Indian Single Malt and Jaisalmer Indian Craft Gin, is gaining significant traction in global markets such as the U.S., U.K., Europe, and Southeast Asia. RKL recently expanded its international footprint with new product launches, including the Kohinoor Reserve Indian Dark Rum and the Jugalbandi series of whiskies.

Target Price and Valuation

Sharekhan has set a target price of ₹2,489, implying significant upside potential for long-term investors.
With a projected compound annual growth rate (CAGR) of 18% in revenue and 38% in PAT over FY2024-27, RKL is positioned for strong double-digit growth. The stock currently trades at 53x FY2026E and 42x FY2027E earnings, making it an attractive buy given the company's long-term prospects in both domestic and international markets.

Key Risks

Radico Khaitan’s growth is not without risks, particularly from regulatory changes and input cost volatility.
The Indian alcoholic beverages industry is highly regulated, with state-specific rules governing liquor production and sales. Any adverse changes in liquor policies or a sustained increase in raw material prices could impact the company’s margins and profitability.

In conclusion, Radico Khaitan Ltd. offers a compelling investment opportunity with its focus on premiumisation, operational efficiency, and strategic expansion. The company’s robust financial performance and future growth prospects, supported by its backward integration and international recognition, make it a strong buy for investors looking for long-term value creation.