Tata MF-Backed Stock Gets Buy Call From Sharekhan For 25% Potential Upside

Radico Khaitan, with a market capitalization of Rs 20,994.10 Cr, is a large-cap firm in the FMCG industry. One of India's oldest and largest manufacturers of Indian Made Foreign Liquor (IMFL) is Radico Khaitan Limited (RKL). Although Radico Khaitan's stock has appreciated 54% year to date, brokerage Sharekhan believes there is still 25% more upside possible, with a target price of Rs. 1,965 above the current market price of Rs. 1570.15.

"Radico Khaitan Ltd's (RKL's) premiumisation strategy is helping it drive consistent double-digit volume-led revenue growth, outpacing the industry for the past few years (except FY2021). Contribution of Prestige & Above (P&A) in terms of sales volume has gone-up to 40%+ in Q2FY2024 from 30% in FY2022. Management is confident of 15-18% growth in P&A brands sales volume in the near term. The company is focusing on rising consumption trend in the white spirit segment (Vodka & Gin), which is growing ahead of the industry," the brokerage said.

"RKL has an over 60% market share in the vodka category while Jaisalmer gin has a 55% market share in the domestic gin category. Recent launch of Happiness Gin and Pink Vodka is gaining strong traction and will incrementally add to P&A volumes in the coming years. The company is confident of achieving EBIDTA margin of ~18% over the next three years from exit margins of 14-15% in FY2024. Debt to fall sharply by FY2026 as cash flows improve," Sharekhan added.

"Premiumisation and the support of backward integration will drive consistent strong double-digit earnings growth in the coming years. We like the company's focus on launching new products in the brown and white spirits, targeting the premium/ luxury segment to consistently gain share in key markets and outpace the industry. Margins have bottomed-out and we should expect consistent improvement in profitability and cash flows in the coming years. The stock trades at 49x/40x its FY2025E/26E EPS. We maintain a Buy rating with a revised price target of Rs. 1,965 (rolling over to Sept-25 earnings)," the research analysts of Sharekhan added.

"Slow expansion in the EBIDTA margins due to change in liquor policies in key states/sustained increase in excise rate on liquor or volatile increase in the raw material prices would act as a key risk to our earnings growth in the near to medium term," the brokerage stated in a note.

During Q2FY24, the company recorded promoters' shareholding of 40.26%, FIIs stake of 18.18%, DIIs stake of 23.92%, and public stake of 17.63%. As per the shareholding pattern of Radico Khaitan for the July to September 2023 quarter, Tata Small Cap Fund held 49,96,566 shares or 3.74% stake, Nippon India Growth Fund held 41,56,171 shares or 3.11%, HDFC Capital Builder Value Fund Growth held 17,48,313 shares or 1.31% stake, and DSP Equity & Bond Fund held 20,07,136 shares or 1.50% stake in the company.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.