Date: March 05, 2019 - HDFC securities PCG... · 19.03.2005 · Company Profile: Earlier known as Rampur Distillery, Radico Khaitan commenced its operations in 1943. Over the years

Date: March 05, 2019

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Equity Research

Pick of the Week – PCG Research

Strong Brand Equity in the liquor space

Deleveraging to ensure further boost in profitability

Premiumisation would drive growth momentum

Radico Khaitan

INDUSTRY

CMP

RECOMMEND edeedede

ed

ADD ON DIPS TO

SEQUENTIAL TARGETS

TIME HORIZON ed

Consumer

Rs 382

Buy at CMP and add on declines

Rs 348 - 382

Rs 433 - 485 Rs 302

4-6 quarters

Key Highlights

IMFL Segment – the key growth driver

Estimate 10% revenue and 28% EPS CAGR over FY18-21E

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HDFC Scrip Code RADKHAEQNR

BSE Code 532538

NSE Code RADICO

Bloomberg RDCK IN

CMP Mar 01, 2019 382

Equity Capital (cr) 26.6

Face Value (Rs) 2

Eq- Share O/S (cr) 13.3

Market Cap (Rs cr) 5095

Book Value (Rs) 99

Avg.52 Wk Volume 792311

52 Week High 500

52 Week Low 298

Red Flag Level 302

PCG Risk Rating * Yellow

Shareholding Pattern % (Dec 31, 2018)

Promoters 40.4

Institutions 28.7

Non Institutions 30.9

Total 100

FUNDAMENTAL ANALYST

Kushal Rughani [email protected]

Company Profile: Earlier known as Rampur Distillery, Radico Khaitan commenced its operations in 1943. Over the years it has emerged as a major bulk in spirits supplier and bottler to other spirit manufacturers. Driven by the vision of the promoters, in 1998 the Company started its own brand line with the launch of 8PM Whisky. Radico Khaitan is one of the few companies in India to have developed its entire brand portfolio with in house capabilities. The Company’s brand portfolio across the Indian-made Foreign Liquor (IMFL) categories of Whisky, Brandy, Rum and White Spirits includes After Dark Whisky, Contessa Rum, Jaisalmer - Indian Craft Gin, Magic Moments Vodka, Magic Moments Verve Vodka, Morpheus Brandy, Old Admiral Brandy, Pluton Bay Rum, Rampur Indian Single Malt Whisky, Regal Talon Whisky, 1965 – The Spirit of Victory Rum and 8PM Whisky. Radico has evolved from a distillery player to branded IMFL player in India with presence across products categories. Radico has a strong distribution network; ~75,000 retail outlets and ~8,000 on premise outlets.

Investment Rationale Radico is an attractive player in the IMFL space with ~20mn cases sales (6.5-7% market share). Our optimism on Radico is premised on (1) Its strong presence in fast growing and niche segment of Vodka (~50% share) and super premium Brandy. Prestige and Above (P&A) constitutes ~20% of its total revenue but 50% of its EBITDA, leaving significant headroom for Radico to premiumise, (2) Canteen Stores Department (CSD) sales at ~17% in the IMFL revenue, with high entry barriers. (3) Captive ENA manufacturing in the largest sugar producing state of UP that provides raw material tailwinds, and (4) Balance sheet deleveraging. The company is increasing its focus on premiumization with its volume share of prestige and above segment in IMFL business, which increased from 10% in FY10 to 28% in FY19E. The company is on track to grow this further which has already given a positive impact on its EBITDA margins. We believe this will continue in the coming years and most of the negatives in the industry such as highway ban, prohibition, GST, etc. are already factored in therefore expect growth to come back as visible in 9M FY19.

View and Valuation: We expect revenue to post 10.5% CAGR led by continuous robust growth momentum from its premium & above segment. As revenues from P&A grows faster, we believe margin would expand further. In 9M FY19, the company has already posted 250 bps surge to 17.6%. Strong sales coupled with operating margin expansion and lower finance costs would ensure robust earnings, a CAGR of 28.5% over FY18-21E. Company had ~Rs 800cr debt including long term debt of Rs 240cr in FY16. Now, company has zero long term debt as on 9M FY19; as on Dec-18, short term debt stood at Rs 290cr. The company does not expect any major capex in next 2-3 years as it has enough capacity to meet its growth. The stock trades at FY21E PE of ~18x and is available at a steep discount to its peer United Spirits (USL). USL is trading at FY21E PE of 36x, EV/EBITDA of 23x (vs. 13x of Radico), P/BV of ~8x (vs. 1.9x of Radico) and EV/Sales of 4x (vs. 2.5x of Radico). Currently, Radico is trading at a significant discount on all parameters, despite the fact that Radico has a good brand recall and grown very well in the past several quarters. We recommend Buy on Radico Khaitan with target price of Rs 433 and Rs 485 over the next 4 quarters.

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Key Highlights

Radico Khaitan is one of the few companies

in India to have developed its entire brand portfolio with in house capabilities.

The Company’s brand portfolio across the

IMFL categories of Whisky, Brandy, Rum and White Spirits includes After Dark Whisky, Contessa Rum, Jaisalmer - Indian Craft Gin, Magic Moments Vodka, Magic Moments Verve Vodka, Morpheus Brandy, Old Admiral Brandy, Pluton Bay Rum, Rampur Indian Single Malt Whisky, Regal Talon Whisky, 1965 – The Spirit of Victory Rum and 8PM Whisky.

Radico has a strong distribution network;

~75,000 retail outlets and ~8,000 on premise outlets. Radico Khaitan is one of the few companies in India to have developed its entire brand portfolio organically.

Radico Khaitan's Magic Moments Vodka has

a market leading share of over 50% across the vodka industry in India. The Company's Morpheus Brandy leads the super-premium segment with over 60% market share.

Company had ~Rs 800cr debt including long

term debt of Rs 240cr with ~8.5% as average cost of long term debt in FY16.

Company has now zero long term debt as on

9M FY19; as on Dec-18, short term debt stood at Rs 290cr. The company does not expect any major capex in next 2 years as it has enough capacity to meet its growth.

Investment Rationale

Radico Khaitan is one of the few companies in India to have developed its entire brand portfolio organically. This is a true testament to the Company's R&D strength and understanding of customer preferences. The Company launched ten new brands over the past decade. Of these new brands, nine brands are in the premium category. Over the years, Radico has been able to successfully expand its premium brand portfolio. The Company has launched ten new brands over the last decade of which nine are in the premium category. Radico Khaitan is also one of the largest providers of branded IMFL to the CSD, which has significant business barriers to entry. The company has been successfully building its brand equity in international markets and currently exports its products to over 70 countries. The company is increasing its focus on premiumization with its volume share of prestige and above segment in IMFL business, which increased from 10% in FY10 to 28% in FY19E. The company is on track to grow this further which has already given a positive impact on its EBITDA margins and we believe this will continue in the coming years. The company is focused on growing organically by leveraging its marketing and distribution strength without any major capex. The improvement in margins, rationalization in sales mix and surplus capacity for growth would positively impact its future cash flows and help in achieving its long term vision of zero long-term debt. We believe that most of the negatives in the industry such as highway ban, prohibition, GST, etc. are already factored in therefore expect growth to come back as visible in 9M FY19. Radico Khaitan's Magic Moments Vodka has a market leading share of ~50% across the vodka industry in India. The Company's Morpheus Brandy leads the super-premium segment with 60% market share. Radico Khaitan continues to selectively launch new products, each with their own niche market positioning. The company launched Jaisalmer Indian Craft Gin, a product in the luxury segment which is a testament to innovation and product development capabilities. This brand is positioned in the fast-growing white spirits segment, globally and capitalizes on the years of company’s leadership experience with Magic Moments vodka.

High entry barrier liquor sector IMFL consumption in India is expected to post a CAGR of 8.4% in value terms and 4.7% in volume terms in 2017-21. The consumption is driven by the increase in urbanization, high young population, low per capita consumption, shift from country liquor to IMFL, etc. India is highly regulated in spirits market with alcohol being the state subject and is regulated by each states in terms of sales, distribution and pricing. The regulated nature of the market also acts as high entry barrier for new players and is positive for established players like Radico.

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India is highly regulated in spirits market with Alcohol being the state subject and is regulated by each states in terms of sales, distribution, and pricing. There are restrictions in terms of advertising and expanding retail footholds. Besides this, alcohol as a product also attracts very high duty in India and price hikes in most of the markets which is governed by respective state governments. Hence, this kind of regulated nature of market also acts as a high entry barrier for new players in terms of penetrating presence and promoting brands. This is positive for players who have already established their brands and network in the business. News brands in premium category to drive growth momentum Radico has launched several new brands in semi and super premium category in the past two years. It will continue to launch more brands in the future to fill the gap in each segment. These include, Magic Moment Electra ready to drink, Pluton Bay rum, Rampur Indian Single Malt whisky, Regal Talton whisky, etc. The company aims to achieve decent volume in these new launches in the near future. This would strengthen its revenue share of prestige and above segment. While the sector continues to be under regulatory ambit of the Government, the demand prospects seem very exciting as India has a booming young population. We have positive outlook on the liquor consumption space as the per capita consumption in India is far lower compared to western countries, thus providing huge growth opportunities. The company has not laid out any major capital expenditure plan to cater to the rising demand in the sector, but it will have a yearly capex of about Rs 40-50 crore in the next two to three years. Radico Khaitan launched three premium brands—8PM Black Whisky, Morpheus Black Brandy and Jaisalmer Indian Craft Gin—in the first six months of this financial year. This led to a double-digit growth in volume for the fourth straight quarter. With the launch of new brands, the contribution of premium products to the company’s overall revenue rose 200 bps to ~28 percent in the 9M FY19 against 26 percent in FY18.

White spirits to gain share in longer run Within liquor segment, Brown spirits which includes whisky (60%), brandy (23%) and rum (14%) comprises the largest segment with 97% volume market share. India is the largest whisky market in the world, selling almost 175-180 million cases. While white spirits have witnessed higher growth in recent times. Within the White Spirits category, vodka continues to demonstrate growth with sales for the year at 70 million litres. Vodka is positioned as a drink for women and the younger generation, which has led to strong volume growth. Radico has a strong presence in Vodka with its brand - Magic Moment being the largest selling in its category. With 50% market share, Magic Moment would hence benefit from any change in trend in the longer run. The company has increased its focus on prestige & above category from FY07 onward. The successful launch of brand ‘Magic Moment’ in vodka category has helped establish its footholds in the prestige segment. Magic Moments Vodka (launched in 2005) in semi premium category crossed 1 mn cases mark in 2010 and is presently the market leader in its category. Further, it also launched Magic Moments Remix Vodka, an extension of Magic Moments vodka into flavored category. Furthering this strategy, Radico has launched many brands in the segment like Morpheus brandy, Verve vodka, etc. As a result, the volume share of prestige brands of its total IMFL volume has increased from 10% in FY10 to 28% in 9M FY19. The growth in the premium segment is expected to be higher than regular in the coming years based on its focus on the segment and launches in the segment. The company has a vision to grow the prestige and above segment at high single digit in volume terms.

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Industry outlook India has the largest millennial population globally in absolute terms. People in the age bracket of 18-35 years account for 440 million individuals or about 34% of India’s population. This young population is well educated, increasingly informed and is the key wage earner accounting for over two-thirds of total household income. With this background, the population group has significant purchasing power along with disposable income and plays a key role in driving consumer sector growth in India. Furthermore, increased Government spending and relatively better rainfall have driven rural consumption growth in India over the past couple of years. Rural markets account for half of India’s GDP. With increased affordability, higher awareness and better accessibility these markets now represent increased potential for the consumer sector demand. Technology plays a pivotal role as a key enabler across the entire consumer value chain (from supply chain to delivery of the final products at the customer’s doorstep) IMFL volume is expected to reach 339 million cases in CY2022. During the CY2018-2022 period IMFL sales volume is expected to grow at CAGR of 2.6%. During the same period IMFL industry value is expected to grow by 5.8% making a case for the ongoing premiumization trend. The vodka industry is expected to perform much better during the same period with volume growth of 4.2% and value growth of 9.7%. The continued advancement of the economy, increasing disposable income particularly of the younger Indian, the rise of the middle class and rapid rural consumption growth will all drive the future of the spirits industry. Moreover, the industry is expected to be centered on premium brands. Consumer needs and preferences are evolving and they are now more focused on quality, convenience, value proposition and personalization to suit their styles and values. Social media has taken the center stage and has become the core marketing channel for customer engagement.

India has a young demographic profile with median age of 28 years and around 67% of the population is within the legal drinking age. These two indicators represent significant growth opportunities for the industry. The youth segment is expected to redefine consumption growth, given their access and exposure to mobiles and the internet. This consumer group is more focused on the customer experience offered by a product, particularly its brand and design. They are not only increasing in number but will also become more affluent with time. As a group, they are high priority target market for the leading spirits manufacturers, who are particularly focused on effective online marketing strategies and lifestyle-oriented communication. With rising aspiration levels and increasing disposable income, consumers are upgrading towards premium segments, within IMFL or international brands.

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Products Positioning

Consumer MRP Whisky Rum Brandy Vodka Ready to Drink

Luxury > Rs 4000 Rampur Single

Malt Jaisalmer

Super Premium > Rs 700 Morpheus Magic Moments

Verve

Semi Premium Rs 500 - 700 After Dark Whisky Pluton Bay Magic Moments

Deluxe Rs 300 - 500 Regal Talon Contessa White

Regular Rs 300 8PM Contessa Rum, Bermuda Rum Old Admiral

Brandy

Ready to Drink < Rs 150 Magic Moment

Family

Source: Company, HDFC sec Research, All prices for 750 ml bottle except for ready to drink, which is for 275 ml bottle

8PM Whisky: founding stone of success With 8PM launch in 1999, not only Radico successfully entered the branded liquor sector but also managed to achieve a million cases in sales within a year of its launch. 8PM whisky continues to be the flagship brand of the company and deliver healthy volume growth year-after-year. In FY18 alone the brand registered 29% growth led by strong sales in UP market. The phenomenally successful Old Admiral Brandy, launched in 2002 is another millionaire brand from RADICO’s straddle.

Magic Moment Vodka: Sweet spot Vodka is a smaller and niche segment that accounts for a significantly large portion of the profit pool of Radico. In 2005, another millionaire brand Magic Moments Vodka was launched. The brand became a huge success. The packaging and direct printing has been a huge hit for Magic Moments Vodka. Magic Moments crossed the million-case mark in 2010. Based on the success of Magic Moments, Radico has also launched Magic Moments Remix Vodka- an extension of Magic Moments vodka into the flavoured category. Magic Moments Vodka has a market leading share of over 50% across the vodka industry in India. Remix has 6 flavours – orange, green apple, lemon, lemongrass & ginger, raspberry and chocolate. The variants have invoked an extremely positive response. The experimental attitude of consumers and their thirst for premium variety was the key reason behind Radico launching flavored Magic Moments Vodka. Historically, the growth rates of white spirits (Vodka, Gin etc) have been nearly double the growth of other segments (whisky, brandy, rum etc). Future growth outlook is expected to be very strong.

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Brandy Segment Brandy is the second largest volume contributor in IMFL industry after Whisky. Size of brandy market is ~65mn cases. However, a significant portion of this (~50-60%) is either in unbranded/cheap category or low priced Popular segment. More importantly, Tamil Nadu and Kerala account for ~65% of the brandy market. Both these markets are difficult to penetrate due to stringent distribution control by the Government of both wholesale and retail. Thus, Radico has uniquely positioned itself in low-quantity but highly profitable super-premium brandy segment. As per the management, it enjoys ~50% share in this super-premium segment. Company enjoys healthy > 22% margin in the prestige and above category of IMFL, led by Magic Moments Vodka and Morpheus Brandy. These segments enjoy high margin, growth and low competitive intensity vs. whisky segment where the likes of UNSP, Pernod and ABD push around. In-house distilleries ensure RM availability Radico has 5 distilleries strategically located in two of the largest sugarcane producing states - Maharashtra and Uttar Pradesh. 3 distilleries are in Rampur and Uttar Pradesh while 2 in Aurangabad and Maharashtra. The strategic location of distilleries allows availability of molasses and unhindered operations in the distillery. Availability of molasses is crucial to the liquor industry being the key raw material. The Rampur Distillery plant has an ENA (Extra Neutral Alcohol) capacity of 102 mn litres per annum. It is one of the largest distilleries in India and is operating at ~90% of its capacity. It also has an ENA storage capacity of around 3 months thereby, safeguarding partly to the price volatility of ENA. The company has 28 bottling units out of which 5 are owned. The company has a bottling unit across all states, thereby reducing the transport costs. Recent action taken by CPCB for its Rampur Plant

Central Pollution Control Board (CPCB) has made certain observations on zero liquid discharge system of Rampur plant to improve the environmental conditions. Due to this, CPCB has directed closure of molasses and country liquor plant at Rampur and UP. Due to this, performance may take a little hit, but it doesn’t change scenario in the longer run. Radico has clarified that it has initiated steps to comply with the additional requirement of CPCB and expect it to resolve the issue within 10-15 days. Management said that the closure would be for next 10-15 days and will have an impact on production of molasses based ENA and country liquor during the period. As per Management, Radico has enough inventory to meet its requirement for IMFL. The company has maintained its earlier guidance for overall volume growth of high single digits, with prestige and above category expected to grow at 13-15% in volume terms for the longer run. The company targets to achieve EBITDA margins in late teens by FY21E and intends to be debt free in FY21.

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Pick of the Week – PCG Research Debt/Equity Ratio has come down drastically over the last three years Company had ~Rs 800cr debt including long term debt of Rs 240cr with ~8.5% as average cost of long term debt in FY16. Company has now zero long term debt as on 9M FY19; as on Dec-18, short term debt stood at Rs 290cr. The company does not expect any major capex in next 2-3 years as it has enough capacity to meet its growth. Reduction in net debt has been led by better working capital management, especially recovery of inter-corporate deposits. Net debt/EBITDA declined from 5x in FY15 to 2x in FY18. Management targets to become debt free by FY21 end. Nevertheless, we remain conservative and estimate the net debt to decline to ~Rs 100cr by FY21 end from ~Rs 500cr in FY18. The company has been generating operating cash flows which is expected to strengthen further, on expected improvement in margins with increased share of prestige and above segment. The reduction in debt will boost profitability along with expansion of net margins. Healthy revenue and EBITDA growth led by better mix and raw material tailwinds, reducing debt and the associated savings in the interest costs will lead to strong PAT CAGR over FY18-21E. Estimate Strong revenues and PAT CAGR in FY18-21E We expect revenue to post 10.5% CAGR led by continuous robust growth momentum from its premium & above segment. As revenues from P&A grows faster, we believe margin would expand further. In 9M FY19, the company has already posted 250 bps surge to 17.6%. Strong sales coupled with operating margin expansion and lower finance costs would ensure robust earnings, a CAGR of 28.5% over FY18-21E. The growth would be driven by 6% overall improvement in volume; P&A volumes may see ~13% CAGR over FY18-21E. In 9M FY19, we have seen 21% volume growth from P&A and 9% growth in Popular Segment. We estimate P&A volume contribution to reach to ~30% in FY21E. This is in line with the company’s strategy to grow its business where it aims for increased sales contribution from prestige segment in the longer run. This will also have a positive impact on its returns ratios, which should likely to improve in the longer run. The stock trades at FY21E PE of ~18x and is available at a steep discount to its peer United Spirits (USL). USL is trading at FY21E PE of 36x, EV/EBITDA of 23x (vs. 13x of Radico), P/BV of ~8x (vs. 1.9x of Radico) and EV/Sales of 4x (vs. 2.5x of Radico). Currently, Radico is trading at a significant discount on all parameters, despite the fact that Radico has a good brand recall and grown very well in the past several quarters. We recommend Buy on Radico with target price of Rs 433 and Rs 485 over the next 4 quarters. Based upon ~24x FY21E EPS and 14x EV/EBITDA, we have arrived to TP of Rs 485. Key risks & Concerns:

Present in a highly regulated business with low pricing power Govt.’s action against liquor sector likes taxation, ban etc. Higher RM prices may compress margins Low promoter holding creates potential takeover risk

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Revenues Trend

Source: Company, HDFC sec Research

1643 16801823

20672281

2461

0

500

1000

1500

2000

2500

3000

FY16 FY17 FY18 FY19E FY20E FY21E

Margins would continue to improve


12 12.6

14.8

16.8 17.4 17.9

4.4 4.8

6.8

910

10.7

0

2

4

6

8

10

12

14

16

18

20


OPM PATM

PAT trend over FY16-21E


73.8 81

124

187

229

263

0

50

100

150

200

250

300


Return Ratios


8

11.4

15.216.1 15.9

6.4

8

1112.5 12.9

0

2

4

6

8

10

12

14

16

18

FY17 FY18 FY19E FY20E FY21E

RoE RoCE

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P&A Segment Volumes Trend (mn cases)


3.724.04 4.06

4.755.05

6.16.7

7.3

0

1

2

3

4

5

6

7

8

FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Popular Segment Volume Trend (mn cases)


16.615.4

13.8 13.514.5

15.616.4

17.2

0

2

4

6

8

10

12

14

16

18

20


Prestige & Above volume share continues to rise


18 21 23 26 26 28 29 30

82 79 77 74 74 72 71 70

0

20

40

60

80

100

120


P&A Popular

IMFL revenue share trend


72.2 72 75.6 78 80 81

27.8 28 24.4 22 20 19

0

20

40

60

80

100

120


IMFL Non IMFL

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FY18 Segment Split


2643

59

7457

41

0

20

40

60

80

100

120

Volume Revenue EBITDA

Prestige & Above Popular

%

Total Liquor in Volume Terms (%)


6121.1

14.1

3.8

Whisky

Brandy

Rum

White Spirits

Total Liquor in Value Terms (%)


73.5

10.7

9.5

6.3

Whisky

Brandy

Rum

White Spirits

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Balance Sheet (Rs mn) FY17 FY18 FY19E FY20E FY21E

SOURCES OF FUNDS

Share Capital 266 266 266 266 266

Reserves 10,036 11,155 12,887 15,073 17,450

Total Shareholders’ Funds 10,302 11,421 13,205 15,272 17,611

Long Term Debt 1,033 344 172 86 43

Short Term Debt 6,994 5,597 3,317 2,488 1,294

Total Debt 8,027 5,941 3,489 2,574 1,337

Other Non-current liabilities 784 1,034 1,148 1,276 1,420

TOTAL SOURCES OF FUNDS 19,114 18,395 17,791 19,189 20,473

APPLICATION OF FUNDS

Net Block 7,060 7,057 6,981 6,851 6,790

Other Noncurrent assets 3,505 2,865 2,865 2,865 2,865

Non-Current Assets 10,565 9,922 9,846 9,717 9,655

Inventories 2,930 3,109 3,329 3,702 4,029

Trade Receivables 6,240 6,300 6,579 7,270 7,815

Other Current Assets 1,829 2,257 2,475 2,757 3,205

Current Assets 10,999 11,666 12,383 13,729 15,049

Trade Payables 1,853 2,141 2,577 2,664 2,927

Other CL & Provisions 1,238 1,775 2,040 2,242 2,570

Current Liabilities 3,091 3,916 4,617 4,907 5,498

Net current Assets 7,908 7,750 7,675 8,889 9,552

Cash & Equivalents 641 724 269 584 1,266

TOTAL APPLICATION OF FUNDS 19,114 18,395 17,791 19,189 20,473


Income Statement (Rs mn) FY17 FY18 FY19E FY20E FY21E

Net Sales 16,799 18,228 2,0670 22,811 24,608

Growth (%) 1.7 8.5 13.4 10.4 7.9

RM Costs 9,214 9,522 10,459 11,252 11,955

Gross Profit 7,585 8,706 10,378 11,559 12,653

Employee cost 1,403 1,549 1,683 1,824 1,975

S&D 1,979 2,159 2,752 3,070 3,352

Other Exps 2,082 2,300 2,472 2,695 2,922

Total Operating Cost 5,464 6,008 6,907 7,588 8,249

EBIDTA 2,121 2,698 3,470 3,972 4,402

EBIDTA (%) 12.6 14.8 16.8 17.4 17.9

EBIDTA Growth (%) 13.0 27.2 28.7 14.4 10.9

Depreciation 417 409 424 455 482

EBIT 1,704 2,289 3,047 3,515 3,922

Interest 804 682 344 218 122

Other Income 196 267 146 183 212

PBT 1,097 1,873 2,849 3,480 4,012

Tax 288 638 982 1,193 1,383

RPAT/APAT 809 1,235 1,867 2,287 2,629

APAT Growth (%) 10.1 52.7 51.1 22.5 14.8

AEPS 6.1 9.3 14.0 17.2 19.8

EPS Growth (%) 10.1 52.7 51.1 22.5 14.8 Source: Company, HDFC sec Research

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Cash Flow Statement (Rs mn) FY17 FY18 FY19E FY20E FY21E

PAT from Operations 809 1,235 1,867 2,287 2,629

Interest 804 682 344 218 122

Depreciation 417 409 424 455 482

Working Capital Change 1,359 158 75 (1,214) (663)

OPERATING CASH FLOW ( a ) 3,388 2,485 2,710 1,745 2,570

Capex (164) (406) (349) (325) (425)

Free Cash Flow 3,224 2,079 2,362 1,420 2,151

Investments & Others (663) 889 114 128 143

INVESTING CASH FLOW ( b ) (827) 484 (234) (197) (277)

Capital Issuance - - - - -

Debt Issuance (1,606) (2,087) (2,450) (915) (1,237)

Interest (804) (682) (344) (218) (122)

Others (138) (116) (132) (101) (252)

FINANCING CASH FLOW ( c ) (2,548) (2,885) (2,931) (1,234) (1,611)

NET CASH FLOW (a+b+c) 14 83 (454) 314 682

Closing Cash 641 724 269 584 1,266 Source: Company, HDFC sec Research

Key Ratios FY17 FY18 FY19E FY20E FY21E

PROFITABILITY (%)

GPM 45.2 47.8 50.2 50.7 51.4

EBITDA Margin 12.6 14.8 16.8 17.4 17.9

EBIT Margin 10.1 12.6 14.7 15.4 15.9

APAT Margin 4.8 6.8 9.0 10.0 10.7

RoE 8.1 11.4 15.2 16.1 15.9

Core ROCE 6.7 8.3 11.3 12.8 13.6

RoCE 6.4 8.0 11.0 12.5 12.9

EFFICIENCY

Tax Rate (%) 26.3 34.1 34.5 34.3 34.5

Asset Turnover (x) 2.4 2.6 3.0 3.3 3.6

Debtors (days) 136 126 114 116 116

Payables (days) 40 43 46 43 43

Cash Conversion Cycle (days) 172 155 136 142 142

Net Debt/EBITDA (x) 3.5 1.9 1.0 0.6 0.1

Net D/E 0.7 0.5 0.3 0.2 0.0

Interest Coverage 2.1 3.4 9.0 16.1 32

PER SHARE DATA

EPS (Rs/sh) 6.1 9.3 14.0 17.2 19.7

CEPS (Rs/sh) 9.2 12.4 17.2 20.6 23.4

DPS (Rs/sh) 0.8 0.8 0.8 1.0 1.3

BV (Rs/sh) 77.4 85.8 99 115.3 133.2

VALUATION

P/E 62.5 40.8 26.9 22.3 19.3

P/BV 4.9 4.4 3.8 3.2 2.8

EV/EBITDA 26.8 20.5 15.3 13 11.5

OCF/EV (%) 5.3 4.0 4.0 3.1 4.1

FCF/EV (%) 5.0 3.3 3.4 2.5 3.4

FCFE/Mcap (%) 4.3 2.5 3.0 2.2 3.1

EV/Revenues 3.8 3.4 2.5 2.2 2.0

Dividend Yield (%) 0.2 0.2 0.2 0.2 0.3


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Equity Research


Ratings Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST, PRICE CAN FALL 20%

OR MORE

IF RISKS MANIFEST, PRICE CAN FALL 15% &

IF INVESTMENT RATIONALE FRUCTFIES, PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE

FRUCTFIES, PRICE CAN RISE BY 20% OR MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS


OR MORE




FRUCTFIES, PRICE CAN RISE BY 35% OR MORE

RED HIGH RISK - HIGH RETURN STOCKS


OR MORE




FRUCTFIES, PRICE CAN RISE BY 50% OR

MORE

# Explanation of Red-flag Price level: If stock prices starts sustaining below red-flag level, the premise of the investment needs to be reviewed. Risk averse

investors should exit the stock and preserve capital. The downside of following red-flag level is that if the price decline turns out to be temporary and if

it recovers, subsequently you won’t be able to participate in the gains.

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Equity Research


Price Chart

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

550.0

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year Sell: Stock is expected to decline by 10% or more in the next 1 Year

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Equity Research


Research Analyst: Kushal Rughani ([email protected])

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 3075 3450 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 SEBI Registration No.: INZ000186937 (NSE, BSE, MSEI, MCX) |NSE Trading Member Code: 11094 | BSE Clearing Number: 393 | MSEI Trading Member Code: 30000 | MCX Member Code: 56015 | AMFI Reg No. ARN -13549, PFRDA Reg. No - POP 04102015, IRDA Corporate Agent Licence No.-HDF2806925/HDF C000222657, Research Analyst Reg. No. INH000002475, CIN-U67120MH2000PLC152193. Disclosure: I, (Kushal Rughani, MBA), authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. 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Date: March 05, 2019 - HDFC securities PCG... · 19.03.2005 · Company Profile: Earlier known as Rampur Distillery, Radico Khaitan commenced its operations in 1943. Over the years