For 1QFY2017, Radico Khaitan’s results have come in line with our estimates.
The company’s top-line grew by ~3% yoy to Rs430cr on back of higher sales of
premium products while the bottom-line grew by ~25% yoy to Rs22cr on the back
of a strong operating performance and lower taxes.
Top-line grew ~3% yoy: Volume growth during the quarter was of 3.6% yoy
which resulted in the top-line growing by 3% yoy to Rs430cr (our estimate was of
Rs427cr). The company has consciously shifted its focus in favor of prestige &
above products which command better margins, over higher volume mass market
products. Prestige & above brands’ volume grew ~11% yoy while their
contribution to total IMFL volumes increased from 25.2% in 1QFY2016 to 26.9%
in 1QFY2017.
Despite lower sales, PAT grew by ~25% yoy: On the operating front, the
company’s margin improved by 201bp yoy to 13.1%, primarily on account of a
favorable shift in the product mix from regular to premium products. The
company reported a ~25% yoy rise in its net profit to Rs21.5cr for the quarter on
the back of a strong operating performance and lower taxes.
Outlook and Valuation:
Going forward, we believe that the company has the potential to perform better
on the bottom-line front on the back of (a) volume growth (b) higher sales of
premium products (c) anticipation of better price hikes and (d) gradual reduction
in debt which should lead to significant savings in interest costs. Hence, we
recommend a Buy rating on the stock with a target price of Rs125.

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