Radico Khaitan Shares Rise As Goldman Sachs Initiates Coverage With A ‘Buy’
Goldman Sachs has cited three reasons for its positive view on Radico Khaitan.
Goldman Sachs Group Inc. has initiated coverage on Radico Khaitan Ltd. with a ‘buy’, citing a steady improvement in cash generation and repayment of most of its debt.
That, the research firm said, leaves the Magic Moments vodka maker well-placed to invest more behind its existing brands and premium innovation. Goldman Sachs, according to its Aug. 10 note, has set a 12-month target price of Rs 1,440 apiece — the highest for the stock.
Goldman Sachs has cited three reasons for its positive view:
Continued market share momentum in Prestige and Above category with Radico winning 120-basis-points market share in this category between FY21 and FY24, driven by new launches in vodka, whiskey and gin.
FY25 Ebitda margin expanding 310 basis points to 19.0% from FY21, driven by a better Prestige and Above mix (35% in FY25 vs 29% in FY21) and operating leverage, while factoring in higher advertising spend. “Our FY23/FY24E Ebitda are 6%/9% above Bloomberg consensus.”
Attractive risk-reward with Radico Khaitan trading at 28.5X FY23E P/E, an 21% discount to United Spirits Ltd. and 48% discount to the research house’s coverage, which it views as “unwarranted”. “We forecast Radico to deliver a FY20-24E EPS CAGR of 18% vs 21% for United Spirits (its main locally listed competitor) and 17% for our coverage.”
Radico is the leader in vodka in India, and an emerging competitor in whiskey, brandy, rum and gin, with a slew of new launches planned to win share from incumbent premium leaders in United Spirits (Diageo) and Pernod Ricard. Radico is leveraging its manufacturing capability and bottling presence across the country to launch more Prestige and Above brands across its core states as well as new geographies.Goldman Sachs
Key Risks
Changes in regulatory policy on spirits in key states like Uttar Pradesh.
Any further Covid-19 driven lockdowns.
A sharp increase in input costs driven by ethanol blending requirements.
Shares of the liquor maker rose as much as 4.5% on Wednesday, taking its gains this year to over 90% compared with a 14.7% gain in the S&P BSE Sensex. Of the 14 analysts tracking Radico Khaitan, 12 have a ‘buy’ rating, one each recommends a ‘hold’ and ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 8.8%.