A salesman picks a box of Royal Challenge whiskey produced by United Spirits Ltd., a distiller partly owned by Diageo Plc, from a display of bottles at a roadside liquor store in Gurgaon, Haryana, India. (Photographer: Udit Kulshrestha/Bloomberg)

Why Radico Khaitan Surged When Other Liquor Makers Tumbled

Radico Khaitan Ltd. is the only liquor maker that gained in the last one year due to strong growth in sales of premium alcohol, margin expansion and reduction in overall debt.

Shares of the Magic Moments vodka maker jumped nearly 25 percent against a 4.97 percent rise in the benchmark S&P BSE Sensex. That’s when its peers such as United Spirits Ltd., Pincon Spirits Ltd. and GM Breweries Ltd. tumbled between 6 percent and 40 percent, according to Bloomberg data.

Why Radico Khaitan Surged When Other Liquor Makers Tumbled

Here’s what led to the rally:

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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 300 basis points to 29 percent in the first half of the 2018-19 financial year. That’s against 26 percent in 2017-18.

“Another factor for the growth in volume was the new excise policy in Uttar Pradesh aimed at curbing cartelisation and digitalisation of the tender process,” said Dilip Banthiya, chief financial officer at Radico Khaitan.

Growth In Margin

Lower prices of molasses and price hikes in the southern states led to a rise in earning before interest, tax, depreciation and amortisation margin by nearly 200 basis points year-on-year to 17.7 percent in the quarter ended September of the ongoing fiscal.

Lowering Of Debt

The spirit sector in India was hit in the last couple of years due to demonetisation, state-level prohibitions, ban on sale of liquor on national highways and the implementation of the goods and services tax. Yet, Radico Khaitan managed to pare its overall debt by nearly 50 percent to Rs 380 crore.

Why Radico Khaitan Surged When Other Liquor Makers Tumbled

Brokerage firm Emkay in a report said it expects debt to lower further in FY19-20 and interest cost to come down by 65 percent on the back of healthy cash generation.

Some Concerns Remain…

Regulatory Changes

An increase in taxation and imposition of restrictions on marketing or prohibition in any key markets are key concerns for the company.

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At 42.6 times its trailing 12-month price-to-earnings multiple, the stock trades at a premium of close to 9 percent to its 10-year average, Bloomberg data showed.