Buy Radico Khaitan; target of Rs 181: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal is bullish on Radico Khaitan and has recommended buy rating on the stock with a target of Rs 181 in its February 11, 2013 research report.
 
“Radico Khaitan's 3QFY13 performance was below our estimates. However, results of premiumization focus are visible in gross margin expansion of 160bp and operating margin expansion of 60bp to 15.4percent (est 15.5percent). Sales growth of 8percent to INR3.26b was below our estimate of INR3.4b. Higher tax rates resulted in 7percent YoY growth in PAT to INR220m (est INR251m), despite 12percent EBITDA growth to INR501m (est INR530m). Volumes grew 6.5percent YoY; premium brands' outperformed with 20percent growth, led by Morpheus brandy with 31percent growth. Radico was granted a 10percent price hike in Andhra Pradesh during end-3Q, benefits of which will accrue in 4Q and FY14. It also expects 8-10percent price hike in Karnataka beginning FY14. Better mix enabled 160bp YoY gross margin expansion despite 8percent YoY increase in ENA costs. ENA costs are expected to soften in 4Q.”
 
“Operating margin expansion was capped at 60bp YoY to 15.4percent due to 130bp increase in other expenses (incl ad spends), despite 50bp savings in selling and distribution expenses. Higher ad cost is led by continued investments in Verve vodka, which has expanded presence in Northern India. Net interest cost remained flat YoY at INR99m. Recurring profit growth of 7percent YoY to INR220m was below our expectation of INR251m due to lower-than-expected sales and higher tax rate (30.1percent v/s 24.7percent in base) which was due to higher provision for deferred tax liabilities. Reported PAT declined 22percent due to forex related fluctuations - charge of INR36m v/s write-back of INR31m in base.”
 
“Our core Buy rating on Radico remains as premium brands continue to outperform mainline brands in the portfolio. Robust gross margin expansion despite continued increase in input costs, reflect the benefit of premiumization trend, which we expect to accelerate in the medium term, given the changing focus of industry leader. Price hike in AP and expected hike in Karnataka (together ~30percent of Radico's sales) augur well for 4Q and FY14 margins. We retain our estimates and reiterate a Buy with a target price of INR181 (16x FY15E EPS),” says Motilal Oswal research report.

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