The Radico Khaitan stock looks expensive compared to industry leader United Spirits on a trailing basis, as high raw material costs hit the company’s net profit in the last fiscal year and volume rationalisations hurt sales. However, the tables are set to turn this year as Radico Khaitan’s net profit and volumes grow rapidly, riding on premium liquor sales, said analysts.
The Magic Moments vodka maker’s stock has a PE of 73.7x on a trailing basis. Whereas the United Spirits stock has a much lower PE of 53.32x on a trailing basis.
Valuation matrix turning around
Things look different for both companies on 12-month forward earnings estimates, where United Spirits’ stock beats Radico Khaitan on both FY24 and FY25 PE. According to Bloomberg consensus estimates, Radico Khaitan’s FY24 PE is 55.2x, while United Spirits’ PE is at 66.8x. Similarly, Radico Khaitan’s FY25 consensus PE is 38x, and that of United Spirits is 54.7x.
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United Spirits maintains a higher valuation throughout FY24-25, even as Radico Khaitan is expected to see a faster pace of earnings and sales growth. This is important as United Spirits lags behind in net profit and sales growth compared to Radico Khaitan.
Protecting profits, growing premium liquor sales volumes
Radico Khaitan’s management, in its Q1FY24 earnings conference call, said that the company is growing faster in its ‘Prestige and Above’ segment, and the trend will continue going ahead.
Also Read: A year of rich blends – Radico Khaitan increases focus on premium spirits to protect margins
Sharekhan expects the company to consistently gain market share and grow ahead of industry. “Premiumisation strategy will drive consistent strong double-digit earnings growth along with the support of backward integration in the coming years,” said Sharekhan in a report dated August 4. Sharekhan is positive about Radico Khaitan’s focus on launching new products in the brown and white spirits space, majorly in the premium and luxury segment.
Analysts say that despite Radico Khaitan's stronger estimated earnings growth rate for FY24 and FY25, United Spirits commands a higher valuation due to its dominant market position.
United Spirits’ commanding position
“United Spirits’ PE over FY 2024-25 is high because it operates at a large scale and has more volumes as compared to Radico Khaitan,” said Karan Taurani, senior vice president at Elara Capital.
Total volumes for Radico Khaitan in the April-to-June quarter stood at 7,360 cases, while they were close to double for United Spirits at 13,241 cases in the same period. Taurani added that United Spirits is an MNC-led company, which justifies its expensive valuation.
Also Read: Premium liquors to dominate profitability in future, says Diageo India CEO
Diageo, a British alcoholic beverage company, acquired a controlling stake in United Spirits in 2014. The premium-end of the Indian spirits market is largely dominated by the top two global companies, Diageo and Pernod Ricard.
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