Despite being under pressure this year, brewery stock Radico Khaitan has given multibagger returns to its investors in the long term. The stock has skyrocketed nearly 580 percent to around ₹950 currently from ₹140 in August 2017. Meanwhile, in the stock has 19 years the stock has soared 120 times.
However, in the first 5 months of 2022, the brewery stock has shed 35 percent investor wealth but since then it has recovered 18 percent.
The company is engaged in the manufacturing and trading of Alcoholic products such as Indian Made Foreign Liquor (IMFL), Alcohol, and Country Liquor. It offers various brands such as Rampur Indian Single Malt Whisky, Jaisalmer Indian Craft Gin, Magic Moments Verve Vodka, 8PM Premium Black Whisky, and Ready to Drink, including Electra, Contessa Rum & Old Admiral Brandy.
In the June quarter, Radico Khaitan's net profit declined 2.6 percent YoY to ₹58.29 crore. However, its revenue from operations rose 26.74 percent YoY to ₹757.43 crore in Q1FY23.
Its EBITDA stood at ₹92.1 crore in Q1FY23, up 0.4 percent from ₹91.7 crore recorded in Q1FY22, however, its EBITDA margin slipped to 12.2 percent in the quarter under review as compared to 15.3 percent in the year-ago quarter.
Total expenses jumped 10.83 percent YoY to ₹3,110.98 crore on the back of high raw material costs.
The company said that its cost of borrowing continues to be one of the lowest in the industry due to stable profitability, strong capital structure and improved liquidity position.
"On YoY basis, continued commodity inflation resulted in gross margins compression, particularly in the non-IMFL business. Given a favorable product mix change, the impact of cost-push on the gross margin of the IMFL business was mitigated to a large extent. On a sequential basis, gross margins improved due to price increases in the IMFL business and a favorable product mix," the company said post results.
Total Indian Made Foreign Liquor (IMFL) volume growth was 21.5 percent year on year (YoY) in Q1, added the firm.
Commenting on the results and performance, Dr. Lalit Khaitan, chairman & managing director, said, Radico Khaitan continues to demonstrate agility and resilience to deliver a consistent topline growth led by the Prestige & Above category brands in this challenging environment which is also a reflection our team's execution capabilities. While there are near-term concerns around inflation, the recent softening of certain commodities, a normal monsoon and the policy measures undertaken by the government bode well for the industry.
He further added, "Our endeavor continues to be on strengthening our premium brand portfolio through focused go-to-market strategies. Overall, we expect the inflationary environment to gradually ease out to some extent in the second half of the year."
The company also said that its strategy is to continue to make prudent marketing investments over existing core brands and new launches to sustain the growth and market share.
Going ahead analysts have turned bullish on liquor stocks given the revival in out-of-home consumption, recovery in demand, as well as a reduction in taxes by some state governments allowing related companies room to pass on cost pressure to consumers.
Although there could be some inflationary pressure, strong volumes could partly offset cost pressures, they added.
Radico Khaitan will be one of the key beneficiaries of improving Indian demographics, consumer preference to premium brands, and reviving liquor policies in various states, said domestic brokerage Sharekhan.
"Although the backward integration plan will derisk raw-material sourcing in the long run, it will dilute earnings due to incremental debt on books in the near term. The stock has corrected 28 percent in the past six months and is trading at 30.4x/23.9x its FY23E/FY24E earnings per share. We maintain our ‘buy’ recommendation with a price target of ₹1,135,” it noted.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.