May 13, 2016 - Jeena Scriptech Alpha Advisors

Radico Khaitan Ltd
Breweries & Distilleries
FV – Rs 2; 52wks H/L –130.9/78.10; TTQ – 6 K; CMP – Rs 89 (As On May 13th 2016; 11.00);

Market Cap – Rs 1138.83 Crs

Consolidated Financials and Valuations for FY16 (Amt in Rs Crs unless specified)

Equity Capital	Net worth	Long Term Debt	Total Sales	PAT	BV (Rs)	EPS (Rs)	P/E	Industry P/E	P/BV	Promoter’s Stake	Beta
26.61	905	198	1543	76.89	68	5.78	15.4	54.14	1.3	40.46	0.38

Consolidated Financials and Valuations for Q4 FY16

Equity Capital	Net worth	Long Term Debt	Total Sales	PAT	BV (Rs)	TTM EPS (Rs)	TTM P/E	Industry P/E	P/BV	Promoter’s Stake	Beta
26.61	905	198	377	14.77	68	6.33	14.06	54.14	1.3	40.46	0.38

Valuation Parameters:

Long Term Debt to Equity – 0.22
ROE % – 8.5
Market Cap/Sales – 0.7

The company has roped in celebrity Hrithik Roshan as its brand ambassador.

Key Updates:

In the IMFL segment, more than 20% of the company’s volumes come from prestige and above products, which is a high margin business, and the balance volumes come from regular and others brands.
Since the last eight years, the company’s prestige and above brands’ volume has reported a CAGR of ~23% and their share in the product mix has increased from 7.9% in FY2009 to 24% in FY2016.
RKL has a strong sales and distribution network with a presence in retail and offtrade outlets in the relevant segments in different parts of India. Currently, the company is selling its products through over 45,000 retail outlets and over 5,000 on-premise outlets.
The company exports to about 60 countries worldwide and has made a good presence in the international markets.

Bulk Deals:

Deal Date	Client Name	Deal Type	Quantity	Price
19-Jan-16	Morgan Stanley Asia Singapore Pte	P	1600000	108
19-Jan-16	Ashish Dhawan	S	2000000	108.01
26-Aug-15	Morgan Stanley Asia Singapore Pte	P	1460000	89.66
26-Aug-15	Bajaj Allianz Life Insurance Co.Ltd	S	1500000	89.67

During the quarter the Karnataka government gave a price increase (`35/case) to the company which would be effective from July 1, 2016 and would contribute towards margin improvement. Further, the government of Uttar Pradesh has reduced the excise duty on Indian made foreign liquor (IMFL) by 20-25% with effect from April 1, 2016, which is expected to result in an increase in IMFL sales volume in the state going forward.

These policy actions should significantly benefit the company as the two states account for ~20% of its volumes.

Overview:

Radico Khaitan Ltd is an spirits company engaged in the manufacture of liquor.
The company has three distilleries and one JV with total capacity of 150mn litres and 33 bottling units spread across the country.
The company is one of the largest providers of branded IMFL to the Canteen Stores Department (CSD), which has significant entry barriers.
RKL’s brands include After Dark Whisky, Magic Moments Vodka, Morpheus Brandy, Contessa Rum, Old Admiral Brandy and 8 PM.
Its liquor business also includes rectified spirit and country liquor. Its alcohol products include rectified spirit, silent spirit, cane juice spirit, malt spirit, grain spirit and ethanol.
The company’s PET division produces a range of PET bottles and jars for industries such as pharmaceutical, cosmetics, home and personal care, edible oil and confectionery.

Management:

Lalit Khaitan – CMD
Abhishek Khaitan – CEO
Dilip Banthiya – CFO

Major Non-Promoter Holdings:

Sr.No	Non – Promoters	No. of Shares held	% of shares held
1	Reliance Capital Trustee Company Ltd A/C Reliance Growth Fund	12458871	9.36
2	HSBC Global Investment Funds A/C Hsbc GIF Mauritius Ltd	9980624	7.5
3	Ashish Dhawan	4934195	3.71
4	Morgan Stanley (Singapore) Pte	3676897	2.76
5	SBI Small and Midcap Fund	2890556	2.17
6	BNP Paribas Arbitrage	2660081	2
7	TIMF Holdings	2450000	1.84
8	Birla Sun Life Trustee Company Pvt Ltd A/c Birla Sun Life Equity Fund	2143079	1.61
9	Acacia Partners LP	1512000	1.14
10	Polus Global Fund	1455000	1.09
	Total	44161303	33.19

Consolidated Financial Trends (In Rs. Crs) :

Particulars	FY16	FY15	FY14	FY13	FY12	FY11
Equity Paid Up	26.61	26.61	26.61	26.58	26.54	26.51
Networth	905	829	781	728	695	651
Total Debt	708	738	825	719	615	309
Net Sales	1543	1534	1488	1289	1165	957
Other Income	35	45	37	30	21	11
PAT	76.89	67.64	71.26	77.28	63.66	72.8
Book Value (Rs)	68	62	59	55	52	49
EPS (Rs)	5.78	5.08	5.36	5.81	4.80	5.49

The company has not performed well in the last two years due to increasing raw material costs (ENA is a key raw material) and with it not receiving significant price hikes from various states.

The company reported a net profit of 14.8cr on account of higher interest costs and taxes.

The company made repayment of 67.8 Crs during the year FY15.

(*ENA – Extra Neutral Alcohol)

Risks: