We provoke insurance on Radico Khaitan Limited (RKL) with a Buy rating and a rate target of Rs. 1,250. The inventory trades at 30.9x/24.7 its FY2023/24E EPS, at a 50% cut price to United Spirits valuations. Improved satisfactory of profits boom, higher FCF and a strong go back profile will lessen valuation gap.
RKL has emerged as a branded IMFL player through launching top rate liquor brands figuring out gaps in the enterprise (Privilege & above manufacturers fetch 30% of volume). Premiumisation strategies have helped RKL flip extent boom chief with IMFL volumes outpacing industry increase within the beyond three-four years.
Improving demographics, beneficial country regulations and growing preference for top rate brands would assist RKL’s IMFL sales volumes to grow at CAGR of ~13% over FY2021-24, in advance of industry’s growth of 4-5%. OPM extended through 430 bps to sixteen.9% FY2017-21 and predicted to similarly enhance by way of two hundred bps to 19% by FY2024.
RKL is expected to turn net cash high quality via FY2023 led by better operating capital control and stepped forward profitability. In the absence of most important capex plans, better FCF generated could be used for potential higher dividend payouts to shareholders.