Radico Gets Motilal Oswal's 'Buy' Initiation; Says Valuations Rich But Robust Growth Potential

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Motilal Oswal Report

Looking at Radico Khaitan Ltd.’s long-term operational journey and the resultant huge stock re-rating, it certainly is a story well cooked at this price. Radico’s valuation gap with United Spirits has also significantly narrowed. The market has rewarded Radico well for its Prestige & Above success despite a consistent margin contraction, which was driven by external factors.

Over FY25-28E, we expect Radico to deliver a 16% revenue CAGR, fueled by strong growth in the P&A segment. Overall volume growth is projected at 9%, driven by a robust 15% CAGR in the P&A portfolio.

Additionally, the Ebitda margin is expected to improve from 13.9% in FY25 to 16.2% in FY28E (similar to FY19) supported by premiumization. We model an Ebitda and APAT CAGR of 22% and 30% over FY25-28E, respectively.

Radico is currently trading at 67x/53x FY26E/FY27E P/E with a RoE/RoIC of ~17%/19% in FY27E. We believe a ~30% EPS CAGR is good enough for sustaining rich valuations. We value the company at 60x P/E on Jun’27E EPS to derive a target price of Rs 3,000.

Key downside risks:

1. any steep inflation in ENA and glass prices;

2. increase in excise duty as the financial health of many states is under pressure owing to freebies, etc.; and

3. increase in competitive intensity.

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