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HDFC Securities Institutional Equities
Radico Khaitan Ltd. trades at 63 times and 47 times on FY26 and FY27 earnings, respectively. Historically, over a five-year average PE, it has traded at 45 times and 40 times from a one-year and two-year forward perspective. These strong valuations have held up despite macro challenges faced by both the sector and the company, such as the highway liquor ban, the Covid-19 pandemic, and state-level interventions due to regime changes.
As a result, Radico has not been able to perform to its full potential during this period.
In our view, the best is yet to come, as several of these macro headwinds are now behind us.
We expect Radico to report a revenue/Ebitda/PAT CAGR of 15%, 25%, and 33% over FY24-27, driven by favorable state regulations, a J-shaped ramp-up in its luxury and semi-luxury portfolio, and a benign raw material environment.
Additionally, we anticipate ROE to improve from 11% in FY24 to 18% in FY27 as the company scales up its Sitapur plant.
Given these factors, we upgrade Radico to a Buy from Add and value it at 52 times, representing a 30% premium to its five-year average PE.
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