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HDFC Securities Institutional Equities
We conducted comprehensive channel checks across India to assess underlying demand trends and recently met with the management to understand medium-term prospects. Based on these findings, we maintain Radico Khaitan Ltd. as a high-conviction Buy with a target price of Rs 2,700 (55x FY27 EPS).
We expect the company to deliver revenue/Ebitda/profit after tax compound annual growth rate of 16/26/35%, respectively, over FY24-27, driven by the following factors:
favorable policy interventions in high-salience states of Karnataka/Andhra Pradesh—reduction in excise duties (Karnataka) and a new liquor policy favoring private players (Andhra Pradesh);
the regular Indian Made Foreign Liquor segment seeing an uptick after many quarters of subdued volumes due to favorable base and policy interventions. Additionally, price hikes in the upcoming liquor policy for the UP state (25% of overall domestic volumes) will be an important event to watch for improved profitability, which has hit its trough;
improved salience from the high-margin luxury/premium segment, as management doubles the malt capacity;
moderation in the raw material index, along with management initiatives on cost optimization, such as the commencement of the Sitapur distillery, shifting to PET bottles from glass in the regular segment, and the removal of mono cartons, all supporting margins
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