Radico khaitan: alcoholic child

Radico Khaitan Q4FY19 Earning Presentation

Top line growth with Profitability improvement, reduction in debt.
Good performance despite closure of one of its plant at Rampur unit due to pollution issues during the Q4 quarter.

As per the concall, the co. plans to be debt free in 1.5 years. This will be a good thrust. Plus their 2 premium brands Rampur (single malt) and Jaisalmer (gin) which are currently available in the overseas market only are getting good traction. They would soon be launching them in
India as well.
They say that there are very healthy margins on these super premium products.

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https://www.moneycontrol.com/news/business/moneycontrol-research/united-spirits-q4-a-solid-business-at-an-expensive-price-4057481.html

Did the Management said anything on the impact if Liquor ban in Andhra Pradesh?

Does anyone know what is the % of their sales in Andhra Pradesh

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It is happen to me that one of my friends friend works in the company .He share some of the stories of the prompters.
The family is sindhi family who bought the sick unit ( they are pure baniya type ) but having very conservative approach and they are happy with what they achieve and are least obsessed with growth .
The Son and daughter of Mr Kaithan during college time are just same as the average Indian family they peep in to the price in the menu then they look for the associated items when they went out in Caunaught place . The family lives in friends market new delhi.
They took the path for secure customers so initially they target selling through the Defence canteens and now they have large base in the canteen revenue.
in the time of PONTY CHADDA Lala ji has set their share and Ponty was selling his brand as a contractor . There was time when one can find everywhere 8PM in UP created a Brand .

He tell me the son is more in taking risk and which results the new premier products . When I asked with one company in hand and that too running from long time why they expanded . He said Lala ji is very happy and least bother about the expansion .They want to preserve the quality . To one extent that is very good indeed BUT is the business scalable YES but dos the management is expanding NO … for steady compounder one must seek for the companies with Scale model and conservative management who can take the bets for future growth .
disc: not invested and not a sebi approved analyst

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Scaling can have different meaning for different people. Scenario 1 you scale from 100 crore to 500 crore revenue and profit goes from 50 cr to 70 cr and debt increases from 100 cr to 200 cr. Scenario 2 , revenue goes from 100 crore to 200 crore but profit increases from 50 crore to 100 crore and company becomes debt free . Which one will you choose ? Also, better to look things through numbers. Would request to check last few years of improvement in growth, margins, profit , debt reduction etc etc. Thanks for updating your conversation with friends. Validates that the chapter on Son promoter in one of business books (the consolidators ) was not jhol or PR :). You might like to read the book to find some more details about them .
No say very different story . Can’t tag all to company as it’s a cyclic + regulated industry but for sure high margin product roll out credit goes to them



Company has been able to drive growth in topline, higher growth in bottomline vs topline. (focus on premium products , something which USL is also doing as part of long term strategy) , drive down debt, improve operational ratios, improve return ratios. However , there r cyclic , regulatory and governance risks associated
Disc : I am not a registered SEBI advisor and may buy or sell as per discretion. This is not a recommendation. Please do your own due diligence . Have traded in this in last 30 days

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Thanks Saurabh My intent about scalable . The company is not acquiring any new business nor doing capex to increase the capacity of the plant . I remember Ione incident of the visiting a bottler cum brewery in Pathankot .the work culture is also same or worse . ( I work a GST inspector I work there as the concerned excise inspector was on leave so I went there for few days but academically I am engineer by education ). The TANKS in which they store the ENA or the Premix batches is not calibrated the Dip tape which is used to measure the Volume is rarely replaced thus give rise to wrong calculations . the Security and the Fire controls are pathetic . they are sitting on live bombs . The production line was covered only via a thin earth cable .I made stop the production and after fixing the earthling I allow the production . I have severe remand from the departmental officers . The crux is that most of the production practices are not up to the global standards .
You are right by saying What scalabity ? and in wHat terms ? The business model is strongly regulated by Govt . and is prone to be flat growth once there is change in the POLICIES of the union or the state .
Thinking the ANTI FRAGILE in terms of growth may leads to strong BIASES . The typical a learning organization will excel in their field .
THE COAMPNAY HAS NO CONTROL ON THE SELLING PRICE as this is regulated by the excise policies of the states . THEY ACN"T ALTER THE DESIGN OR INTRODUCE NEW PROUDCTS Even the CAPS Labels THEY need to be go through the Frame work of the Excise Policies of particular state . They were ALLOTED a STRICT QUOTA to manufacture which is revised on annual basis .
the FRame work under which a distillery can grow is at the mercy of the Govt .
One cant scale as they might want to so the GROWTH is also controlled by the Excise Policies .
so my humble submission is they can control the BOTTOM line by reducing the production cost or reduce wastage But it has limit but UPPER LIMIT is ALWAY CONTROL By Government
Nasseb Taleb in his book skin in game has wrote
,“government interference in general tends to remove skin in the game.”
reagrds

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Q2 FY20 results are out- https://www.bseindia.com/corporates/anndet_new.aspx?newsid=3a6a72de-bf58-4778-ab4a-dbdc1c7daed0

Radico has aggressively spent behind its brands to drive premiumisation and gain market share. Co aims to leverage brand equity of Magic Moments (56% market share in Vodka) by launching more variants (GM accretive) and gaining share in super-premium segment (18-20%). We believe that the broader mid-cap sell-off, concerns about rising raw material costs and fears about liquor ban in Andhra have overshadowed positive developments such as
market share gains backed by product launches and continued debt reduction.

Source: HDFC Securities and Emkay

Long @ 300 will hold for Long term - Growing Indian Middle class will consume more liquor

What is so different in Beer or Wine that Radico isn’t interested in diversifying to those categories? Beer is arguably the most popular among younger generations.
2019-12-04_221014
I believe Mallya fell into trouble because of the airlines business, not the beer business.

Note: The above quote is of Abhishek Khaitan from ‘The Consolidators’ book.

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Came across this thread during my routine recent thread activity check on VP…

i am not at all aware about the fundamentals of this company…

but on a casual chart check, i found what looks like a distribution going on in this scrip…

a possibility of much more attractive prices to take positions in this scrip might be coming
this is just a cautionary statement, take it with a lot of pinches of salt…

disclaimer… not positions, not interested either

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Why receivable is increasing so much? if you compare from last 10 years sales have grown from 758 cr to 2257 cr, payables from 73 to 219 and receivables from 138 cr to 725cr. Someone can highlight the reason behind it.

Interview with MD…Says worst is behind Radico and Premium brands command 36% mkt share. As per him there is no competition as every player have their pie. Their EBITDA margin will be in late teen in 2 to 3 yrs…While Industry volume grew by 1.5% in the past 9 months, Radico achieved a volume increase of 13.5%. They expect to become debt free by 2022.

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Wanted to know your view on this -

The market cap of radico is around 5k cr but the excise duty paid to govt in FY 19 was 6k cr!

Does this mean its undervalued or is this just an interesting tidbit?

Because of sin tax almost 70-75% revenue of liquor companies goes as excise duty to center and state governments. Including all taxes liquor companies pay 80% revenue as taxes. That’s part of business model now. And in recent times some governments like Delhi government is adding more as corona tax. So in all liquor companies work for government more than for themselves.
Disclosure: invested and carrying 10% of portfolio position since 1 year.

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Q3 FY20 Concall Notes

  • During Q3, the IMFL industry volume growth was muted at 1.5%; however, despite a subdued industry performance, Radico Khaitan continues to deliver robust growth and outperform the industry. Our volume growth has been broad-based across our brand portfolio across states.

  • In October 2019, we completed the expansion of the malt plant for our Rampur Indian Single Malt. Over the next couple of years, we will be able to increase our production volumes.

  • After a strong traction in the international markets, we have launched Jaisalmer Indian Craft Gin in India in select states such as Goa and Delhi. More states are being added in coming months.

  • Over the past few quarters, raw material prices have increased significantly. However, after picking out during the month of October 2019, ENA prices have been in a consolidation mode in November and December. ENA prices have increased by 2% quarter-on-quarter compared to Q2 FY2020 and 22% year-on-year compared to Q3 of last year. We are hopeful that with the improved monsoon and better crop this sugar season, raw material pricing scenario may be stable.

  • Given the significant cost push, our EBITDA margins are in a consolidation phase in FY2020 and from next year onwards we expect our margin to resume the expansion path.

  • During the third quarter, Radico Khaitan reported year-on-year volume growth of 13.9%, which was led by Prestige and above category growth of 21%. Our revenue from operations increased by 17.2% during the same period. Our recently launched brand such as 8PM Premium Black Whisky and 1965 Spirit of Victory Rum continued their strong growth trajectory and make meaningful contribution. We launched 8PM Premium Black Whisky in three more states during the quarter making it now available in 14 states and we will continue to increase our penetration of these brands. We also launched Morpheus Blue Super Premium Brandy in the state of Uttar Pradesh. Our strategy of slowly and steadily expanding a new brand’s market presence is the one of the key reasons behind the success of our brands.

  • During the quarter, we reported IMFL sales volume of 6.45 million cases representing a growth of 13.9% on Y-o-Y basis. This volume growth was led by Prestige and above category volume increase of 21%. Prestige and above category brand accounted for 29.4% of the total IMFL volumes compared to 27.7% in Q3 of last year. Regular category volume growth for the year was 11.1% compared to Q3 of FY2019.

  • In value terms, Prestige and above category brands contributed to about 50% of total IMFL sales value compared to 48.7% during the same period last year.

  • Net revenue from operations during Q3 FY2020 was Rs. 648 Crores representing an increase of 17.2% compared to Q3 FY2019. During this period, IMFL sales value growth was 20.8% and as a percentage of total revenue, IMFL sales account for 82.3% of the net revenue from operations as compared to 79.8% in Q3 FY2019.

  • Gross margin declined by 90 basis points to 49.7% on Y-on-Y basis; however, on Qo-Q basis there is an improvement of 130 basis points. The increase in raw material prices is partly offset by higher IMFL price realization and higher contribution from IMFL business. The Company also experienced a consolidation trend in ENA prices in the later part of the quarter. Adjusted EBITDA increased by 7.4% on Y-o-Y basis to Rs. 102 Crores with a margin of 15.8% an improvement of 70 basis points on sequential basis.

  • Radico Khaitan uses essence for manufacture of various IMFL products. These essences are purchased from various suppliers and blended in certain proportions resulting in a mixed essence. This mixed essence is then used to flavor its IMFL products. The central excise department stated that such blending of essence amounts to manufacture and therefore liable for excised duty. The Company has decided to proactively settle the dispute under the Sabka Vishwas, Legacy Dispute Resolution scheme by paying approximately half of the duty amount thereby limiting the future liability and penalty and interest there on. Therefore, Q3 FY2020 included a one-off charge of Rs. 8.59 Crores. Since the implementation of GST from July 2017, the Company has been paying GST on manufacture of essence.

  • On increase in other expenses in 9MFY20
    The other expenditure, which has been higher was, cow cess, which has been imposed from April 1, 2019 in UP and is not there in the corresponding period last year. Secondly, on country liquor, which we transfer to our depot, there is some excise duty component, which varies depending on the depot stock owned by us in the own depot and third, there are certain provisions, which is in line with our expected credit loss policy on debtor and inventory. Keeping all these things and general increase in the other overhead, this is inline.
    Rs. 7 Crores is cow cess for this quarter and Rs. 20 Crores in nine months. The provision for doubtful debtor and inventory both put together in this quarter is Rs. 7.5 Crores.

  • We have achieved 15.7% EBITDA margin in first nine months and I think stabilizing of the raw material scenario due to good monsoon, is an indication that next year onwards we will be able to improve on our EBITDA margin by 100 to 125 basis points and for the next two to three years we plan to do that.

  • On debt
    Because of certain temporary tightness in certain states corporations, the working capital requirement has been high and we have increased net debt to Rs. 361 Crores, an increase of around Rs. 41 Crores; however, we see that in this quarter, January to March, it will be reduced and we are expecting something around Rs. 40 Crores to Rs. 50 Crores reduction on a year-on-year basis. Next year onwards, again the trajectory of debt reduction will continue.

  • Capex ranges between Rs. 65 Crores to 70 Crores for this year.
    There are three, four items, one is the malt capacity that has been tripled in this year and started commercial production from October 2019, then there are printing line, which has been further commissioned for the Magic Moment and there are more capex on the bottling line because our volumes are increasing, so these are the major capex.
    So over the next two years, we certainly want to upscale our product offering to the consumer, which will be not at the same level as 8PM Premium Black, but in higher segments with much higher contributions. One of them is planned for July 2020, which is one segment above.

  • In the coming year, 8PM Premium Black should be close to a million case and next year in FY2021 definitely it will be more than a million case.

  • On growth numbers better than industry
    our growth in the premium space has been across all segments, like in all geographies, we are growing very well right from North India, east, west, CSD and south also. Export has also done well; however, in particular if we talk about then Uttar Pradesh has been a good growing market where the industry has also grown by 12% and we have grown around 17% to 18%, then Andhra Pradesh, Telangana, Karnataka, Assam, West Bengal these are some of the major markets. Uttaranchal where we have grown better then industry.
    if you see what has really happened is that the two or three new launches like 1965 Rum, the premium version of Magic Moments, which is Verve and 8PM Premium Black, all three brands, which have been lunched have been showing signs of success, which is also adding to the growth.

  • Question: Even in Andhra too because in Andhra, I think the market has shrink by around 30% to 35% and in such a shrinking market we have seen such a large growth?
    Dilip Banthiya: Yes, there is good traction about our Premium brands especially the Morpheus brandy, the Magic Moment Flavours, the Old Admiral Brandy, so we are gaining market share.

  • as far as the current whisky portfolio is concerned, which is dominated by 8PM and 8PM Premium Black on the volume side. Around 40% of our portfolio comes from whisky segment; however, as far as the new launches are concerned, we have two new brands to be launched at a much higher price level, so you will see with the different concept so you will see these launches with higher prices and higher contribution.

  • Capacity related environment expense.
    we have already intimated in our Q2 results that around Rs. 15 Crores has been the impact on account of buying of ENA from outsourced for our country liquor and Rs. 7.02 Crores has been paid as penalties. All Rs. 22 Crores is the direct impact and then there are certain legal and all other expenditure, so you can say that Rs. 25 Crores has been the impact on account of the reduction in our capacity.

  • On increase in receivables.
    it has basically gone up in three corporation markets, that is one is the CSD, Telangana and Andhra. Here the moneys are absolutely safe because it is sold to the government, so the minute the government funds come the overdue will be all released, so I think it is a matter of time before they release the payments.

  • Price increases in 9MFY20 is 1.3% to 1.4% in a blended basis on IMFL turnover.

  • Magic moments Continues to gain market share with Magic Moments now accounting for 58% of the overall vodka market share and Verve accounting for 20% market share of the premium vodka category.

My Views: Company has been growing at above the industry rate due to recent new launches in the Prestige category and gaining market share even in the states where there has been degrowth. Recently margins have reduced due to substantial raw material price increase and also due to few one off items like cow cess, provision for debtor/inventory and penalty for outsourcing ENA. 8PM Premium will be a new brand entry in the million cases club, company has 4 million cases brands, after a long time a new brand will enter in this category for the company. With the malt capacity coming online and new products to be launched in Prestige category, company should maintain a good growth rate.

Thanks & Regards
Harshit

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Thanks a ton Harshit for jotting this down! Hearterning to see EBITDA margins are key focus for the next few years indeed

ICICI Direct Results Update

http://content.icicidirect.com/mailimages/IDirect_Radico_CoUpdate_May20.pdf