ValuePickr Forum

Radico khaitan: alcoholic child

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


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

Radico Khaitan concal summary:

  1. Outgrown industry volume growth, industry grown 0.5% vs radico grown 12.5% due to good brand portfolio

  2. ENA price reduced 2% qoq but increased 19% yoy put pressure on 200bps gross margin impact. But improved monsoon, drastic reduction in crude price,good crop this price may come down going forward

  3. 2 of premium brand crossed million cases this year

  4. 8 pm family volume crosses 10 million cases

  5. Near term outlook remain uncertain but medium and long term trend intact

  6. Finance cost reduction of 10.2% ,March year end debt of 382cr increase in debt due to increase in working capital

  7. Year end receivables 300cr , due to timing delay in receiving receivables from corporation on the day of March 31. But company received major part of receivables within 45 days from the corporation. Received 100cr of receivables so they repaid the debt . Debt as of today reduced to 300 cr from 382cr

  8. Other expenses due to cow cess imposed on UP

  9. Alcohol delivery directly to home:
    Delivering alcohol directly to home is good structural change, it gave one another distribution channel and so help to increase consumption. And this help people with hesistant and particularly women for alternate mode to consume alcohol

  10. Increase excise duty is 100% pass on to consumer and
    MRP is adjusted accordingly so no pnl impact.
    11.wherever 80-90% stores are open and states with excise duty increase of only 10-15% came back to normal

  11. States where 70% excise duty industry volume reduced by half,

  12. States where 10-15% excise duty increase mgmt not seen any down trading happening but states where 70% excise duty increase seen lot of down trading. If this excise duty will not normalise in near future the material from neighbouring state will flow to this region will result in less revenue to state.

  13. All 32 units of company get operationalized .and not seeing any issue to ramping up the production once the consumption become normal

  14. Northern market has higher edt for premium brand compared to southern market

  15. Annual realisation for premium product will be maintained at 1400 to 1450
    17.AP contribute to 7% revenue so no material impact on ap excise duty raise
    18.on closing of bars and restaurants:
    In india only 3-4% only alcohol consumed there. Majority of alcohol consumption happened in house . So social distancing and closure of bar won’t affect much

  16. Receivables outlook:
    As state financial under strain going forward , majority of state revenue depends on petrol and alcohol. So in order to increase revenue states increasing distribution routes to increase consumption . So they have to pay supplier properly in order to support this revenue to flow in . Otherwise this will affect states most . So going fwd mgmt not seeing any pbm with receivables

  17. Selling premium brand in mall is step in right direction , it will help to increase consumption and mgmt waiting for implementation

  18. Telegana gave 8-10% price hike in this year. Tamilnadu gave 96 rupees per case price hike. Kerala too will increase price premium brand in whiskey going to lunch in next couple of month which is up scale of 8pm black variety. Company focusing on vodka and brandy upscale products too

  19. Gross margin of 48.5 to 49% and ebitda margin of 15% is guided

  20. A&p spend around 7% last year it may come down this year



Results update by HDFC Securities.

This is a very interesting!

Disc: Invested.

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Can someone help me figure the HS Code for ENA in The closest I could come was - 2207 - UNDENATURED ETHYL ALCOHOL OF AN ALCOHOLIC STRENGTH BY VOLUME OF 80% VOL. OR HIGHER; ETHYL ALCOHOL AND OTHER SPIRITS.

I was trying to look at the import cost on a YoY basis to understand the business a bit more.

Any views of following points related to their brands:

  1. A large part of sales comes from CSD which could be under threat if opened to other players by government.
  2. Their revenue from premium segment is still limited and they don’t have any presence in growing segment like beer. The consumption story in alcohol industry is based on increasing disposable income but will that also not result in buyers opting for premium segment.
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Radico mgmt concal highlights:

  1. Gross margin improvement of 665bps to 54% yoy. GM improvement mainly due to better state and product mix.and Telegana state gave 10% price hike in may helped better realization,as Telegana one of highest liquor consuming state,highest realization state,radico has good market share in this region .Export also high margin business which increased this quarter to 7% sales . RAW MATERIAl prices are in downward trajectory from last December , qoq raw material price reduced 3.5% .

  2. Ebitda margin of 18.4% increased 230bps largely due to gross margin improvement and reduction of variable cost and other expenses reduction

  3. Interest cost reduction of 11% from 7.8cr to 6.5cr . Cost of fund reduced from 9% to 6.8% due to good capital structure and better liquidity position and stable profit helped

  4. Debt is reduced to 260cr from 380cr qoq , company repaid 120cr debt in current quarter . With this company able to reduce the debt from 900cr to 260cr in last few years due to very good working capital management and goid margin improvement. Liquor industry in general depends on state government payout as the receivables generally state govts not paying on time, company worked efficiently last few years able to reduce the working capital from 121 days to 36 days. Which helped company to repay debt quickly and company aim to debt free by fy22.

  5. On guidance company guided for better than industry growth rate for topline and ebitda margin will increase 100-125bps for every year for next few years and reach 20% ebitda margin by fy22. Company planning to launch 2 new premium whiskey brand mainly brown category within next financial year. Current premium brand gaining very good traction among this 8pm premium black brand sold 1100k cases this quarter and company expect this will cross 1 million case this year. 60% market share in magic brand.

  6. Companies brand gaining traction in export market mainly middle East,Africa,south america,Europe and USA which is high margin business . Radico gaining market share on those market
    7.As states major revenue contributor at this stage (more than 25%) from liquor so they don’t want to mess up with suppliers so states started paying but little bit lag

  7. Online sales allowed in few states but some logistics and covid related delivery issues are there and as it is very early stage and mgmt couldn’t able to see any meaningful impact on this

  8. Q1 sales trend. As
    April is wash out and
    may sales 21% of precovid level
    Jun 90% of precovid level
    July it came back to precovid level

  9. Company expects if covid situation not detrorite further from here then industry will be back to precovid level q2 itself

  10. More than 80-85% liquor shops open across India

  11. CapEx of 50 to 60cr is every year will incur and once fy22 company become debt free they willing to give out extra cash as dividend of buyback
    13.on raw material front:
    There are 2 variety of raw material
    1. Grain based ENA: (65%)
    2. Molasses based ENA : (35%)
    As more and more premium product get sold the grain based ENA contribution will increase. Broken rice,millet,maize are major crop are used for producing Grain based ENA.
    Molasses based ENA is produced from Sugarcane
    Raw material price trend:
    Due to bumper monsoon the grain crop which is biggest crop in india sowing also good which help reduction in price of grain going forward . Same with Sugarcane . So mgmt expects raw material prices will go down from here on

  12. Ad spends was 6.5% of sales in q1 , once covid situation normalised this spend may be around 7-9% sales

  13. Capacity utilisation on 2 plants is reached 100% level and all 8 bottling plants started operating . Company moved to asset light expansion and started outsourcing the manufacturing to third party vendors so CapEx need will not be much here on.
    15 On domestic market radico steadily gaining market share in premium brand and in CSD it is enjoying 30% market share on premium brands.

  14. Very high Covid tax (70% rise) by Delhi and andhara hurting state revenue so they quickly cancelled and instead brought down to 5-10% increase in tax.

  15. Company gaining market share last few years
    Fy 2019 industry grown by 9% but radico grown by 18.5%
    Fy2020 industry grown by 0.5% but radico grow by 12.5%
    Q1fy21 industry degrown by 50% radico degrowth of 40%
    It shows company gaining market share in all segments

  16. Major Liquor consumption in india is from 5 to 6 states and radico present in these major states. And radico sales mix across region
    Northern - 34-35% of sales
    Southern -36-37% of sales
    Eastern& west -15-16% of sales
    CSD- 10-11% of sales


Interesting package from Radico

Alcohol industry in India is regulated. But, what is the level of regulation? This article The-sober-reality-of-making-liquor-in-India explains. Highlighting key points here:

  1. Every day, Diageo as a group has 748 touch points with the government.
  2. Every single truck that goes out of a distillery or bottling plant to a warehouse of state beverage corporation, there sits an excise inspector in the truck.
  3. If the truck goes out to another state say from A to B, state A’s officer gets down at border and B’s officer takes in-charge from him.
  4. Besides transportation, there are lots of paper work to be done to get approval to transfer from one plant to other. There are 100-200 steps to obtain allotment of spirits from a distillery to the plant for blending and bottling.
  5. The approval process is manual, files many a times moves via Indian post. To get the idea of time taken in such process, A distillery secures necessary approvals to get spirits from a factory in 12-15 days if it is within the state and 30 days if the factory is in another state.
  6. if the price is higher in any state (mostly because of state government taxes), they don’t want that, because if it is cheaper in the neighboring state, alcohol will flow through porous borders. So the state puts pressure on company to reduce the price. Hence it is difficult to get price hike, even if there are raw material price inflation.
  7. Different states have different labeling requirement, and they have veto power, if you don’t comply with our regulations, can not sell in our state.
  8. States have just too much control to lose, besides alcohol being one of the major source of revenue.

Don’t know if the environment is same after 5 years. But it seems similar. Some corollary from above points:

  1. Getting consistent price hike is very very difficult here. In the case of a big player, like USL who sells half of all cases in India, this challenges gets amplified.
  2. Industry can not have economy of scale because regulatory cost increases significantly if one tries to grow faster and in new states. This might deter growth of new player beyond a point, but also harms bigger established players, due to inefficiencies in the manufacturing, distribution and marketing process.
  3. There can be (happened in past) sudden moves and changes in policies with the change in government. Route to market changes, process changes.

I respect your views in different threads so wanted to know your thought process on why you chose to invest in radico over say a United spirits. Also your thoughts on united breweries as we compare above two? Lastly did you invest in radico recently or it is a long term holding? Thanks

Mainly on valuation grounds. Radico has started performing well & continuously gaining market share in the recent years and is still available at half the valuations of its marquee peers. Rerating is ongoing in Radico while Derating is ongoing in the other two. The divergence is visible in the last 5 years.

United Breweries & United Spirits have purportedly better brands, however, Radico still was able to take away market share, which is commendable. I was hooked to its story after reading about Abhishek Khaitan in The Consolidators book.

Invested about an year back.


@sujay85 What do you think is the reason for this improvement in business performance and gain in market share? I know that they have launched brands and is trying to gain in P&A, continuously trying to be more efficient. But unable to understand why Radico is continuously outperforming USL in sales growth. Not comparing profit growth because USL has done very well in improving margin over the years and hence profit growth.

Sales growth over last years:

2015 2016 2017 2018 2019 2020
Radico 1.58% 17.36% 0.87% 8.42% 14.85% 17.64%
USL -11.93% -8.20% 3.80% -2.57% 8.73% 0%

Is it due to Radico is bigger in certain markets, which are growing faster like UP? Is it because they are smaller player and hence is able to get price hike easier as compared to USL? Radico has smaller portion of revenue coming from P&A as compared to USL and hence there is further scope of EBITDA margin improvement due to more brand launches in premium segments. Do you have some view on how important marketing is in all this? Does Radico have some advantage in terms of digital marketing or so? I also found it surprising that in the recent quarter (Q1FY2020), USL reported loss on operating level, because of loss due to ageing inventory but Radico did not have any similar thing. So there has to be some fundamental difference between both company’s operations.


Thanks for the details above. However, for long term investors, if you believe in the story and management, don’t you think that derating is an opportunity to invest in MNCs like US and UB?
I will try to get hold of the book you mention and check it out. Thanks

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Very apt question. I was also not sure about this and would be good to know the reason if someone can highlight. US is now from the stable of Diageo and its books can be trusted. Around 75 cr of that loss comes from the “raise the bar” initiative they started.

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Really a very good question. It always helps to compare with peers to find the sources of competitive advantages. Unfortunately, I so far didn’t do such a comparison of Radico with United Spirits. However, intrigued by your question I took a quick glance at the last 4 quarter performances of United Spirits and Radico.

I found that both the companies are following the similar strategy of premiumization and so the revenue growh difference must not have stemmed from that.

Usually there is always an easy answer to a question like this: USL generates almost 20 times more revenue that Radico, and growing revenues on greater revenue base is always tough.

However, with higher revenues comes more ability to spend on A&P. According to the last 2018-19 AR Radico is spending more on A&SP.

Advertising & Sales Promotion expenses as a % of the Company’s IMFL revenues stood at 8.3% compared with 6.3% for the last year.

However, that is still minimal compared to USL even if they spend only 2% on A&SP. I was unable to find the exact figure of USL in the last AR.

In this respect it has to be mentioned that due to the ban on direct advertising by alcoholic beverage companies it is very hard to promote new as well as existing brands.

AFAIK, Radico is focusing on increasing its social media presence and making targeted marketing invesments. I’m not sure why USL with deeper pockets won’t do the same (not checked)! Following is from Q4FY20 concall of Radico:

So as far as digital is concerned, Radico in the last two years has actually taken all its marketing initiatives a notch above by concentrating on the social media platforms and the various other options of Google network. Now, this has given us very positive results in the sense that we have now been filtering down to who consumer is, what his geography is and we know exactly who are our consumers for Brandy, Vodka and Whiskeys so that is the kind of details we have gone into. The other aspect that we feel that because we are finding huge interface with the right kind of target audience in consumers directly with our brands, we have taken all our Brandy, Vodka and Whiskey, on the social media platform and we are right now concentrating on events, which are largely online…

They are also focusing on online sales, but there also both the companies will benefit.

Radico is the market leader in UP (according to HDFC Sec Report) and according to them demand in UP is recovering faster than other regions. UP also is one of the largest in alcohol consumption. In UP they were growing at high teens even in Q3.

It also seems that Radico is using their small size to remain nimble and is launching their new portfolio in targeted states based on their digital analytics. And then based on the feedbacks and futher analytics launching in other states. I believe such a strategy is not practicable for USL given their greater size for which they are forced to go for national level launch which sometimes lead to lower sells in some territories.

There must be some other strategies which are playing out but grossly it seems that the nimbleness associated with smaller size and proactive management is the positive points for Radico. Apologise for a somewhat superficial reply. I will try to come up with better insights if I find time to do deeper comparative analysis.

Source: Concall Transcripts, ARs and HDFC Reports on RKL and USL.


I believe in the long term consumption trend of alcohols but not comfortable with the political system of India which changes laws associated with alcohols / cigarettes frequently making these stories vulnerable. It is only when the good companies are smaller that they seem to defy the regulations and grow fast (like VST Industries in Cigarettes) but the similar stories when grow bigger start lagging in growth (See USL, ITC’s Cigarette department).

The profit growth by USL (the exact peer of Radico, UBL is into Beer where Radico isn’t present) is mainly by margin expansion done via cost optimization and premiumization. Margin expansion has a limit and is likely to stop sometimes in future and then the revenue growth will be the principal driver of profit growth. So, it is understandable why the market is derating USL.

Investment when derating is ongoing is a very painful process. It is like investing in ITC since 2015 when it was growing in high single digits and still prices were remaining in sideways and then started to tumble in late 2019. I am much comfortable in investing in such stories if become somewhat confident that the derating has ceased and the growth drivers are visible, even if somewhat distant.


The report attached by you from Hdfc has it, it’s close to 8-9% of net revenue on yearly basis, though this quarter it was less as per management on concall because of lockdown, even radico spent less on A&P in this quarter.

USL is anyways now following Diageo’s global system for A&SP which will bring its cost down and spends are going to be more beneficial and targeted.