Company Detail Report

CMP: 421.15 JAN 24th, 2019 RADICO KHAITAN LTD ISIN: Overweight Result Update (PARENT BASIS): Q3 FY19 INE944F01028 Index Details SYNOPSIS Stock Data Radico Khaitan Limited (Radico Khaitan) is among Sector Breweries & Distilleries the oldest and one of the largest manufacturers of BSE Code 532497 Indian Made Foreign Liquor (IMFL) in India. Face Value 2.00 52wk. High / Low (Rs.) 500.00/297.90 The company achieved a turnover of Rs. 20583.69 Volume (2wk. Avg.) 70000 million for Q3 FY 2018-19 as against Rs. 17417.84 Market Cap (Rs. in mn.) 56142.45 million in the corresponding quarter of the previous year, up by 18.18%. Annual Estimated Results(A*: Actual / E*: Estimated) During the quarter, EBIDTA stood at Rs. 989.57 Years (Rs. in mn) FY18A FY19E FY20E million as against Rs. 817.41 million in the Net Sales 62703.64 80351.92 100439.90 corresponding period of the previous year, up by EBITDA 2964.24 3819.79 4622.33 21.06%. Net Profit 1234.53 1978.97 2537.82 Profit before tax (PBT) increased by 47.16% to Rs. EPS 9.26 14.85 19.04 802.37 million in Q3 FY19 as compared to Rs. P/E 45.48 28.37 22.12 545.24 million in the corresponding quarter of the previous year. Shareholding Pattern (%) During the 3rd quarter, net profit increased by As on Dec 2018 As on Sep 2018 48.79% to Rs. 520.98 million from Rs. 350.14 Promoter 40.38 40.38 million in the corresponding quarter ending of previous year. Public 59.62 59.62 EPS of the company stood at Rs. 3.91 in Q3 FY19 -- -- Others against Rs. 2.63 in the corresponding quarter of the previous year. 1 Year Comparative Graph Revenue of the company for 9M FY19 registered a growth of 31.93% at Rs. 60797.41 million as against Rs. 46081.35 million in 9M FY18. During 9M FY19, PAT of the company rose by 66.86% at Rs. 1490.12 million as compared to Rs. 893.03 million in 9M FY18. Net Sales and PAT of the company are expected to grow at a CAGR of 24% and 36% over 2017 to 2020E, respectively. RADICO KHAITAN LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Radico Khaitan Ltd 421.15 56142.45 13.74 30.65 4.92 50.00 Som Distilleries and Breweries Ltd 148.25 4626.10 8.31 17.84 2.81 15.00 Pincon Spirit Ltd 7.17 342.70 10.35 0.69 0.23 7.50 GM Breweries Ltd 538.50 9842.50 45.41 11.86 3.38 30.00

Results updates- Q3 FY19,

(Rs. in mn) Dec-18 Dec-17 % Change

Revenue 20583.69 17417.84 18.18%

PAT 520.98 350.14 48.79%

EPS 3.91 2.63 48.75%

EBIDTA 989.57 817.41 21.06%

The company’s net profit stood at Rs. 520.98 million as compared to Rs. 350.14 million in the corresponding quarter ending of previous year, higher by 48.79%. Revenue for the 3rd quarter rose by 18.18% to Rs. 20583.69 million from Rs. 17417.84 million in the corresponding quarter ending of previous year. Reported earnings per share of the company stood at Rs. 3.91 a share in Q3 FY19 against Rs. 2.63 in the corresponding quarter of the previous year. Profit before interest, depreciation and tax is Rs. 989.57 million as against Rs. 817.41 million in the corresponding period of the previous year.

Break up of Expenditure,

Value in Rs. Million Break up of Expenditure Q3 % Q3 FY18 FY19 Chng Cost of Materials 2797.28 2285.47 22% Consumed Purchase of Stock in 2.94 143.83 -98% Trade

Excise Duty on Sales 15054.37 12592.59 20%

Employees Benefit 432.69 404.70 7% Expense Depreciation, 108.85 103.13 6% Amortisation & Expenses

Selling & Distribution 723.19 591.13 22%

Other Expenses 630.48 583.45 8%

Radico Khaitan Limited (Radico Khaitan) is among the oldest and one of the largest manufacturers of Indian Made Foreign Liquor (IMFL) in India. Earlier known as Rampur Distillery, Radico Khaitan commenced its operations in 1943 and over the years emerged as a major bulk spirits supplier and bottler to other spirit manufacturers. Driven by the vision of the promoters, in 1998 the Company started its own brands with the introduction of 8PM Whisky. Radico Khaitan is one of the few companies in India to have developed its entire brand portfolio organically. This is a true testament to the Company’s R&D strength and understanding of customer preferences. The Company’s brand portfolio includes After Dark Whisky, Contessa Rum, Magic Moments Vodka, Morpheus Brandy, Old Admiral Brandy and 8PM Whisky. Currently, the Company has four millionaire brands which are 8PM Whisky, Contessa Rum, Old Admiral Brandy and Magic Moments Vodka. Each of these brands sell more than a million cases per year.

Over the years Radico Khaitan has been focusing on the premiumisation of its portfolio. The Company has launched six new brands in the past five years, all of which are in the premium category. Radico Khaitan is also one of the largest providers of branded IMFL to the Canteen Stores Department (CSD), which has significant business barriers to entry. The Company has three distilleries in Rampur, Uttar Pradesh and one in Aurangabad, Maharashtra which is a 36% joint venture. The Company has a total owned capacity of 157 million litres and operates 28 contract bottling units spread across the country.

Document code: FOTL_240120195_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as of March 31, 2017 -2020E FY17A FY18A FY19E FY20E ASSETS 1) Non-Current Assets a) Property, plant and equipment 6828.72 6676.91 7010.75 7501.51 b) Capital Work in Progress 22.01 201.91 302.86 448.23 c) Intangible assets 209.48 178.01 163.77 157.22 d) Financial Assets i) Investments in a joint venture 1553.85 1553.85 1631.55 1729.44 ii) Investments in others 0.06 0.06 0.06 0.07 iii) Loans 633.02 290.13 246.61 221.95 iv) Others 9.18 21.75 27.84 34.80 e) Other non -current assets 1306.63 999.53 899.58 854.60 Sub Total Non- Current Assets 10562.96 9922.15 10283.02 10947.81 2) Current Assets a) Inventories 2930.33 3108.57 3264.00 3459.84 b) Financial Assets i) Investments 500.00 500.00 525.00 556.50 ii) Trade receivables 6240.11 6300.11 6615.11 7078.17 iii) Cash and Bank balances 81.11 167.65 251.48 372.19 iv) Other Bank balances 59.57 55.89 58.69 61.03 v) Loans 587.42 544.92 517.67 502.14 vi) Other 203.53 250.84 298.50 349.24 c) Current tax assets (Net) 41.35 0.23 0.16 0.12 d) Other current assets 995.43 1461.22 2074.94 2884.16 Sub - Total Current Assets 11638.85 12389.43 13605.55 15263.40 Total Assets (1+2) 22201.81 22311.58 23888.57 26211.21 EQUITY AND LIABILITIES 1) EQUITY a) Equity Share Capital 266.08 266.62 266.62 266.62 b) Other equity 10032.79 11154.58 13133.55 15671.37 Total Equity 10298.87 11421.20 13400.17 15937.99 2) Non Current Liabilities a) Financial Liabilities i) Borrowings 1033.08 343.98 275.18 233.91 ii) Other 6.00 6.82 7.50 8.10 b) Provisions 83.71 98.06 111.79 125.20 c) Deferred Tax Liabilities (net) 692.62 925.24 1031.81 1134.99 d) Other non -current liabilities 1.91 3.52 4.39 5.27 Sub - Total Non Current Liabilities 1817.31 1377.61 1430.68 1507.47 3) Current Liabilities a) Financial Liabilities i) Borrowings 5509.15 4878.01 4438.99 4172.65 ii) Trade payables 1853.28 2141.35 2269.83 2287.01 iii) Others 1553.89 835.29 517.88 336.62 b) Other Current Liabilities 767.09 842.43 892.97 937.62 c) Provisions 402.22 815.69 938.05 1031.85 Sub - Total Current Liabilities 10085.63 9512.77 9057.72 8765.75 Total Equity and Liabilities (1+2+3) 22201.81 22311.58 23888.57 26211.21 Document code: FOTL_240120195_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E Description 12m 12m 12m 12m Net Sales 48679.55 62703.64 80351.92 100439.90 Other Income 196.47 266.70 129.45 152.75 Total Income 48876.01 62970.35 80481.37 100592.65 Expenditure -46566.63 -60006.11 -76661.58 -95970.33 Operating Profit 2309.38 2964.24 3819.79 4622.33 Interest -803.84 -682.44 -353.97 -290.25 Gross profit 1505.54 2281.80 3465.82 4332.07 Depreciation -417.03 -409.00 -432.02 -462.27 Profit Before Tax 1088.51 1872.80 3033.80 3869.81 Tax -287.81 -638.26 -1054.82 -1331.99 Net Profit 800.70 1234.53 1978.97 2537.82 Equity capital 266.08 266.62 266.62 266.62 Reserves 10032.79 11154.58 13133.55 15671.37 Face value 2.00 2.00 2.00 2.00 EPS 6.02 9.26 14.85 19.04

Quarterly Profit & Loss Statement for the period of 30th June, 2018 to 31st Mar, 2019E

Value(Rs.in.mn) 30-Jun-18 30-Sep-18 31-Dec-18 31-Mar-19E Description 3m 3m 3m 3m Net sales 21152.76 19060.96 20583.69 19554.51 Other income 27.34 42.06 27.55 32.50 Total Income 21180.10 19103.02 20611.24 19587.01 Expenditure -20240.93 -18143.99 -19621.66 -18655.00 Operating profit 939.17 959.03 989.57 932.01 Interest -109.55 -91.63 -78.35 -74.43 Gross profit 829.62 867.40 911.22 857.58 Depreciation -101.44 -107.44 -108.85 -114.30 Profit Before Tax 728.18 759.96 802.37 743.28 Tax -254.45 -264.55 -281.39 -254.43 Net Profit 473.73 495.41 520.98 488.86 Equity capital 266.62 266.62 266.62 266.62 Face value 2.00 2.00 2.00 2.00 EPS 3.55 3.72 3.91 3.67

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 6.02 9.26 14.85 19.04 EBITDA Margin (%) 4.74% 4.73% 4.75% 4.60% PBT Margin (%) 2.24% 2.99% 3.78% 3.85% PAT Margin (%) 1.64% 1.97% 2.46% 2.53% P/E Ratio (x) 69.98 45.48 28.37 22.12 ROE (%) 7.77% 10.81% 14.77% 15.92% ROCE (%) 16.19% 20.27% 23.47% 24.99% Debt Equity Ratio 0.64 0.46 0.35 0.28 EV/EBITDA (x) 26.82 20.46 15.71 12.89 Book Value (Rs.) 77.41 85.68 100.52 119.56 P/BV 5.44 4.92 4.19 3.52 Charts

. At the current market price of Rs. 408.50, the stock P/E ratio is at 28.37 x FY19E and 22.12 x FY20E respectively.

. Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 14.85 and Rs. 19.04 respectively.

. Net Sales and PAT of the company are expected to grow at a CAGR of 24% and 36% over 2017 to 2020E, respectively.

. On the basis of EV/EBITDA, the stock trades at 15.71 x for FY19E and 12.89 x for FY20E.

. Price to Book Value of the stock is expected to be at 4.19 x and 3.52 x for FY19E and FY20E respectively.

. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

Industry Overview

Consumer Sector

India has the largest millennial population globally in absolute terms. People in the age bracket of 18-35 years account for 440 million individuals or about 34% of India’s population. This young population is well educated, increasingly informed and is the key wage earner accounting for over two-thirds of total household income. With this background, this population group has significant purchasing power and disposable income and plays a key role in driving consumer sector growth in India.

Furthermore, increased government spending and relatively better rainfall have driven rural consumption growth in India over the past couple of years. Rural markets account for half of India’s GDP. With increased affordability, higher awareness and better accessibility these markets now represent increased potential for the consumer sector demand.

Document code: FOTL_240120195_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved Technology is playing a pivotal role as a key enabler across the entire consumer value chain from supply chain to delivery of final products to the customer’s doorstep.

Spirits Industry in India

After a difficult FY2016, the current fiscal year had a slow start being impacted by demonetization tailwinds, state level prohibitions, a national highway liquor ban and the operational challenges with the implementation of GST. However, the second half of the current fiscal year experienced a significantly improved operating environment resulting in a robust industry performance.

The Supreme Court relaxed the national highway liquor ban to take city limits out of its purview. While Kerala relaxed its prohibition to allow spirits in three and four star hotels, Bihar allowed spirit manufacturers to export products which were previously left unsold due to the ban. A number of key liquor consuming states have provided price increases thereby improving margins for the manufacturers.

Furthermore, recent policy updates led to the change in route-to-market for a few states such as West Bengal moving to a government owned and controlled distribution model. Government owned distributors are preferred for organised industry players as they work under a cash and-carry model which has very limited credit risk. The state of Uttar Pradesh recently announced a new excise policy which is aimed at transparency and improving the operating environment.

According to Euro monitor, during CY2017 overall IMFL volumes increased by 2.3% to 299 million cases of 9 litres each. Although in the short term the spirits industry has faced significant challenges, the long-term dynamics of the industry remain intact. Growing disposable incomes, increasing rural consumption, greater acceptance of social drinking and a higher proportion of the young population entering the drinking age, are all factors that make India one of top markets for global spirit companies. These demographics also support the case for the growth of aspirational brands and premium products.

Traditionally, brown spirits which include Whisky, Brandy and Dark Rum, have been the major contributors (96.2%) towards overall IMFL sales. During CY2017, whisky constituted the largest segment with 60.8% of the sales volumes and 73.3% of the value. Whisky industry volumes increased by 2.9% during the year, whereas value growth was significantly higher at 6.5% compared with last year. White Spirits such as vodka and gin account for 3.8% of the total IMFL volumes and 6.1% of the value. The industry’s focus on premium brands has enabled manufacturers to identify relatively less price sensitive consumers that ultimately drive value growth.

Within the White Spirits category, super-premium and premium vodka continued to demonstrate growth with sales for the year at 5.8 million cases. Over the past five years, where the overall vodka category has registered a compounded growth of 4.3%, super-premium and premium vodka volumes have increased at 16.7% and 9.4%, respectively. Vodka is broadly positioned as a drink for women and the younger generation, which has led to this strong volume growth. Due to its relatively neutral taste, vodka is most suited for blending and cocktails. Flavored vodka continues to gain popularity and market share. It now constitutes about a third of the overall vodka industry and has grown at a rate of 12.3% over CY2012-2017. During CY2017, premium and super premium category vodka accounted for about 68.1% of the total

Document code: FOTL_240120195_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved vodka volumes compared with around 50.5% five years ago. This trend is expected to continue and the share of premium category vodka is anticipated to increase further. Overall vodka industry volume is expected to grow by 4.2% CAGR and value by 9.7% during the CY2018-2022 period. Radico Khaitan is extremely well positioned with the market leading share in this segment with its Magic Moments brand.

While Rum as a category registered a 0.9% decline in volumes over CY2012-2017, premium category rum increased by 2.3% over the same period. To capture this growth trend, Radico Khaitan recently launched two brands in the premium rum segment – Pluton Bay and 1965 The Spirit of Victory, a brand dedicated to the courage, valor and sacrifices of the Indian armed forces.

The Indian Spirits Industry Outlook

IMFL volume is expected to reach 339 million cases in CY2022. During the CY2018-2022 period IMFL sales volume is expected to grow at a CAGR of 2.6%. During the same period IMFL industry value is expected to grow by 5.8% making a case for the ongoing premiumisation trend. The vodka industry is expected to perform much better during the same period with volume growth of 4.2% and value growth of 9.7%. The continued advancement of the economy, increasing disposable incomes particularly with the younger Indian, the rise of the middle class and rapid rural consumption growth will all drive the future of the spirits industry which is expected to be centered around premium brands. Consumer needs and preferences are evolving and they are now more focused on quality, convenience, value proposition and personalization to suit their styles and values. Social media has taken the center stage and has become the core marketing channel for customer engagement.

India has a young demographic profile with a median age of 28 years and around 67% of the population is within the legal drinking age. These two indicators represent significant growth opportunities for the industry. The youth segment is expected to redefine consumption growth given their access and exposure to mobiles and the internet. This consumer group is more focused on the customer experience offered by a product, in particular its brand and design. They are not only increasing in number but will also become more affluent with time. As a group, they are a high priority target market for the leading spirits manufacturers, who are particularly focused on effective online marketing strategies and lifestyle- oriented communication. With rising aspiration levels and increasing disposable income, consumers are upgrading towards premium segments, within IMFL or international brands.

Packaging redesign, new product development and variants of existing products continued to be the key growth strategies for both domestic and multinational spirits companies. There was also a strong focus on identifying India specific consumer preferences and then localizing products with hand-craftsmanship. During the year, Radico Khaitan successfully launched Jaisalmer Indian Craft gin in the luxury segment. This product is positioned in the fast growing white spirits segment and targeted to appeal the young consumers in the developed markets.

Goods & Services Tax (GST):

GST has been one of the biggest indirect tax reforms in India. It is believed to transform the taxation structure and bring more transparency and improve operating environment. Further, due to the elimination of multiple levels of taxation, it is

Document code: FOTL_240120195_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved expected to benefit the end consumers. Liquor has been kept out of the purview of GST as was under earlier central indirect tax laws, hence there is no additional tax impact. Due to the elimination of multiple level taxes, the Company has been benefitted on the cost of input materials. Overall, the impact of GST implementation has been neutral for Radico Khaitan.

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