24 March 2025 || Alcohol Industry || Radico Khaitan-part 2

Regulatory Reforms Driving Industry Growth

• Karnataka: The state has streamlined excise slabs, reducing the number of slabs from 18 to 16, simplifying pricing and reducing inter-state smuggling. This correction, particularly in the P&A segment, is expected to boost volume growth for Radico, which holds a 70/30 split of regular/P&A products.

• Andhra Pradesh: A key market (10% of industry volumes), transitioning from government-controlled distribution to private retail.

  • 3,736 liquor shops were auctioned in Oct 2024, enabling private retailers to sell IMFL (Indian-made foreign liquor) and boosting margins.

• Telangana: The government plans to clear dues owed to liquor companies by March 2025, restoring normal supply to the state beverage corporation and driving volume recovery.

• Gujarat: The traditionally dry state has allowed liquor to be served in GIFT City, opening up a new market for premium and luxury spirits.

Premiumisation Driving Growth

• Revenue Mix Shift:

  • The Prestige & Above (P&A) segment, which contributed 70% of sales in FY24, is expected to increase to 82% by FY27.

  • This is driven by consumer preference for luxury and semi-luxury brands, supported by improved distribution and product innovation.

• Luxury & Semi-Luxury Growth:

  • Recent premium launches like Royal Ranthambore Whisky, Jaisalmer Gold Gin, and Kohinoor Rum are boosting the luxury segment.

  • Expanded malt capacity will support the production of premium whisky brands, strengthening Radico’s presence in this high-margin category.

• Core Market Execution:

  • Radico is enhancing its go-to-market strategy in key regions like Uttar Pradesh, expanding into low-salience markets in South India.

  • Foray into new indigenous categories such as Mahua to diversify the product portfolio.

Financial Performance and Projections

• Revenue Growth:

  • 15% CAGR over FY24-27, driven by premiumisation and volume expansion.

  • The IMFL segment, contributing 70% of sales, is projected to grow at a 17% CAGR.

  • The non-IMFL segment (30% of sales) is expected to grow at 10% CAGR, with Uttar Pradesh Manufactured Liquor (UPML) leading the segment due to better realisations.

• Profitability:

  • EBITDA Margin: Expanding from 12.7% in FY24 to 16.5% in FY27, driven by premiumisation, backward integration, and cost-saving measures.

  • Net Profit: Expected to grow from INR 2,622 million in FY24 to INR 6,235 million in FY27, reflecting a 33% PAT CAGR.

  • EPS: Projected to reach INR 46.6 in FY27, up from INR 19.6 in FY24.

Cost Optimisation and Backward Integration

• Raw Material Costs:

  • ENA (Extra Neutral Alcohol) prices are expected to decline due to above-average monsoons and in-house ENA production from the Sitapur distillery, improving gross margins by 400 bps over FY24-27.

• Packaging Cost Savings:

  • Radico is shifting from glass bottles to PET bottles in the regular segment, reducing packaging costs.

  • Removal of mono cartons and introduction of low-unit packs (LUP) for premium brands will further enhance margins.

• Sitapur Distillery Expansion:

  • The 350 KLPD Sitapur distillery will double Radico’s total capacity to 213.3 million liters, improving cost efficiency through in-house production.

Product Portfolio and Expansion

• Vodka (Magic Moments):

  • Radico holds a 60%+ market share in the vodka segment, driven by premiumisation with brands like Magic Moments Dazzle.

  • Expansion into flavoured and cocktail vodkas with high-margin variants such as Gold and Silver editions.

• Whisky (8 PM):

  • The 8 PM Black label is driving premiumisation, with volumes expected to reach 4.5 million cases by FY27, up from 3 million cases in FY24.

  • Royal Ranthambore Whisky has seen 100% volume growth in FY24, with further scaling expected in FY25.

• Gin (Jaisalmer):

  • Expansion into luxury gin with the launch of Jaisalmer Gold edition (priced at a 50% premium to the base variant), catering to the fast-growing craft gin segment.

• Rum:

  • Launch of Kohinoor Reserve Indian Dark Rum, a luxury rum priced at around $50 per bottle, targeting global markets like the USA, UK, and EU.

Key Risks

• Regulatory Changes:

  • State-level policy changes, including potential tax hikes or tighter distribution regulations, could impact volumes and profitability.

• Raw Material Volatility:

  • Although ENA prices are expected to decline, unforeseen supply chain disruptions could increase costs.

• Competition:

  • Rising competition in the luxury and semi-luxury segments from new entrants and established players could limit Radico's market share gains.

Conclusion

Radico Khaitan is well-positioned for robust growth driven by premiumisation, backward integration, and cost optimisation measures. The double-digit revenue growth is backed by margin expansion, and the scaling of luxury and semi-luxury brands. The company's strategic focus on cost efficiencies, expanded distribution, and entry into new product categories makes it an attractive long-term investment.

12 March 2025 || Day 2/100 - Alcohol Industry || Allied Blenders

Financial Highlights

Revenue & EBITDA Growth: ABD is projected to achieve a 10% revenue CAGR and a 30% EBITDA CAGR over FY24-27E. This growth is largely driven by the expansion of the P&A segment, premiumization, and cost-saving initiatives.

• Profitability:

  • EBITDA margins are expected to expand from 7.3% in FY24 to 12.3% in FY27, driven by premium product launches, backward integration, and price hikes in key states.

  • Net profit is forecasted to surge from INR 67 million in FY24 to INR 2,623 million in FY27, reflecting robust operational efficiency and margin expansion.

• Revenue Split:

  • The P&A segment is expected to contribute 55% of total revenue by FY27, up from 47% in FY24, driven by higher realisations from premium brands.

  • The mass premium segment, led by Officer’s Choice, will see slower growth, stabilising at 45% of revenue by FY27.

Product Portfolio and Growth Strategy

• Premiumisation Trend: ABD is capitalising on the shift towards premium and luxury spirits with ICONiQ White Whisky and Sterling Reserve. ICONiQ has already achieved 2.3 million cases in FY24 and is expected to double volumes in FY25 as it expands into key markets like Karnataka and Andhra Pradesh.

• Backward Integration:

  • ABD has acquired a distillery in Maharashtra, expanding its ENA production capacity from 11 million litres p.a. to 63 million litres p.a. over three years, covering two-thirds of its ENA needs, which will improve cost efficiency.

  • A new malt maturation facility in Telangana will support the production of luxury products, while a PET bottle manufacturing plant with a capacity of 615 million bottles will reduce packaging costs.

• Cost-saving Measures:

  • ABD is driving cost efficiencies by gradually removing monocartons from packaging and introducing PET bottles, which are cheaper than glass.

  • The company has also launched tetrapacks for smaller Officer's Choice Whisky packaging in three states, aiming to expand this cost-effective format.

Market and Distribution

• Market Share: ABD is the third-largest IMFL company in India by sales volume, with an 8.2% market share in FY23. The company sold 31.7 million cases in FY24, maintaining a strong foothold in the industry.

• Extensive Distribution Network:

  • ABD has a pan-India distribution network spanning 79,000+ retail outlets across 30 states and UTs. This vast reach gives it a competitive advantage in a highly regulated industry where entry barriers are high.

  • The company also exports to 14 international markets, boosting its global presence.

• Strategic Partnerships:

  • ABD has partnered with Roust Corporation to distribute Russian Standard Vodka in India. This premium vodka, priced between INR 2,200 and INR 5,000, will enhance ABD’s presence in the growing vodka market.

  • The company has also entered into a strategic partnership with Bollywood actor Ranveer Singh to promote its premium and luxury spirits, with ABD holding an 80% equity stake in the venture.

Key Risks

• Regulatory Uncertainty: State-specific policies could significantly impact ABD’s growth. A potential ban on spirits in key states or increased taxation could reduce sales and profitability.

• Raw Material Price Volatility: ABD is highly exposed to fluctuations in ENA and glass prices, which make up two-thirds of its raw material costs. Price hikes in these commodities could pressure margins.

• Consumer Preferences: Shifts in alcohol consumption trends or the rising popularity of craft and niche spirits could reduce the demand for ABD’s mass premium products.

Overall Conclusion

ABD is positioned for strong growth driven by premiumization, backward integration, and cost-saving initiatives. The upside potential, supported by double-digit revenue growth, margin expansion, and new product launches in premium and luxury segments. With a robust distribution network and strategic partnerships, ABD is expected to sustain its market leadership and enhance profitability over the next few years.

11 March 2025 || Day 1/100 - Healthcare Industry

I have decided to move forward with only 2 sectors Healthcare and Alco Bev as it wasn't very practical to track 3 sectors at the same time. 

In this blog i talk about how to evaluate healthcare sector. Here we will understand about how the hospitals model work, Comparing KPIs used to evaluate stocks across the spectrum and finally valuation multiples to evaluate the company. 

Low cyclicality business - Demand in hospitals business is rarely affected by the market conditions because economic conditions have nothing to do with people getting sick, as it was witnessed that even during periods of recession where revenues remained constant with minute adverse effect in Margins.

Capital requirements - To establish a hospital huge sums of capital is required to invest in land, building, Highly specialized Doctors, Intricate Medical equipments, high working requirements to keep the hospital up and running. Investing in substantial amount of capital means investing for long term which requires long term commitment from the promoters to even bear losses in initial years as hospitals have a big gestation periods.

Economies of scale - Hospitals are generally 

Mature Hospitals

Insurance Coverage

Regulatory Risk

Occupancy Rate

ARPOB

Avg length of stay

Payor Mix

Revenue Growth

Earnings growth

EBITDA Margin

Capex

EV/EBITDA

10 March 2025 || Day 0/100

 I have decided to pick 3 sectors. 

I am questioning myself why? why not just 1? that is what has been suggested by everyone

because 1 i am familiar with but not an expert in is alcobev sector and it won't do any addition if i just pick that sector. 

Ok then why not 2? you'll have an easy hand on alcobev but also a new sector to learn.

Yes good point, but i recently started reading on healthcare sector and i can't get away from my fascination of this sector as the sector is evolving at a rapid pace with AI integration and the substantial amount of PE deals happening in the sector. which is the ultimate place i want to be.

Understood. Then you should just stick with these 2 sectors. why put one more ball in your basket?

Because most IB analyst positions or equity research positions under my sight are looking specifically for Real estate sector specifically.

Ohh so you just wanna learn about real estate because it might land you a job opportunity.

Pretty much yes but one more thing, I have never been able to figure out this sector like what do companies in real estate do? are they just construction companies or are they just real estate selling companies via tender. Actually this question was partially answered by my friend recently who has 3 years of workex in real estate. It includes the rebars/re-inforcing bars and other construction materials too, i mean that is what i remember.

Maybe you don't remember it correctly.

Possible but i still wanna pick 3 sectors as this is the number which popped in my head as soon as i thought of picking the number of sectors to track. and also i do have a little time on my side, I'll just have to restrict fun for a while, which is ok considering that i am doing this for my future self.

Sure if you are ok going into this then go for it.

It is Final then, I am picking Alcobev industry, Heathcare industry and Real estate industry.

And the players i'll be focusing are 

Alcobev - United Spirits || Radico Khaitan || Allied Blenders

Healthcare - Max Healthcare || Apollo Hospitals || Dr. Lal pathlabs

Real estate - DLF || Macrotech Developers || Oberoi Realty

All set!