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.