1

May 5th, 2010

Stock Data

Sector Breweries & Distilleries

Face Value(Rs) Rs.2.00

52 wk. High/Low (Rs.) Rs.136.50/62.50

Volume (2 wk. Avg.) 94000

BSE Code 532497

Market Cap(Rs in Mn) 12902.03

Financials (Rs in Mn) FY08 FY09 FY10E FY11E

Net Sales 8094.12 6960.29 8557.45 9584.34

EBIDTA 952.96 806.35 1429.92 1616.01

PAT 330.71 65.36 447.70 545.30

EPS 3.23 0.64 4.35 5.30

P/E 33.85 196.74 28.82 23.66

RADICO KHAITAN LTD

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SYNOPSIS Radico Khaitan (RKL) is one of India's oldest and largest liquor manufacturers. Formerly known as Rampur Distillery which was established in 1943. The Company’s manufacturing plants are located at Uttar Pradesh, Rajasthan, Andhra Pradesh, Uttaranchal and Haryana. The company entered into 50:50 joint ventures with Diageo Radico Distilleries to market Masterstroke Whisky. The company has more than 35,000 shareholders. It is the most profitable company in the domestic liquor industry. The company has presence in 30 countries and offers a unique 5cl Sachet pack for greater market penetration. The company owns largest distilleries in Asia and produces Extra Neutral Alcohol from molasses and grains. It is the largest exporter of Extra Neutral Alcohol from India. RKL has set up a second grain-based distillery in Aurangabad, Maharashtra with an investment of Rs136 crore. The Company plans to capture significant volumes into the high liquor consuming markets like Kerala, Tamil Nadu, and Andhra Pradesh and increase its market share in other existing markets The Company aims to achieve sales volume of more than 20 million cases per year in next 2 years. Net Sales and PAT of the company are expected to grow at a CAGR of 6% and 18% over 2008 to 2011E respectively.

1 Year Comparative Graph

RADICO KHAITAN LTD BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.125.50 Rs.144.00

Share Holding Pattern

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Peer Group Comparison

Name of the company CMP(Rs.)

Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/BV(x) Dividend (%)

Radico Khaitan 125.50 12902.03 0.64 196.74 5.81 15.00

United Spirits 1258.00 15780.93 31.92 39.36 4.47 20.00

United Brew 203.50 4884.98 4.22 48.22 5.85 30.00

Empee Dist 119.50 227.35 - - 0.97 50.00

Investment Highlights

Q3 FY10 Results Update

RADICO KHAITAN LTD disclosed results for the quarter ended December 2009. Net

sales for the quarter moved up 34.24% to Rs.2378.13 million as compared to Rs.

1771.51 million during the corresponding quarter last year. During the quarter,

PAT is increased to Rs.115.25 million from Rs. (68.04) million in previous year

same quarter. The Basic EPS of the company stood at Rs.1.12 for the quarter

ended December 2009.

Quarterly Results - Standalone (Rs in mn)

As At Dec-09 Dec-08 %Change

Net sales 2378.13 1771.51 34.24%

PAT 115.25 (68.04) 269%

Basic EPS 1.12 (0.66) 269%

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Basic EPS of the company stood at Rs.1.12

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Allotment of Equity Shares

Radico Khaitan Ltd has allotted 62939 equity shares of Rs 2/- each to the eligible

employees on exercise of stock options under the Employees Stock Option Scheme

2006 (ESOP) of the Company. The paid up Equity Share Capital of the Company

post allotment is 13,18,93,464 Equity Shares of Rs 2/- each aggregating Rs.

26,37,86,928/-.

Radico Khaitan allots 2,89,19,000 equity shares to QIB

Radico Khaitan has approved the allotment of 2,89,19,000 equity shares of Rs 2

each at a price of Rs 118.19 per equity share, which includes a premium of Rs

116.19 per equity share, aggregating Rs 3,41,79,36,610 to Qualified Institutional

Buyers (QIB).

Break Up of Expenditure

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Company Profile

Radico Khaitan (RKL), established in 1943 as Rampur Distillery, is one of the India's

oldest and largest liquor manufacturers. The company owns three millionaire brands

namely 8 PM Whisky, Contessa Rum and Old Admiral Brandy. Its 8 PM Whisky brand

sold one million cases in first year alone creating a record or any Indian or foreign

brand operating in India. Due this it became first brand in the liquor industry to make

it to the Limca Book of Records. Radico Khaitan has been successful in creating

brands in various segments of whisky, rum, brandy, vodka and gin. In 1997 the

company got merged with Abhishek Cement and was renamed as Radico Khaitan.

Its Rampur distillery located at Uttar Pradesh is one the largest distilleries in India

and a leading manufacturer of Extra Neutral Alcohol, Rectified Spirit and Anhydrous

Alcohol. Recently grain distillery was added to the existing distillery increasing it

production capacity from 60 million litres p. a to 90 million litres p.a. Company’s

manufacturing plants are located at Uttar Pradesh, Rajasthan, Andhra Pradesh,

Uttaranchal and Haryana.The company entered into 50:50 joint venture with Diageo

Radico Distilleries to market Masterstroke Whisky. The company has presence in 30

countries and offers a unique 5cl Sachet pack for greater market penetration. The

company owns largest distilleries in Asia and produces Extra Neutral Alcohol from

molasses and grains. It is the largest exporter of Extra Neutral Alcohol from India.

Company Products

Whisky

It launched 8 PM whisky in 1999, which later became one of the biggest brands. Later

it launched various brands like Whytehall, Rampur No.1, Radico Supreme Gold,

Special Appointment and Old Admiral.

Rum

Under this it has launched 8 PM Bermuda, Contessa and Old Admiral.

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Brandy

It markets brandy under the name Old Admiral and 8 PM Excellency Brandy.

Vodka

It markets vodka under brand name Contessa and Magic Moments (remix and grain).

It also manufactures Gin and markets under the brand Magic Moment and Contessa.

Distilleries & Units

Rampur Distillery

Rampur Distillery is one of the largest distilleries in India and a leading manufacturer

of Extra Neutral Alcohol (used in manufacturing Indian Made foreign Liquor) it also

manufacturers Rectified Spirit (used in manufacturing of lower segments Country

Liquor) and manufacturing of Anhydrous Alcohol or Ethanol or Gasohol (used in Petrol

Mixing) and the recent addition of grain distillery . At present with a production

capacity of 60 million liters p. a and with the recent addition of the grain distillery

which has taken the capacity up to 90 million lit p.a it is one of the largest distilleries

in the country The Unit has a series of firsts to its credit:

It is the first Indian distillery to obtain ISO 9001:2000 certifications.

It has achieved capacity utilization of over 100% in the alcohol plant.

It is the first environment-friendly distillery in the country.

Capacity

Molasses Distillery 60 million litres per annum.

Grain Distillery 30 million litres per annum.

Malt Distillery 460 thousands liters per annum.

The overall licensed capacity has been increased to 125 million liters per

annum.

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Own Bottling Units

Rampur Distillery has 14 state-of-the-art bottling lines, including those imported from

Italy, equipped with tunnel bottle washing, filling, sealing and labeling machines with

a capacity to produce 1500 cases (1 case = 12 bottles of 750 ml each) of liquor in a

single shift of operation. Line capacities vary from 750 cases to 3,000 cases in a shift.

To keep pace with the growing demand, Radico Khaitan has significantly increased its

bottling capacity by acquiring/setting up bottling plants in the states of Rajasthan,

Uttranchal and Andhra Pradesh.

Rampur Distillery, Rampur (Uttar Pradesh).

Radico Khaitan Limited – Malt spirit Plant, Rampur.

Radico Khaitan Ltd., Bajpur (Uttaranchal).

Radico Khaitan Ltd., Reengus (Rajasthan).

Radico Khaitan Limited – Grain Spirit Plant.

Radico Khaitan Ltd., Hyderabad (Andhra Pradesh).

Strategic Bottling Units

Radico Khaitan Ltd is working continuously towards increasing its reach through the

strategic bottling units across the country. The focus underlines comprehensive

quality control and enhanced market penetration.

NORTH

N V Distilleries & Breweries Ltd., (Punjab).

Himalayan Gold Distilleries (Himachal Pradesh).

Oakland Bottlers (P) Ltd. (Jammu & Kashmir).

M/s Rajasthan Liquors Pvt Ltd Derabassi (Punjab).

M/s NID – Jammu.

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EAST

Goodhost Liquors (P) Ltd., Patna, (Bihar).

M/s Prashant Impex –Dankuni, Kolkata, (West Bengal).

Seven Sisters Trade & Distilleries (P) Ltd., Guwahati.(Assam).

Bacchus Bottling (P) Ltd., (Orissa).

United Brothers Distilleries (P) Ltd., (Arunachal Pradesh).

Gemini Distilleries (Jharkhand) (P) Ltd., Ranchi, (Jharkhand).

M/s Uno-Koti Bottling – Tripura.

M/s North-East Bottling – Shillong Meghalaya (To be closed in 2008-09).

SOUTH

Kamal Wineries, Hyderabad (Andhra Pradesh).

M/s Gauthami Agro – Eluru (Andhra Pradesh).

Ravikumar Distilleries (Pondicherry).

United Distillery, Calicut, (Kerala).

Sri Venkateswara Distilleries, Bangalore, (Karnataka).

BT & FC (P) Ltd., Bangalore, (Karnataka).

Midas Golden, Chennai, (Tamil Nadu).

M/s EMPEE DISTILLERIES – CHENNAI.

M/S SAFIL – CHENNAI – (Being started in 2008-09).

DRDPL (DIAGEO-RADICO) – M/S CHAMUNDI BOTTLING –BANGALORE.

WEST

M/S BMSS – SHRIPUR (Maharashtra).

Welcome Distilleries, Bilaspur. (Chattisgarh)

Silver Start Distillery, (Daman).

Gwalior Distillers, Gwalior (Madhya Pradesh).

DRDPL (DIAGEO-RADICO) – M/S AABPL-BARWAHA, INDORE (Madhya

Pradesh).

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Strengths

Strong Financials.

Wide distribution network.

Effective advertising.

Opportunities

The Company plans to capture significant volumes into the high liquor

consuming markets like Kerala, Tamil Nadu, and Andhra Pradesh and also to

increase its market share in the other existing markets. Company aims to

achieve sales volume of more than 20 million cases per year in next 2 years.

The Company has also re-launched its 'Royale Whytehall' whisky in new pack

in the key markets. Company believes that its branded portfolio constitutes

significant value creation for its shareholders.

The key drivers for growth of the company in future would be launching of new

brands and increase in the volumes in various markets, acquisitions of brands

and creation of own production facilities for bottling, major thrust to exports

including bottling arrangements abroad.

Threats

Higher prices of Molasses.

Industry suffers from high levels of duties and taxes.

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Financials Results

12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in million) FY08A FY09A FY10E FY11E

12m 12m 12m 12m

Description

Net Sales 8094.12 6960.29 8557.45 9584.34

Other Income 141.02 10.57 31.45 34.59

Total Income 8235.14 6970.86 8588.90 9618.94

Expenditure -7282.18 -6164.51 -7158.98 -8002.93

Operating Profit 952.96 806.35 1429.92 1616.01

Interest -371.71 -451.47 -629.30 -679.65

Gross Profit 581.25 354.88 800.61 936.36

Depreciation -189.84 -231.22 -250.63 -263.16

Profit before Tax 391.41 123.66 549.99 673.20

Tax -60.70 -58.30 -102.29 -127.91

Profit after Tax 330.71 65.36 447.70 545.30

Equity Capital 204.92 204.92 205.61 205.61

Reserves 2155.84 2007.26 2454.96 3000.26

Face Value(Rs) 2.00 2.00 2.00 2.00

EPS 3.23 0.64 4.35 5.30

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in million) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 1930.29 1870.90 2378.13 2378.13

Other Income 0.35 30.53 0.27 0.30

Total Income 1930.64 1901.43 2378.40 2378.43

Expenditure -1591.28 -1551.92 -2018.15 -1997.63

Operating Profit 339.36 349.51 360.25 380.80

Interest -153.62 -160.16 -156.20 -159.32

Gross Profit 185.74 189.35 204.05 221.47

Depreciation -62.50 -62.50 -62.50 -63.13

Profit before Tax 123.24 126.85 141.55 158.35

Tax -16.20 -29.70 -26.30 -30.09

Profit after Tax 107.04 97.15 115.25 128.26

Equity Capital 204.92 204.92 205.61 205.61

Face Value 2.00 2.00 2.00 2.00

EPS 1.04 0.95 1.12 1.25

*A=Actual, *E=Estimated

Key Ratios

Particulars FY08 FY09 FY10E FY11E

EPS (Rs.) 3.23 0.64 4.35 5.30

EBITDA Margin (%) 11.77% 11.59% 16.71% 16.86%

PAT Margin (%) 4.09% 0.94% 5.23% 5.69%

P/E Ratio (x) 33.85 196.74 28.82 23.66

ROE (%) 14.01% 2.95% 16.83% 17.01%

ROCE (%) 9.83% 6.24% 11.78% 12.38%

EV/EBITDA (x) 11.75 15.95 9.02 7.98

Debt-Equity Ratio 2.29 3.17 2.76 2.41

Book Value (Rs.) 23.04 21.59 25.88 31.18

P/BV 4.74 5.81 4.85 4.02

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Charts:

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Outlook and Conclusion

At the current market price of Rs.125.50, the stock is trading at 28.82 x FY10E

and 23.66 x FY11E respectively.

Price to Book Value of the stock is expected to be at 4.85 x and 4.02 x

respectively for FY10E and FY11E.

Earning per share (EPS) of the company for the earnings for FY10E and FY11E

is seen at Rs.4.35 and Rs.5.30 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 6% and

18% over 2008 to 2011E respectively.

The company has more than 35,000 shareholders. It is the most profitable

company in the domestic liquor industry.

The company has presence in 30 countries and offers a unique 5cl Sachet pack

for greater market penetration.

RKL has set up a second grain-based distillery in Aurangabad, Maharashtra

with an investment of Rs136 crore.

The Company plans to capture significant volumes into the high liquor

consuming markets like Kerala, Tamil Nadu, and Andhra Pradesh and increase

its market share in other existing markets The Company aims to achieve sales

volume of more than 20 million cases per year in next 2 years.

On the basis of EV/EBITDA, the stock trades at 9.02 x for FY10E and 7.98 x

for FY11E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.144.00 for Medium to Long term investment.

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Industry Overview

Globally, over 133 billion litres of beer is sold each year. In comparison, the Indian

beer Industry contributes a meagre 1.28% of the global sales. The industry has been

witnessing on an average, a steady growth of about 10% per year over the last ten

years with volumes crossing 172 million cases in 2008-2009 from 70 million cases in

2002. With a relatively younger population and income levels on the rise, India is

seeing an increase in the popularity of beer.

Consumption of beer in India is also constrained by lack of adequate market

infrastructure. In China for instance, there is one outlet for every 300 persons. In

contrast, India has one outlet for every 21,000 persons hampering free availability of

beer. Total consumption of beer in China grew by 33.56% between the years 2000

and 2006 to reach a total market volume of 30.47 billion litres. With a per capita

consumption of 22 litres, China is one of the largest beer consuming nations in the

world.

Though beer is a milder form of alcohol, it is taxed by most states on the same basis

as Spirits. The charge is on absolute alcohol basis. Globally on a per unit of alcohol

basis, beer bears approximately 50% of levies imposed on Spirits whereas in India

taxation is regressive on beer.

India is predominantly a hard liquor market and beer has a minority preference

amongst those who consume alcohol. The per capita consumption of beer constitute

a meagre 3% of global average. Typically the size of beer volumes in most countries is

7 to 10 times larger than spirits, whereas in India, spirits is larger.

The alcoholic beverage industry in India operates under a very complex regulatory

environment which is the biggest challenge. In addition to restrictions on advertising,

distribution infrastructure and retailing, varied tax structures, controlled pricing and

licensing make operations more complex, consequently leading to higher costs,

though providing entry barriers for new entrants as well.

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The Indian beer market is dominated by strong beer which accounts for 74% of the

total beer sale.

The market for alcoholic beverages has been growing consistently. 'The Future of

Wine', a report on the state of the wine industry over 50 years, suggests that the

market for wine in India was growing at over 25 per cent per year.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

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