Radico Khaitan Declares 150% Dividend, Scrip Gets Reduce Rating, Has Significant Potential Downside

HDFC Securities has given a reduced rating to Radico Khaitan, a distillery & chemical alcohol manufacturing mid-cap company, stocks. The alcohol manufacturing company posted a weak Q4FY23, but declared a dividend of 150%. Based on the recent numbers, the brokerage firm feels that the share price of this mid-cap company will fall roughly by 22.48% and reach Rs 900 per share.

Q4FY23 performance
Radico Khaitan posted a weak Q4FY23, with EBITDAM at 9.5% (a 30-quarter low) and PAT falling by 20% despite sustained P&A outperformance. Net sales grew mere by 2% YoY, below HDFC Securities' estimate of 5%, with IMFL volumes marginally declining by 0.7% to
7.24 million cases (four-year CAGR at 9%).

P&A volume and revenue grew by 17 and 18%, above the estimated growth of 14 and 15%, on a four-year CAGR basis, volumes grew in the high teens, noted HDFC Securities. While the regular volume and revenue have fallen by 23 and 26%, higher than expected fall of 22 and 16%.

Further, the gross margin contracted by 215/70bps YoY/QoQ to 40.6%, which has been the lowest of the past many years. It has been impacted by sustained commodity inflation and losses in non-IMFL, which in turn dipped the EBITDA by 30/270bps YoY/QoQ to 9.5%, down from the assumed 11.7%.

Management guidance
HDFC Securities report highlighted that Radico remains optimistic about exiting FY24 with mid-teen EBITDA, led by sustained momentum in P&A, price hikes in IMFL, softening raw material pricing, and efficiency gains from in-house capacities. The company will consciously rationalize regular portfolio volumes to mitigate cost pressures.

Valuation & Rating
Although HDFC Securities remains positive about Radico's success in product innovation and luxury portfolio scale-up, the demand for the mid-price segment is expected to be muted. The costs related to capex and slower margin recovery will continue to impact earnings. "Hence, we cut our estimates by 8/3% for FY24/25. We value Radico at 30x P/E on Mar-25 EPS to arrive at a price target of Rs 900. Maintain REDUCE", it added.

Dividend Details
The Radico Khaitan directors, in the board meeting held on May 25, recommended a dividend of Rs 3 (150 %) per fully paid-up equity share of Rs 2 each for the financial year 2022-23. It is subject to the approval of members at the ensuing annual general meeting (AGM). On approval, it will be paid within 30 days from declaration at AGM. No record date or book closure details were shared by the company.

Share Price Movement
The latest stock price of Radico Khaitan is Rs 1,160.10 per share, which ended up 1.81% on an intraday basis. Over the last one year, the share price has surged by 42.24%, and in the last three years, the price has zoomed by 251.23%.

Disclaimer
The stocks have been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the author, and the brokerage firm are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.