Radico Khaitan stock price target raised to INR3,544 by Investec on strong growth

Investec has raised its price target on Radico Khaitan Ltd (NS:RDCK) to INR3,544.00 from INR3,184.00, maintaining a Buy rating, following the Indian spirits company's strong second-quarter performance. The company reported 33.8% revenue growth to Rs14,939 million, driven by a 37.1% increase in Indian-made foreign liquor sales and expanded operating margins due to operating leverage and a richer product mix. Despite current valuations at 52 times FY27 estimated earnings exceeding historical averages, Investec projects significantly enhanced revenue, EBITDA, and EPS compound annual growth rates of 14/26/37% over FY25-28, citing favorable conditions from premium portfolio scale-up, new product launches, and stable raw material costs.

Analysis

Investec has reiterated its Buy rating on Radico Khaitan (RADC) and raised its price target to INR3,544.00 from INR3,184.00, following a robust Q2 performance. The Indian spirits company reported a significant 33.8% year-over-year revenue growth, reaching Rs14,939 million, primarily driven by a 37.1% increase in Indian-made foreign liquor (IMFL) sales volumes. This strong top-line expansion was accompanied by operating margin improvement, attributed to operating leverage and a favorable product mix. Gross margins remained stable year-over-year while improving quarter-over-quarter.

The analyst highlights several factors underpinning future growth, including the sustained expansion of Radico Khaitan's premium portfolio, successful new product launches, and stable raw material costs. These conditions are expected to fuel substantial improvements in the company's financial trajectory. Investec projects impressive revenue, EBITDA, and EPS compound annual growth rates of 14%, 26%, and 37% respectively, for FY25-28.

Despite current valuations trading at 52 times FY27 estimated earnings, which surpasses the five-year average of approximately 45 times, Investec maintains its positive outlook. The firm believes Radico's enhanced growth and margin profile justifies this premium. The projected growth rates for FY25-28 significantly exceed the 15%, 8%, and 6% CAGRs observed between FY19-24, indicating a substantial acceleration in profitability.

Key Decisions for Investors

• Consider Radico Khaitan (RADC) for long-term growth portfolios given Investec's raised price target and strong projected earnings growth despite current valuation premiums.
• Monitor the company's continued premium portfolio expansion and new product launch success, as these are key drivers for the projected enhanced growth and margin profile.
• Evaluate the sustainability of stable raw material costs and operating leverage as critical factors in maintaining the positive operating margin trajectory.