Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Radico Khaitan Limited Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon. Over to you, sir.

Hi, everyone. It's a wonderful good evening to all of you. Today, we have with us Mr. Abhishek Khaitan, Managing Director; Mr. Dilip Banthiya, Chief Financial Officer; Mr. Sanjeev Banga, President of International Business; and Mr. Sudhir Upadhyay, Chief Sales Officer, all representing Radico. Now I would like to hand over the call to Mr. Abhishek Khaitan for his opening remarks. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen, and thank you for joining us on Radico Khaitan's Q1 FY '27 Earnings Conference Call. We are pleased to report another strong quarter carrying forward the momentum from FY 2026. During Q1 FY '27, we reported highest ever quarterly volume of 10 million cases, revenue of INR 1,684 crores and EBITDA of INR 348 crores. Our performance was driven by the continued success of our premiumization strategy with our P&A portfolio delivering 36% volume growth during the quarter and significantly outpacing the industry. Despite a dynamic global environment, marked by geopolitical uncertainties and supply chain challenges, we expanded our operating margins through a richer product mix, disciplined cost management and continued operational excellence. The quarter was also a strong demonstration of our ability to translate strategy into execution. Alongside robust business performance, we expanded the distribution of our luxury portfolio, strengthened brand advocacy through consumer experiences, significantly enhanced our on-trade presence and forged strategic partnerships that will support long-term brand equity. These initiatives reinforce our confidence that the investments we continue to make behind our brands, are creating a stronger and more sustainable platform for future growth. Turning to our brand portfolio. We believe India's vodka category has entered a multiyear structural growth phase, driven by changing consumer preferences, favorable demographics, premiumization and evolving consumption occasions. India's vodka category has grown at over 20% CAGR between FY '22 and FY '26, significantly ahead of broader IMFL growth. While vodka accounts for nearly 28% of the global spirits market, its share in the Indian IMFL industry has increased from 4.6% in Q1 FY '26 to 6% in Q1 FY '27. This highlights the accelerating pace of category development and the significant headroom that remains. Magic Moment continues to lead the category with over 60% market share and even stronger position in its core price segment. The brand delivered a landmark performance during the quarter with 3.25 million cases at a growth rate of 43% year-on-year. In value terms, the growth was 51%, indicating a strong premiumization trend. The performance was driven by strong consumer acceptance and our flavor-led innovation strategy. Flavored vodka industry today account for 75% of our volumes, up from 65% last year. Vodka also offers attractive unit economics supported by lower production costs and significant premiumization potential, making it one of the most attractive long-term growth strategies within the Indian Alcobev industry. Going forward, we will continue to focus on new flavor innovations to drive the industry and sustain strong growth in our portfolio. Across our broad premium portfolio, Royal Ranthambore, 8PM Premium Black, and After Dark Blue continue to build strong consumer traction, each supported by differentiated brand building initiatives. The limited edition Royal Ranthambore Pack has been well received with its storytelling around India's six legendary tigers, strengthening the brand's premium positioning while supporting wildlife conservation. 8PM Premium Black gained further momentum during the quarter, supported by its partnership with Sunrisers Hyderabad in the recent IPL season. Improved brand visibility and strong consumer acceptance contributed to a healthy increase in market share in key markets. The recently introduced contemporary packaging for After Dark whiskey is expected to further enhance the brand's premium appeal and support market share gains in the largest whiskey segment of the industry. Looking ahead, we expect our P&A portfolio to deliver over 25% volume growth during FY '27, supported by a robust innovation pipeline, expanding distribution and favorable industry trends. With premium brands accounting for an increasing share of our business, we remain confident of sustaining EBITDA margin of around 20% for FY '27 while continuing to invest behind our brands and strengthen our long-term competitive position. With that, I would now like to hand over the call to our CFO, Dilip Banthiya, for a detailed review of our financial and operational performance. Thank you, everyone, and over to you, Dilip.

Thank you, Abhishek. Thank you, everyone, for joining us on this call today. FY '27 has started with a strong financial momentum as we continue to deliver higher profitability, margin expansion, improved returns and strong cash generation. Our performance is testament to the strength of our business model, driven by premiumization, operating leverage, input cost stability and persistent focus on disciplined execution and capital allocation. During quarter 1 of FY '27, we delivered a strong all-round performance with total IMFL volume of 10 million cases, reflecting 3% year-on-year growth. The Prestige & Above category continued its strong upward trajectory, recording 36% volume growth. This performance was supported by a strong brand momentum and premiumization-led mix improvement. Regular volume degrowth was due to higher base of quarter 1 of FY '26 after the change of route to the market in the state of Andhra Pradesh and impact of policy changes in Maharashtra and Karnataka. On profitability front, gross margin during the quarter was 49.1%, representing 610 basis point expansion on a year-on-year basis and 110 basis point expansion on quarter-on-quarter basis. Gross margin improved on a year-on-year basis due to relatively benign raw material scenario, coupled with ongoing premiumization. Raw material accounted for 75 basis points of gross margin expansion during the quarter. This is despite the recent volatility in the packing material prices, which resulted in approximately INR 30 crores of financial impact. While company continues to monitor the West Asia prices, we are confident of our margin expansion trajectory in FY '27. Furthermore, the impact of price increase in quarter 1 of FY '27 is about 75 basis points. EBITDA margin for the quarter stood at 20.7%, expanding by 536 basis points on a year-on-year basis, highest ever level. This strong improvement reflects the success of our premiumization strategy, better operating efficiencies and continued cost discipline. It also highlights the benefit of our consistent investment in building a strong premium luxury portfolio over the years. Building on our strong financial performance, both ROE and ROCE improved during the quarter, supported by higher operating profit and better asset utilization. As the premium and luxury portfolio continue to expand, we expect our capital efficiency and return ratios to further improve. Further strengthening our financial position, we have reduced our net debt by INR 138 crores since March '26, supported by a healthy profitability and robust cash generation. Our balance sheet remains strong. We are on track to become net debt free by quarter 2 of FY '27. We remain disciplined in our approach to capital allocation with CapEx directed towards maintenance, operational efficiency and essential capacity optimization. Looking ahead, our priority remains clear: driving profitable growth, maintaining a strong balance sheet, improved capital efficiency and creating long-term shareholder value. With that, we now open the lines for questions.

[Operator Instructions] The first question is from the line of Aditya Soman from CLSA India Private Limited.

So two questions from me. One, can you give us a sense of growth for key luxury brands like Rampur, maybe Royal Ranthambore and any others you want to call out? And then the total sort of luxury brand sales, and if you can give us some sense of the growth on these brands? And the second question is on the margins. Obviously, very strong performance in this quarter. How do you see these margins sort of sustain and evolve from here? Any sense on that, particularly if, let's say, E&A costs were to rise again down the line? And corollary to that is how much of a connection is there to E&A cost anymore given that you're selling about more P&A products.

To answer your first question on the luxury portfolio, last year, we had a total turnover of about INR 475 crores, which came from our luxury portfolio. And we gave a guidance of 25% increase in the sales value of our luxury portfolio. And I think we are on absolute target to achieve the 25% growth in our luxury portfolio. And second about your margin question, we've already given a guidance that we are confident of achieving 20% EBITDA margin in the current year where there will be pluses there can be minuses. But overall, we feel because of our strong momentum growth in the P&A segment, we should be able to sustain these margins.

I think on the second question, just a quick follow-up. Again, I saw the guidance on the 25% growth. My question was, do you think this is the right level [Indiscernible] 20% margin. Do you think this is the right level of margin on a steady-state basis? Or do you think there's still room for further expansion?

What we had guided, we have achieved in one year. I think first, we are looking at 20%. And when we come closer to the year, more clarity will come. So I think as of now, we stick to the 20% EBITDA margin for the current year.

The next question is from the line of Dhiraj Mistry from Jefferies.

My first question is on Morpheus whiskey that we launched in Prestige segment. Where are we in our journey? And how that brand has been scaling up now?

This is Sudhir Upadhyay. See, Morpheus whiskey is launched in quite a competitive segment, which is large enough. So the brand is right now, we have launched in around 10 to 12 states. We have an initial amount of traction, but I think it's a journey which will go on because it's a competitive segment. So you'll still wait and watch for the results to come for Morpheus.

And how is the initial response, let's say, whatever you have gathered from the 10 states, are you gaining or let's say, how is the consumer traction from this brand?

See, the way we work on, we completely believe in the distribution part, we believe in the full strategy. So distribution has been done. There is a positive side of traction, which is there from consumer in some of the markets. And we know that it will take some amount of time in seeding and all. So as of now, it is positive, and we will keep on pushing the brand.

Got it. And in line with that question, in this current financial year, which would be the wide gaps you would like to fill in your portfolio?

In the current fiscal, there will be more innovation, which will be coming in the vodka side of new flavors being added. in the current year itself, we will be getting our tequila also. So these would be the few items. And rest, we have enough on our platter and enough growth, which now has started taking shape like the Royal Ranthambore, Virasat Indian single malt, which has got a huge response from the market. So I think we are going to concentrate in the current year on all these brands.

Got it. And second question is on margin front. So 20.7% margin is quite excellent. But can you divide this margin between your non-IMFL business and IMFL business for the quarter?

Non-IMFL business margin is around 11%, 11.5% and the rest margins like the overall margin is 20.7%. So you can work out, I think it is 23% plus on the IMFL.

Got it. But is this 11%, 11.5% for non-IMFL business is sustainable, because historically, there has been quite volatile performance, let's say, from mid-single digit to high single digit usually we report and compared to that 11% looks high.

Generally, the margin used to be in the range of 8% to 11% in the past, but because of some inflationary pressure two years back, the margin came down to mid-single digit and 6%, 7%. But we feel that these are sustainable margins in non-IMFL.

Got it. And last question from my end is on capital allocation, given that we have only INR 100 crores of debt and we would be virtually become debt free next quarter onwards. And I know that you have already announced 20% dividend payout policy. But after incurring INR 150 crores to INR 200 crores of CapEx also, there would be substantial money would be left on the table. What's your future plan for that? Let's say, you would be increasing your dividend payout ratio or would do some CapEx or acquisition on that front?

See, right now, we have made a target of becoming a debt-free company, which we are going to become a debt-free company. Last quarter, we also announced a minimum dividend distribution policy of 20%. So I think on becoming a debt-free and the cash acquisition, we will go for any acquisition only if it makes sense to the shareholders because if you see the history of Radico, we have always grown organically. So as of now, there is our maintenance CapEx would be in the range of INR 150 crores to INR 170 crores. And rest of the money as the Board decides, we will be doing that.

The next question is from the line of Harit Kapoor from Investec.

Just had two questions. One was on After Dark. The brand has done exceptionally well since you relaunched it a few years back. I was just trying to understand that given that the trajectory has been very strong even last two years, what prompted a kind of repackaging relaunch kind of strategy because it was doing very well. Is it centered around certain markets that you think that refresh was needed? A little bit more color on that would be helpful.

See, actually, this After Dark segment is one of the largest segments. Last year, we reported a growth of 50% in volumes. We did about 3 million cases. And we have done a total internal study with the research. And then we have come out with this beautiful After Dark Blue, which resonates with the consumer and the market is very big. And in fact, we've launched it in Uttar Pradesh, where we are getting very positive signals. So I think we are very confident that After Dark Blue in the coming years will become a very good brand, we should see good momentum in the brand.

And is there a blend change also?

No.

Got it. And the second question was really on the India, U.K. FTA change. Just wanted to get your sense on pricing promotion laddering, any changes that you expect from a portfolio perspective, given that global competitors will make some pricing changes just the matter of fact that they have bottled in origin. Just wanted your thought process on what peaks you may need to make over the next few months? Is there something in the pipeline already, et cetera?

See, right now, it's too early to comment. But with our estimate, even if they pass on the retail price will go down by only 7% to 8%. Secondly, if you see our single malts are already priced higher than the competition. Like Rampur Double Cask would be the average rate would be about INR 8,000 to INR 8,500. Virasat brand what we have done will be in the range of INR 4,000. So as it is, we are priced higher than that. And today's consumer is looking at quality brands. So I think as of now, our strategy remains the same. We will continue to focus on our single malts and continue to spend behind that.

The next question is from the line of Sanjay Manyal from DAM Capital Advisors.

A few questions, specifically first on the UK FTA. So what kind of a competition you think is panning out in the luxury segment, specifically? Any early signs of this extensive competition? Any major brands where you think that now would be imported by the competitor?

Right now, it is too soon to comment. But as I said in my earlier answer also is our luxury portfolio is very different. And we are into the single malt category where the price elasticity is a lot, and it all depends on the consumer preference. And also, if you've seen the Indian single malt is outpacing the global malt in India. So I think it's a long way to go. And more than price, it is the taste. Where our luxury portfolio differentiates from the competition. And also in the global markets, we are competing with all the global giants. So I think this will not be such a move at all.

Right, sir. Sir, just one more thing on the luxury part itself. What I understand it must be closer to 3% of the total India IMFL volumes. Is there any sense you can get what would be the value contribution from the luxury part industry-wise, industry-wide question?

So value you mean sales-wise?

Yes, sir.

Very difficult. It should be [Indiscernible] double. I think then…

Okay. Right. And maybe if you can give some sense about any sort of changes you have seen in the Karnataka, actually in both Popular and the P&A segment, what kind of impact we have seen on both Popular and P&A?

See Karnataka, it has been a very, very progressive side of the policy. And we have seen the government the way they are going on. They have rationalized the premium brand pricing 1.5 years back also. And at that time, there was a P&A growth of around 28% and our P&A category has doubled the volume at that time. Now again, taking the learnings from there, they have again rationalized the pricing for the premium brands. And this time, the P&A category has grown for the quarter 1, I'm talking, the P&A category has grown by 9% whereas our portfolio of P&A has grown by 83%. So it is a very positive side of it. The government is thinking on the right line. And since we have a strong portfolio there of all the brands. So when you talk about Rampur Single Malt or Jaisalmer Indian Craft Gin, or Sangam, Virasat, Royal Ranthambore and then Morpheus Brandy, Magic Moments, After Dark, so that's a strong portfolio which we have. So we are pretty positive on that side. And considering the cosmo culture in Karnataka, we think that it has a long way to go.

Right, right, sir. And lastly, on the ENA part, I just want to understand, given the fact that the kind of growth you have seen in the last few years, I believe your requirement for the ENA would have gone up substantially versus I believe your capacity is close to INR 30 crores, if I'm not wrong. So any plans to sort of increase the capacity for the capital requirement?

I think the outsourced ENA for the mass brand is available. And with the capacity expansion done in last two, three years, most of the states are becoming ENA surplus. So I don't think that there is any compelling reason to go for CapEx and do another capacity expansion. But in future, as we are completely becoming debt free, if it arises and the need arises that we can generate that kind of ROI, then we will think about it. But as of now.

And what is the requirement, total requirement now, ENA requirement?

So our total requirement is in the range of around INR 28 crores to INR 30 crores between our IMFL and non-IMFL both put together, and between our Rampur, Sitapur plant and our joint venture, we make 33 crore liters. So some we sell because of the logistic reason in the from UP, but that quantity we buy in Southern states and some Eastern states.

The next question is from the line of Abneesh Roy from Nuvama Wealth.

On great set of numbers again. My first question is on South India, specifically Tamil Nadu and Karnataka. Tamil Nadu, of course, the buzz is there that government there will reform the sector. And today, the news has come that TASMAC shops will be privatized. I wanted to understand, historically, how big you have been in Tamil Nadu market. And given there are other examples of privatization in other states, do you see a big potential for your company and industry in Tamil Nadu based on whatever assumptions are available? I know we don't have the details, but fair to take the examples from other states. And then Karnataka post the tax reform, the number of slabs have become half and clearly, there is much higher growth at mid and premium end of P&A. If you could comment on how things have evolved for you and for the industry because everyone is seeing very strong growth there in the last one or two months in the mid and top end of the P&L. That is my first question.

So to answer your first question about Tamil Nadu, Tamil Nadu is the largest market of the country. And all the signs are positive, they have also started ordering on the tertiary trail, and there are a lot of industry meetings also going with the excise. So I wish and pray that it becomes an open market. And like Andhra, when it opened up, we didn't know that we'll become the largest there with 25%, 26% market share. Tamil Nadu is basically a brandy market. And our Morpheus brand is doing exceedingly well in the premium space. So it's a wait and watch, but it can be a very big market for the entire liquor. And to your second question about Karnataka, I think Karnataka has the most progressive policy what they have come out with. And the P&A growth in the first quarter has been 9% of the industry, whereas our P&A growth has been 83%. So I think, and right now, the MRPs are just getting settled. So the exact effect will start coming from July onwards. So I think Karnataka will be a very interesting industry for the P&A category for the industry and especially Radico.

Sure. My second question is slightly structural. When we hear the con call of any liquor company, we hear very similar thing that everyone is launching flavored vodka, flavored spirits, flavored this flavored that; so you have been one of the early [ movers ] here and you have done exceedingly well. My question is, will this become a challenge going ahead at some stage that differentiation then will become a problem because in this kind of a me-too strategy, which other companies are also doing, then what will happen in such a scenario? Everyone will have the same flavored, Guava flavored this, flavored that. So I wanted to understand that from an innovation perspective.