The last financial year has been a particularly difficult one for the Indian spirits industry. Apart from the increase in duties and taxes, higher raw material costs without corresponding price increases, the Indian spirits industry faced many other challenges like demonetisation, state level prohibitions and national highway liquor ban. These uncontrollable events in succession led to a slowdown in industry growth, but it has settled down in the last few months. Though GST will be positive for the development of the economy, it has medium term challenges for this particular industry. Even though alcohol has been kept out of GST purview, other input raw material costs are actually covered under GST and this may lead to slight pressures in operating margins. But this could be offset by growing volumes in spirit sales on the back of higher proportion of younger population entering the drinking age, greater acceptance to social drinking, higher disposable income and global spirit manufacturing companies identifying India as one of their top consumer markets. A rapidly growing Indian economy is providing a fresh stimulus to the consumer sector and the country is expected to become the third largest consumer market in the world. Rapid urbanisation, rising affluence and changing consumer patterns towards better quality and lifestyle products are supposed to be the key growth drivers. Technology has been a key enabler across the complete supply chain, up to the delivery of the final product at the customer’s doorstep. Radico Khaitan is one of the oldest and largest manufacturers of “Indian Made Foreign Liquor” in the country, having commenced operations in 1943. The company has been a pioneer in setting industry trends with blue-chip large selling brands like 8PM Whisky, Magic Moments Vodka, Contessa Rum and Old Admiral Brandy, among many others. 8PM was their first brand launched in 1999, which managed to create a record of sort with a million cases in sales within a year of its launch. Apart from the flamboyant success of 8PM and Old Admiral Brandy, another of their successful hot selling brands is Magic Moments Vodka. The packaging is quite unique with a frosted bottle and a guitar shaped glass window and is a big hit with consumers. On the other hand, Contessa Rum with a prominent market share in its category sells largely to the Indian Army’s Canteen Store Department (CSD). Radico Khaitan is expected to show excellent financial results over the next few years, with the earnings per share expected to be over Rs 11.60 and Rs 14 for FY19 and FY20, respectively. Even the net sales and PAT are expected to grow at a CAGR of 20% to 25% over the next few years. The Radico Khaitan stock, currently quoting at Rs 395 on the Indian bourses, is an excellent fundamental buy for the medium term, with a 25% price appreciation.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.