Radico Khaitan Limited (RADICO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Radico Khaitan Limited Q2 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that, this conference is being recorded. I now hand the conference over to Mr. Ashutosh Joytiraditya from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Anam. Hello, and good afternoon, everyone, present on the call. On behalf of ICICI Securities, I welcome you on Radico Khaitan Limited's Q2 FY '27 earnings call. I would like to thank the management for giving this opportunity of hosting the call. From the management, we have Mr. Abhishek Khaitan, MD; Mr. Dilip Banthiya, CFO; Mr. Sanjeev Banga, President, International Business; Mr. Sudhir Upadhyay, Chief Sales Officer; and Mr. Saket Somani, Deputy CFO. I will now hand the call over to Mr. Abhishek for any opening remarks. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen, and thank you for joining us on Radico Khaitan's Q2 FY '27 Earnings Conference Call. The second quarter of FY '27 has been the strongest in our history with record volumes, revenue and profitability. During the quarter, IMFL volumes stood at over 10 million cases, revenue at INR 1,746 crores and EBITDA at INR 356 crores, with an EBITDA margin of 20.4%. Two quarters in, the consistency of this delivery gives us great confidence in the year ahead. Premiumization remains at the heart of this performance. Our Prestige & Above portfolio grew 36% in volume during the quarter, well ahead of the industry and continues to enrich our mix with every passing quarter. In vodka, the structural shift we have spoken about is gathering pace, with the category share of IMFL reaching 6.3% in Q2. Flavors are driving this change and Magic Moments is shaping it. In August, we launched Magic Moments Aam Panna, bringing a nostalgic flavor cherished in every Indian household into a contemporary format, supported by a digital-first campaign. Consumer response has been encouraging and tertiary offtake across the Magic Moments family remains healthy. In whisky, After Dark's modern new look is resonating well in the largest segment of the market, and we are extending it to more states. 8PM Premium Black whisky continues to gain momentum and market share, while Royal Ranthambore continues to perform well across civil and CSD channels. Our luxury portfolio, including Rampur Indian Single Malt, Jaisalmer Indian Craft Gin and Virasat Indian Single Malt continue to receive an exceptional response from connoisseurs in India and abroad. And we are steadily taking Virasat to new states. Brand advocacy remains central to this effort. During the quarter, we continue to partnership and premium shops in shop formats at retail. The policy environment across key states continues to be progressive and supportive, and we see this as a meaningful tailwind for organized premium-led players like Radico in the years ahead. Internationally, we also became the first Indian spirits company to be present across 4 major U.K. airports, a proud moment for the Indian whisky in the home of Scotch. And we continue to progress towards our target of 100 travel retail outlets in the times to come. At the same time, the global environment has turned increasingly volatile. We are seeing continued volatility in the raw material and packaging costs. We are managing this through sharper procurement, value engineering, our integrated manufacturing platform and a richer product mix. These levers give us the resilience to stay the course. Looking ahead, we have upgraded our Prestige & Above volume growth to 30% in FY '27, and we remain confident of sustaining an EBITDA margin of around 20% for the year. Before I close, an important update on our leadership. Effective today, Dilip Banthiya joins the Board as Executive Director and CFO, bringing his deep financial, capital allocations and alcobev industry experience to the board. Saket Somani has been elevated to Deputy CFO with an expanded mandate across strategy, financial planning, Investor Relations and digital transformation. These elevations reflect our belief in nurturing talent from within. As we enter the festive season, I would like to wish you all and your families a very happy and prosperous Diwali. With that, I would now like to hand over the call to our Executive Director and CFO, Dilip Banthiya, for a detailed review of our financial and operational performance. Thank you.

Thank you, Abhishek. Thank you, everyone, for joining us on this call today. Before I begin, I would like to thank the Board for its confidence in me. The momentum we built in the first quarter was sustained through Q2 with strong volume growth, higher profitability and improved returns. Our performance reflects the resilience of our business model, driven by premiumization, operating leverage and persistent focus on disciplined execution, even as the input cost environment has turned more volatile. During quarter 2 of FY '27, we delivered a strong all-round performance with total IMFL volume of over 10 million cases, reflecting a 7% year-on-year growth. The Prestige & Above category continued its strong upward trajectory, recording a highest ever volume of 5.28 million cases at 36% volume growth. This performance was supported by a strong brand momentum and premiumization-led mix improvement. Regular volume degrowth was due to a higher base in quarter 2 of last year after the change in route to the market in the state of Andhra Pradesh and the impact of policy changing in Maharashtra and Karnataka. On profitability front, gross margin during the quarter is 48%, representing 440 basis point expansion on a year-on-year basis and 109 basis point compression on quarter-on-quarter basis. This improvement on a year-on-year basis is due to the ongoing premiumization, product mix, premiumization added 510 basis points and the price increases added 85 basis points. This was offset to a certain extent by the recent volatility in packaging material, which resulted into approximately INR 27 crores of financial impact. The gross margin was impacted sequentially due to some cyclical brand mix change and inflation in grain prices. Despite an uncertain macro environment, we are confident of our margin trajectory in financial year '27. To mitigate the impact of increasing grain prices to a large extent, we have built a higher level of stocks, which has supported us through quarter 2 of FY '27. EBITDA margin for the quarter stood at 20.4%, expanding by 462 basis on a year-on-year basis. The strong improvement reflects the success of premiumization strategy, better operating efficiency, continued cost discipline. It also highlights the benefit of our consistent investment in building a strong premium and luxury brand 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 assets utilization. As the premium and luxury portfolio continue to expand, we expect our capital efficiency and return ratio to improve further. During the quarter, we made a deliberate investment in working capital to support the strong growth in our premium portfolio, new launches and secure key raw material and packaging material amid the price volatility. This is temporary, and we expect to normalize during the second half of this year. We remain disciplined in our approach to capital allocation with CapEx directed towards maintenance, operational efficiencies and essential capacity optimization. Looking ahead, our priorities remain very clear, driving profitable growth, maintaining a strong balance sheet, improving capital efficiency and creating a long-term shareholder value. With this, we'll now open the line for question answer. Thank you.

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

So 2 questions. Firstly, on this DRI investigation across the industry, can you explain a little bit more what the key issue here is, and how the various players potentially are impacted? And secondly, on the raw material impact, now we've seen obviously a significant increase in grain prices as well as packaging materials. So from a pricing perspective, what proportion of our portfolio would you say has pricing freedom? And typically, what would be the price lag or the lag between pricing and the input cost increases?

So thanks, Aditya. Actually, as far as the matter relating to the industry scrutiny on this thing, we are very, very compliant company. We have always complied with the regulatory and issues. The Scotches, which we were importing earlier, last 10, 20 years, are in the same HSN code as 208. And after 15th July also, we are importing the VMS in the same code. So we have not changed any of our code, neither the connotation or the narratives of the material coming here. This is an industry issue, which DRI is studying. And I -- we don't know how far it goes on others, but we are confident that what we are doing is as per the current laws. Thank you. And to your second question, regarding the packaging material and raw material scenario. See, we have actually -- as we -- in the beginning and opening remark, MD also said that we continue to maintain our EBITDA margin guidance of 20% for this full year. So we are -- actually, this quarter also, there has been a negative impact of INR 27 crores, which is approximately 156 to 160 basis points on gross margin basis. However, we -- with the kind of this thing, we have been able to mitigate. And when we see that in the new crop season, which is starting from November onwards, the prices should stabilize. And at the same time, FCI allocation to this year's ethanol policy is also very, very elevated at 72 lakh metric ton, which will also stabilize this thing. So from November onwards, we see this to play a very benign kind of role. At the same time, on packaging material, there has been an impact on account of the West Asia war, and in particular, basically on the bottle prices and the pack prices, like that and some laminate prices. It is very, very unpredictable. But looking into the current unprecedented and volatile scenario, we continue to work on our premiumization, improve on our product mix and continue to have that, that we can deliver a 20% guidance, which we have given. So I think we are confident about our business and portfolio.

Very clear. So just to summarize, so with this whole DRI issue, no impact on Radico likely. And second, on the input cost as well, I think no change to the 20% margin guidance for the current year?

That's correct.

The next question comes from the line of Abneesh Roy from Nuvama.

Congrats on a very strong set of numbers. My first question is on the U.K. FTA. So are you seeing any increase in competition till now? And because costing is affordable for all players, is there more intensity within existing players? So how are you reading that part? Second is a question to your international head. In terms of the 4 airports in U.K. and further expansion, what kind of opportunity long term you see in that market because of the FTA and now better presence on ground also?

To answer your first question, the U.K. FTA, we are seeing about close to 8% to 10% reduction in the BIO. And if you see our portfolio, whether it's Rampur or Virasat, it's a single malt, and it is already priced higher than the existing BIO. So I think it's more of a consumer preference. And as far as the other portfolio, whether it is After Dark or Magic Moments, et cetera, that is way below the BIO cost. So as such, we don't see so much of a challenge in our portfolio at all.

Well, regarding the GTR, as you know, we were -- we've just got listed in 4 U.K. airports, that's Heathrow, Gatwick, Birmingham and Manchester. The response has been very positive. And global travel retail remains a very important channel for us, especially for our luxury portfolio, both in terms of showcasing the products to a global audience as well as consumption for them, whether it is for their own consumption or for gifting purposes as well. We are currently in around 70 duty-free locations, and our objective is to get to 100 in quick time. So we will continue to focus on this channel and try to expand it in quick time.

Sure. My second question is on the guidance. So 2 quarters, 2 upgrades, overall macro versus 3 months back, 6 months back, entire country, entire world, more challenging. What is the specific reason, two, three if you can tell us? Is it because shift towards vodka is higher than your initial expectation? Or is it states like Karnataka or any specific state you can highlight? We don't know. The beer company said that Karnataka, they are growing 60%, for example. So is it specific state which is working much better? Or is it just plain market share gain?

Sir, you are not audible.

Yes. So I want to understand...Yes, yes.

To answer your first question is, if you see, there is a structural shift which is taking towards the white spirit, which is vodka. And globally also if you see about 28% of the liquor market is vodka globally. In India, it was very small. In 2025, it was 3.7; '26, it became 4.5; and this quarter, it is 6.3. So we are seeing a lot of shift, especially with the Gen Z and the younger generation and the women coming in, their lighting is towards the whiter spirits because it is more easily mixable and plus it is much light and flavored vodka. So I think that shift is helping us, number one. Number two, to answer your question, Karnataka has led the way, and we have really seen after the reduction in the duties and free pricing. To give you an example, say Radico in the current quarter, we have grown more than 100% of our premium volumes there. So Karnataka is helping us. Plus we are getting overall growth from everywhere. That is why, if you see the P&A growth of Radico is 36% in the current quarter.

Sure. One follow-up question I had on your P&A volume growth and your vodka growth. If I dissect the numbers, it seems your non-vodka P&A has grown around 23% ballpark. It could be 1% or 2% here and there. Are you happy with this performance of non-vodka P&A? And Karnataka, of course, has done quite well, which means non-Karnataka could have grown, say, much lower than that. Is it -- is Maharashtra dragging it down? Are you happy with this, say, 23% kind of growth performance in non-vodka P&A?

I think we are more than happy because the industry itself has grown only 5.8% to 6% in P&A. We have a 20% non-vodka growth, I think it's a commendable achievement. And vodka, we have grown by about 49%. So I think overall, the P&A, we are very, very happy with the portfolio. As far as Maharashtra goes, Maharashtra, our P&A, we have come back into growth in the current quarter.

And what is the reason for that?

Did you ask Maharashtra?

Maharashtra coming back.

Yes. Our P&A. So from our side because, as I said, the flavor shift is happening towards the vodka, and now I think vodka is about close to -- Maharashtra Industry - 11%.

Maharashtra...

In Maharashtra, the vodka has become 11% of the industry. So there we are market leaders. So our P&A has grown very fast in the current quarter there.

And, Abneesh, to your other point about Karnataka, while Karnataka has grown very, very strongly, but our saliency from Karnataka is still 6%. So while that has contributed, the other states are growing much faster and are contributing a lot more meaningfully.

Sure. Last quick question. So on Tamil Nadu, your media interview, you gave some insights. The beer company also said Tamil Nadu seems to be opening up well on the right track. So if you could discuss medium, long-term opportunity, assuming some basic stuff here. And on Telangana, again, everyone says next quarter, the hike is happening. What is the current understanding on Telangana price hike?

See, to answer your first question about Tamil Nadu. So Tamil Nadu is the largest market in the country. And as far as Radico goes, our Morpheus is the largest selling premium brandy there and it's the second largest market for vodka. So what has happened in September, which is a very, very positive and a pleasant thing for the industry, is orders have started coming on tertiary basis. So even for us, our volumes are up 20%. And also they are introducing a new thing that anything above INR 1,000 would be paid digitally. So I think that is going to -- and new brands are allowing them to come. So I think Tamil Nadu can be a very interesting and a good opportunity for the industry and especially for Radico. And as far as Telangana goes, we have represented to the government, but it all depends on the government about the price issue.

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

So just one question on exports. I know P&A has done exceptionally well in the first half. Just wanted to get your sense on what's been the kind of exports growth for the first half of the year given the issues geopolitically. And how do you see this panning out over the next, say, 2, 3, 4 quarters? Do you see a easier situation, a slightly harder situation? Just trying to understand that whether this piece has not grown at the pace you would have liked and hence, there are likely opportunities going forward over the next few quarters for growth to revive. That's my first question.

In terms of exports, yes, the geopolitical situation in West Asia did have an impact initially when the whole thing started in Feb and March. And for first couple of months, there was a problem, but then it's bounced back now and our shipments are going regularly into the Western Asia markets as well. The only issue is logistics. The freight rates have gone up tremendously. But otherwise, we've seen a growth in all our export markets. So there's no let down on our export business.

So as of now, the issue is more a margin issue because of freight rates rather than a growth issue, which has rebounded already?

Yes, that's correct, the freight issue. So part of the freight, we are absorbing -- part of the freight is being absorbed by the customer over there. And in some cases, there has been a little bit of increase in the consumer prices.

And second question is, Abhishekji, I just wanted to get a sense from you, this is -- this doesn't look like a 1-year or 18-month phenomenon on vodka. These are typically trends, as you mentioned, globally, the shares are high and -- of this category, And obviously, you may not see 40%, 50% growth rates. But do you expect this to become like a multiyear driver for you over the next maybe 3, 4, 5 years, where you may not see 40%, 50% growth, but the growth rates will be significantly elevated compared to other spirit subcategories? Is that the way that you are seeing the market? Just wanted to get your read on how you're thinking about this.

Right now, so if you see, total vodka market share is 6.3% in the current quarter. And I think, globally, it is 28%. Even a 1% shift adds close to about 4 million to 4.5 million cases of a vodka. So what we see plus the normal industry growth. So we see that, in the next 3 to 5 years, the vodka should outpace any of the category, especially the flavored vodka.

And last question is, if you could just give an update on -- yes, go ahead, sir. Sorry. Yes.

Even in the last 5 years, if you see, the vodka has grown by 20% year-on-year. So I think it's a trend which is there to stay now.

Understood. Understood. And just last bit was the -- if you could maybe just -- you made several kind of launches in the last, say, 12 months or so. If you could highlight which of those you think has seen a greater response. I know After Dark and Black have done well, and those are slightly earlier than 12 months back. But the recent ones in the super premium and -- in the super premium space, if you could just call out maybe 1 or 2 that you are most satisfied with in terms of traction, that would be helpful. That's my last question.

So I think among the new launches, which we are very -- we are most excited about, I think the Virasat Indian Single Malt because we didn't have a malt in the affordable luxury that is about INR 3,500 to INR 4,000 a bottle. So I think that is seeing a tremendous response from every state. So that we are very happy about. Second, we had launched Jamun. Jamun has become a craze. Now, even Aam Panna what we have launched last month, the kind of tertiary -- the kind of interest we are seeing is quite high on that. And After Dark is still not rolled out in its new avatar in many of the states. So it has just started rolling out. So I think that also should see a good traction. And 8PM Black is back in growth after we changed the packaging and the entire look of it and the communication.

Wish you all the best, and just a point of congratulations to Saket and Dilipji as well for the elevation.

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

Congrats on good set of numbers. Sir, my first question, historically what we have seen that second half is much better than the first half, and where in first half you have done 36% volume growth and looking at your guidance, definitely it has been upgraded, but our spread become 24%, 25%. And if I look at the base also, it's not that high also. So what's the reason for this conservative guidance? Are you expecting any moderation in demand momentum? Or how do we think about it?

I think guidance is something where you are sure of. And as far as the momentum goes, I think we are seeing great momentum, especially with the festive season on. So I think the momentum is as strong as it was in the first half.

Okay. Okay. And sir, going forward beyond FY '27, would you like to guide something in terms of volume for FY '28, '29 or medium-term basis for P&A band?

So as far as FY '28, '29 is concerned, we have already revised our guidance twice this year. So we want to consolidate that growth. And there is no reason to believe that the momentum should come down, but we just don't want to ascribe a number to it at the moment. But the growth -- strong growth will continue.

Got it. Got it. Sir, on luxury portfolio, how is the growth in this quarter? And are we on track to meet our guidance for FY 2027?

See, we have done a turnover of INR 475 crores last year and we are well in course of meeting our guidance of 25% growth, 25% in terms of value growth.

Okay. Okay. There is no change in that guidance?

No.

Okay. And sir, lastly, on margin front, what will be the margin of IMFL business and non-IMFL business during the quarter?

So the IMFL business margins are -- because of the luxury and the vodka being major share and all that, it is approximately 24% plus, and non-IMFL business is around 9.5% to 10% for this quarter.

For the quarter. Okay.

The next question comes from the line of Rahul Agarwal from Ikigai Asset.

You commented on the non-vodka P&A growth. Just wanted some more color on how do you look at the whisky and brandy portfolio growth over a bit more medium term, let's say, 2 years. If you have to break this, let's say, 30% volume growth which you have said for fiscal '27, what would be vodka versus whisky versus brandy? And more medium-term, what is the outlook here? I'm not asking for guidance, but just broad ranges will help.

See, as we have upgraded our guidance to 30% as overall portfolio of P&A, so we believe that vodka, as we already said, will grow much faster than other category as the industry is also growing. But on the whisky and brandy also, it is upward of 20%, which we expect as a portfolio. There, 8PM Premium Black, After Dark on the whisky side, we'll take it and Royal Ranthambore. And the other side is like on brandy, the measure is Morpheus.

Got it, sir. Got it. And secondly, on the margin side, like clearly, this year is obviously a given that you are looking at maintaining this 20% range. But incrementally, if you have to look at additional levers, one is obviously the growth looks high, which is why you will have operating leverage benefits and plus the entire U.K. FTA has to play out. Could you highlight just a couple of top two, three points where margins could actually expand further in '28, '29? Like what could be the levers?

See, like we said earlier, the faster-growing categories for us are vodka and luxury spirit, which have higher margins. So while, this year, we have talked about 20% margin guidance, but the margin doesn't plateau at that level. It's just that given the current volatility in the global macro-led raw material and packaging materials, we are not putting a number to it, but we have always said that the margin expansion will continue. And maybe down the line, 1 quarter or towards the end of the year, we will look at what the guidance for the next year is, but margins shall continue to expand.