Radico Khaitan - 2QFY19 – Great Going so Far, Can It Continue in FY20E?

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/20842" target="_blank" data-smartkarma-citation="entities:20842:1"></a><a href="https://www.smartkarma.com/entities/20842" target="_blank" data-smartkarma-citation="entities:20842:1">Radico Khaitan (RDCK IN)</a> stock price fell in September 2018 by ~24% from the price levels of our initiating coverage report (<a href="https://www.smartkarma.com/insights/radico-khaitan-soaring-in-high-spirits" target="_blank" data-smartkarma-citation="insights:23596">Radico Khaitan - Soaring In High Spirits</a>) dated 4th September 2018. At the time of initiating, the stock price was ~Rs 470/- which we believed to be nearly fairly valued. We continue to value RDCK share at Rs 495/- due to strong fundamentals, based on 28x multiple applied to estimated earnings of Rs 17.7 per share for the year ended Jun-20E. RDCK has a potential upside of ~38% from the current market price of Rs 357/- as of 25th September 2018, based on our estimated fair value.  The stock trades at 27x/ 21x its earnings estimates for FY19E and FY20E respectively.</p>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 158.5px;"> </td>
<td style="text-align: right; width: 185.5px;">FY17</td>
<td style="text-align: right; width: 167px;">FY18</td>
<td style="text-align: right; width: 167px;">FY19E</td>
<td style="text-align: right; width: 170px;">FY20E</td>
</tr>
<tr>
<td style="width: 158.5px;">PE (x)</td>
<td style="text-align: right; width: 185.5px;">61</td>
<td style="text-align: right; width: 167px;">40</td>
<td style="text-align: right; width: 167px;">27</td>
<td style="text-align: right; width: 170px;">21</td>
</tr>
<tr>
<td style="width: 158.5px;">ROE</td>
<td style="text-align: right; width: 185.5px;">8%</td>
<td style="text-align: right; width: 167px;">11%</td>
<td style="text-align: right; width: 167px;">13%</td>
<td style="text-align: right; width: 170px;">15%</td>
</tr>
<tr>
<td style="width: 158.5px;">ROCE</td>
<td style="text-align: right; width: 185.5px;">16%</td>
<td style="text-align: right; width: 167px;">20%</td>
<td style="text-align: right; width: 167px;">22%</td>
<td style="text-align: right; width: 170px;">23%</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source: Trivikram Consultants Research (PE based on the close price of RDCK as of 25th September 2018)</div>
<div class="content-caption">E = Estimates </div>

Radico Khaitan (RDCK IN) stock price fell in September 2018 by ~24% from the price levels of our initiating coverage report (Radico Khaitan - Soaring In High Spirits) dated 4th September 2018. At the time of initiating, the stock price was ~Rs 470/- which we believed to be nearly fairly valued. We continue to value RDCK share at Rs 495/- due to strong fundamentals, based on 28x multiple applied to estimated earnings of Rs 17.7 per share for the year ended Jun-20E. RDCK has a potential upside of ~38% from the current market price of Rs 357/- as of 25th September 2018, based on our estimated fair value.  The stock trades at 27x/ 21x its earnings estimates for FY19E and FY20E respectively.



 
FY17
FY18
FY19E
FY20E


PE (x)
61
40
27
21


ROE
8%
11%
13%
15%


ROCE
16%
20%
22%
23%



Source: Trivikram Consultants Research (PE based on the close price of RDCK as of 25th September 2018)
E = Estimates 

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