Festive spirit

Reliance Mutual Fund makes merry as Radico Khaitan rockets

Reliance AMC recently sold 3.5 million shares of Radico Khaitan for Rs.58 crore. Post the sale, the Manish Gunwani-helmed Reliance MF’s stake is down from 8.29% to 5.66%. Gunwani is CIO – equities of Reliance MF having recently moved from ICICI Prudential MF. The sale comes at an opportune time as the price has galloped 94% year-to-date driven by premiumisation of Radico’s product portfolio. Radico has been a legacy holding for Reliance MF and the fund has kept churning its holding for a while now.

Radico has been increasing premium products in its overall portfolio and has even discontinued its lower margin products in some of its markets. Over FY14-17, the ‘prestige & above’ segment has seen volume growth of 8.3% CAGR and Radico’s share has gone up from 18.3% to 26% during the same period. Operating margin is 800-900 basis points higher compared to regular brands and that is why despite a flat topline growth in FY17, its Ebitda and PAT improved by 12.9% and 3.3% respectively.

Liquor companies were feeling low after the Supreme Court refused to relax its ban on liquor sales near highways, even as restaurant and bar owners along with state governments and alcohol traders sought modifications to the ban order. The liquor industry faced the dilemma of 40% of its customers having to trudge a long distance to get high. In August, the apex court’s change of heart brought cheer when it clarified that the ban on sale of alcohol within 500 metres of highways was not applicable within city limits. Since then, liquor stocks have staged a strong comeback with Radico Khaitan leading the way.

Analysts are also enthused that the management is using cash flows to retire debt. Over the past three years, debt has reduced by Rs.105 crore and the plan is to become debt-free by paying off the existing Rs.248 crore by FY19. Even though growth is expected to continue over FY17-20, foreign institutional investors have reduced their stake from 19.63% to 18.01% over the past year. In step, local funds have sold down from 14.07% to 10.73%. The only bunch getting high on the stock is retail investors and their holding is now 12.38% from the earlier 11.13%.