Radico Khaitan Q2 FY26: Premium Portfolio Drives 73% Profit Surge Despite Valuation Concerns

The stock has responded positively to the company's consistent outperformance, trading at ₹3,172.20 as of October 29, 2025, reflecting a 41.71% gain over the past year. However, the shares remain 7.29% below their 52-week high of ₹3,421.70, with recent profit-booking tempering near-term momentum. The company's premium valuation—trading at 106 times trailing twelve-month earnings—has emerged as a key debate point amongst investors weighing growth prospects against elevated multiples.

The quarter's performance underscores Radico Khaitan's successful premiumisation strategy, with the company capturing market share in the fast-growing prestige and above segments. Operating profit margin (excluding other income) expanded to 15.91% in Q2 FY26 from 14.62% in Q2 FY25, marking the highest quarterly margin in recent history. This margin improvement, despite inflationary pressures on raw materials, reflects operational efficiency gains and favourable product mix shifts towards higher-margin premium brands.

Financial Performance: Margin Expansion Amplifies Profit Growth

Radico Khaitan's Q2 FY26 financial performance showcased a compelling combination of volume-led revenue growth and margin expansion. Net sales of ₹1,493.93 crores represented a marginal 0.80% sequential decline from Q1 FY26's ₹1,506.04 crores—typical seasonality for the beverage industry during monsoon months—but marked a robust 33.83% year-on-year surge. On a half-yearly basis (H1 FY26), the company reported revenues of ₹2,999.97 crores, growing 33.16% compared to H1 FY25, demonstrating sustained momentum in market penetration.

The quality of earnings improvement was particularly noteworthy. Operating profit (PBDIT excluding other income) climbed to ₹237.63 crores in Q2 FY26, up 2.35% sequentially and 45.64% year-on-year. This translated into an operating margin of 15.91%, the highest quarterly margin achieved in the past eight quarters, compared to 14.62% in the corresponding quarter last year. The margin expansion of 129 basis points YoY reflects the company's successful premiumisation strategy, with higher-margin premium brands contributing an increasing share of revenues.

Profit before tax surged 69.42% YoY to ₹186.94 crores in Q2 FY26, whilst net profit grew 73.02% to ₹139.56 crores. The PAT margin expanded to 9.34% from 7.23% in Q2 FY25, underscoring the operational leverage inherent in the business model. Interest costs remained well-managed at ₹16.28 crores, with the company maintaining a healthy interest coverage ratio of 14.60 times—the highest in recent quarters—reflecting its strong debt servicing capability.

Operational Excellence: Premiumisation Strategy Delivers Results

Radico Khaitan's operational performance in Q2 FY26 validates its strategic focus on premiumisation and market expansion. The company has successfully positioned itself in the high-growth prestige and above segments, where consumer demand remains resilient despite macroeconomic headwinds. This strategic positioning has enabled the company to achieve volume growth whilst simultaneously expanding margins—a rare combination in the competitive Indian spirits market.

The company's return on equity stood at 12.48% for FY25, whilst return on capital employed reached 15.42%—both metrics reflecting efficient capital utilisation. These returns, though respectable, remain below industry leaders such as Varun Beverages (22.82% ROE) and United Spirits (17.23% ROE), indicating room for further improvement as the company scales its premium portfolio. The company's five-year sales CAGR of 18.73% and EBIT CAGR of 15.79% demonstrate consistent long-term growth, positioning Radico Khaitan as a steady compounder in the beverages sector.

Balance sheet health remains a key strength. Net debt to equity stood at a conservative 0.25 times, with debt to EBITDA at 0.96 times—well within comfortable limits. The company's ability to service debt is robust, evidenced by an interest coverage ratio of 14.60 times in Q2 FY26. Cash flow from operations for FY25 stood at ₹362 crores, up significantly from ₹166 crores in FY24, reflecting improved working capital management and operational efficiency.

Industry Context: Premiumisation Trend Supports Growth

The Indian alcoholic beverages industry is witnessing a structural shift towards premiumisation, driven by rising disposable incomes, changing consumer preferences, and increasing urbanisation. This trend has particularly benefited established players like Radico Khaitan, which possess strong brand portfolios spanning multiple price points. The company's flagship brands—including Rampur Indian Single Malt, 8PM, Magic Moments, and Morpheus—have gained significant traction amongst urban consumers seeking quality and brand differentiation.

Regulatory developments across states continue to shape industry dynamics. Several state governments have revised excise policies to encourage premium products, creating a favourable environment for companies with strong prestige and above portfolios. However, the industry remains subject to state-level taxation and regulatory changes, which can impact profitability and growth trajectories. Radico Khaitan's diversified presence across multiple states provides some insulation against state-specific policy risks.

Competitive intensity in the Indian spirits market remains elevated, with established players and new entrants vying for market share. Radico Khaitan has outperformed the broader beverages sector, delivering 41.71% returns over the past year compared to the sector's -4.40% decline—an outperformance of 46.11 percentage points. This divergence reflects the company's superior execution and strategic positioning, though it also contributes to the premium valuation currently commanded by the stock.

Radico Khaitan's peer comparison reveals a nuanced valuation picture. The company trades at 105.69 times trailing earnings—significantly higher than the peer average of approximately 65 times—reflecting investor confidence in its growth trajectory. However, its ROE of 12.33% lags peers such as Varun Beverages (22.82%) and United Spirits (17.23%), suggesting that the premium valuation is predicated on expectations of future ROE improvement as the premiumisation strategy matures. The price-to-book ratio of 15.50 times also stands above the peer average of 10.8 times, indicating that the market has priced in substantial future growth.

Valuation Analysis: Premium Multiples Reflect Growth Expectations

Radico Khaitan's valuation has emerged as the primary debate point for investors. At a P/E ratio of 105.69 times trailing twelve-month earnings, the stock trades at a substantial premium to both its peer group and historical averages. The company's EV/EBITDA multiple of 57.33 times and EV/Sales of 8.31 times further underscore the premium nature of the valuation. The PEG ratio of 2.12 suggests that the stock is pricing in significant earnings growth acceleration, though it also indicates limited margin of safety at current levels.

The valuation grade has been classified as "Very Expensive" since June 2022, with the stock maintaining this status despite periodic corrections. At ₹3,172.20, the shares trade 7.29% below their 52-week high of ₹3,421.70 but remain 71.83% above the 52-week low of ₹1,846.10. This wide trading range reflects the market's oscillating views on the sustainability of the company's growth premium.

From a price-to-book perspective, Radico Khaitan trades at 15.50 times book value compared to a book value per share of ₹205.80. This represents a significant premium to tangible net worth, justified primarily by the intangible value of the company's brand portfolio and distribution network. The dividend yield of 0.13% remains negligible, with the company retaining most earnings for growth investments—a payout ratio of 15.30% reflects this growth-oriented capital allocation strategy.

Shareholding Pattern: Institutional Confidence Building

The shareholding pattern reveals stable promoter holding with gradually increasing institutional participation. Promoter stake stood at 40.21% in Q2 FY26, declining marginally by 0.01% from the previous quarter—a trend observed over the past several quarters as the promoters have gradually reduced their stake. This reduction has been absorbed by institutional investors, reflecting growing confidence in the company's growth prospects amongst sophisticated investors.

Foreign institutional investors held 18.00% as of September 2025, up from 17.77% in June 2025 and recovering from the 16.94% level in March 2025. This sequential increase of 23 basis points suggests renewed FII interest following the strong H1 FY26 performance. Mutual fund holdings stood at 19.55%, down marginally from 19.63% in the previous quarter but significantly higher than the 18.12% level a year ago. The combined institutional holding of 43.47% provides strong support to the stock, though it also means that a significant portion of the free float is held by price-sensitive institutional investors.

Insurance company holdings declined to 3.99% from 4.45% in the previous quarter, representing a reduction of 46 basis points—the most significant change amongst institutional categories. This reduction may reflect portfolio rebalancing by insurance companies in response to the stock's premium valuation. The absence of promoter pledging (0.0% pledged shares) remains a positive indicator of financial stability and confidence in the business.

Stock Performance: Stellar Long-Term Returns With Recent Consolidation

Radico Khaitan's stock performance has been exceptional over longer time horizons, though recent weeks have witnessed some profit-booking. The stock delivered 41.71% returns over the past year, significantly outperforming the Sensex's 5.76% gain by 35.95 percentage points. This alpha generation extends across multiple time frames: the stock has outperformed the benchmark by 21.92 percentage points over six months, 13.61 percentage points over three months, and 12.99 percentage points year-to-date.

The longer-term performance is even more impressive. Over three years, the stock has surged 206.21% compared to the Sensex's 41.76%, generating alpha of 164.45 percentage points. The five-year return of 610.30% versus the Sensex's 113.83% translates to alpha of 496.47 percentage points, placing Radico Khaitan amongst the top wealth creators in the Indian equity market over this period. The ten-year return of 2,994.83% represents a near 30-bagger performance, though such exceptional historical returns also raise questions about the sustainability of future returns from current levels.

Recent price action suggests some consolidation. The stock declined 3.92% over the past week and 0.53% on October 29, 2025, as investors booked profits following the strong run-up. The stock trades above all key moving averages—5-day (₹3,238.46), 20-day (₹3,046.87), 50-day (₹2,956.68), 100-day (₹2,826.14), and 200-day (₹2,571.97)—indicating that the broader uptrend remains intact despite near-term volatility. The technical trend is classified as "Bullish" with multiple indicators including MACD, Bollinger Bands, and OBV showing positive signals.

Investment Thesis: Quality Growth at Premium Valuation

Radico Khaitan presents a compelling investment case built on several fundamental strengths. The company has demonstrated consistent execution of its premiumisation strategy, achieving market share gains in high-margin segments whilst maintaining healthy balance sheet metrics. The five-year sales CAGR of 18.73% and EBIT CAGR of 15.79% validate the sustainability of the growth trajectory, whilst the low debt-to-EBITDA ratio of 0.96 times provides financial flexibility for continued brand investments and capacity expansion.

The company's quality credentials are strong, with a "Good" quality grade reflecting solid long-term financial performance. Key quality factors include healthy long-term growth rates, strong debt servicing capability (interest coverage of 14.60 times), low leverage (net debt to equity of 0.25), and zero promoter pledging. Institutional holdings of 43.47% provide validation from sophisticated investors, though this also means that the stock is vulnerable to institutional selling pressure during market corrections.

However, the investment case is complicated by the premium valuation. At a P/E of 105.69 times and PEG ratio of 2.12, the stock has priced in significant future growth. The "Very Expensive" valuation grade suggests limited margin of safety at current levels. Investors must weigh the company's strong operational performance and growth prospects against the elevated entry multiples, recognising that even modest disappointments in execution could trigger sharp valuation compression.

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