Why is Radico Khaitan Ltd. falling/rising?

Outperformance Against Benchmarks

Radico Khaitan’s recent price appreciation is underscored by its impressive returns relative to the Sensex. Over the past week, the stock gained 3.02%, while the Sensex declined by 0.99%. This trend extends over longer periods, with the stock delivering a 5.14% return in the last month compared to the Sensex’s 1.20% fall. Most strikingly, the company has generated a 30.54% return over the last year, significantly outperforming the Sensex’s 8.21% gain. Over three and five years, Radico Khaitan’s returns have been even more pronounced, at 232.43% and 645.83% respectively, dwarfing the Sensex’s 39.17% and 77.34% gains. These figures highlight the stock’s consistent ability to deliver superior returns over multiple time horizons.

Strong Intraday Performance and Technical Indicators

On 30-Dec, the stock demonstrated robust intraday strength, reaching a high of ₹3,398.95, a 4.28% increase from the previous close, despite touching a low of ₹3,152 earlier in the session. The stock’s recovery after two consecutive days of decline signals renewed buying interest. Furthermore, Radico Khaitan is trading above its key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, indicating a sustained bullish trend from a technical perspective. Although delivery volumes fell by 34.81% compared to the five-day average, the stock remains sufficiently liquid to support sizeable trades, with a typical trade size of approximately ₹1.99 crore based on recent volumes.

Fundamental Strengths Driving the Rise

Radico Khaitan’s share price appreciation is firmly rooted in its strong fundamentals. The company has demonstrated a healthy long-term growth profile, with net sales expanding at an annual rate of 19.76% and operating profit growing at 16.83%. For the nine months ended recently, net sales surged by 29.19% to ₹4,304.05 crore, reflecting robust demand and operational efficiency. The company’s operating profit before depreciation, interest, and taxes (PBDIT) reached a quarterly high of ₹237.63 crore, while the operating profit to interest ratio stood at an impressive 14.60 times, underscoring its strong ability to service debt. This is further supported by a low Debt to EBITDA ratio of 1.04 times, indicating prudent financial management and limited leverage risk.

Institutional investors hold a significant 43.47% stake in Radico Khaitan, suggesting confidence from well-informed market participants who typically conduct thorough fundamental analysis. This institutional backing often provides stability and can act as a catalyst for sustained price appreciation.

Consistent positive quarterly results over the last five quarters have reinforced investor sentiment. The company’s ability to outperform the BSE500 index in each of the last three annual periods, coupled with a 30.54% return in the past year, highlights its resilience and growth potential in a competitive sector.

Valuation and Risks

Despite the strong performance, investors should be mindful of the company’s valuation metrics. Radico Khaitan’s return on capital employed (ROCE) stands at 19.3%, reflecting efficient capital utilisation. However, the stock commands a relatively high valuation with an enterprise value to capital employed ratio of 12.9, indicating it is expensive compared to some peers. Nevertheless, it trades at a discount relative to the average historical valuations of its sector counterparts, which may offer some valuation comfort.

Profit growth has outpaced share price appreciation over the past year, with profits rising by 62.4% compared to the 30.54% increase in stock price. This results in a price/earnings to growth (PEG) ratio of 1.6, suggesting that while the stock is not undervalued, its earnings growth justifies the premium to some extent. Investors should weigh these valuation considerations against the company’s strong fundamentals and consistent growth trajectory.

Conclusion

Radico Khaitan Ltd.’s share price rise on 30-Dec is supported by a combination of robust quarterly results, sustained long-term growth, strong debt servicing capability, and positive technical indicators. The stock’s consistent outperformance relative to the Sensex and sector peers, along with significant institutional interest, further bolsters investor confidence. While valuation remains on the higher side, the company’s earnings growth and operational strength provide a compelling case for continued investor interest in the stock.

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