Radico has an extremely interesting history. It is a classic commodity-to-branded product story laced with superb watershed moments as well as near death scenarios (read as bankruptcy). The more you understand the company, the more you want to make a Netflix series about this company. Yes, it that interesting.

Today in a country that is dominated completely by the Duopoly of Diageo and Pernod Ricard, Radico is still alive and kicking. I think, Abhishek Khaitan, still has quite a few tricks up his sleeve. As a listed family business, they are battling out the onslaught of the invaders from the west. This is a battle of scale versus wits.

Radico can sell out its brands very easily and sit pretty like what Thumbs up did, by selling to Coca Cola. They have’nt as yet and i doubt they will sell out soon.

They have millionaire brands across all liquor segments.

  1. 8PM Whisky (20 year old brand)
  2. Magic Moments Vodka (14 year old ) 2006.
  3. Contessa Rum ( 40 year old )
  4. Old Admiral Brandy (17 year old)
  5. No new brand launched after 2006 has become a millionaire brand yet.

Most of the brands are now ageing. While you can almost be convinced that this company is a has been, they have recently tasted some major niche success in –

  • Rampur – The single Malt that is shaking it up internationally.
  • Jaisalmer – The new Gin on the block that has been awarded the best gin from asia.
  • Electra – Premix – Ready to drink Vodka based drinks, like bacardi breezer.

These three hardly contribute anything as of now, but Rampur which was just made as an experiment is going to begin contributing nicely.

Go Desi with Indian Single Malt

Gin is once again getting its mojo in India. https://www.thehindubusinessline.com/specials/luxe/gin-is-indias-new-favourite-drink/article27326521.ece

For the lack of better things to do at the moment, Radico is cleaning up its balance sheet and should be a debt free company in the next 1.5-2 years.

Why don’t they have better things to do ?

  • More than 67% of Indian’s are in the legal drinking age. This % is not likely to move up much more than 1-3% over the next few years. So % wise, the market is maturing. But the numbers are coming and increasing in crores.
  • If you take the absolute premium, Pernod Ricard and Diageo will become an absolute Duopoly and only allow money to be made on the fringes. Diageo wants to stay in the premium vertical only, and Pernod Ricard was the father of premiumization movement in India, so they will probably be more aggressive than Diageo too.
  • The absolute bottom of the pyramid is unorganised and will continue to be so. The only migration will be from desi-tharra to some sort of cheap whisky, or brandy. This is a huge market, but it is not worth chasing.
  • What is left, however is the middle and the middle premium. That is the sweet spot for Radico, and this will completely be driven by what the Premium guys do. If smirnoff creates a stir, there will be a trickle down at Magic Moments. If Diageo successfully pulls of the RTD smiroff and Morgan premixed drinks, Radico will up the distribution of Electra.
  • In other words, there is not much that Radico can do than try to maintain market share at the moment, but as soon as there is a new category, they have a solid affordable alternative to what the two biggies can possibly do.
  • For me Radico is like a Xiaomi phone. It will give you everything and more that Apple will give you in an iPhone at less than 40% of the cost, albeit at about the same discount on quality.

For a family that is so popular and rich, based on the current market cap of 4,400 cr, the promoters share is only 1,600 cr . The promoters would definitely want this to be at least 4000-5000 cr. For that they have to take the M.Cap to at least 10,000.

It makes more sense to simply sell off the company at 3-4x sales and sit pretty and just concentrate on niche brands like Rampur and Jaisalmer.

Pssssst – Rumour has it that Diageo is almost stopping supplies to the CSD as they are unable to deal with the Indian FORMALITIES. I wonder who will get more business from the CSD.

7 replies on “Can Radico Khaitan do something Radical again ?

  1. Hi,
    Had some thoughts regarding Radico premium whiskeys and would love to hear your thoughts on the same.

    Globally premium whiskeys are the ones that are aged more and they usually command higher margins, of course backed by branding and advertisements.
    Now usually the more the whiskey is aged, the higher the price it commands. This leads to significant entry barriers for a new entrant. Even with very deep pockets you cannot straight away produce a 20year old whiskey.
    Now when a whiskey is aged some part of it is lost due to evaporation. This is called the angel’s share.
    In Scotland it is c. 2% per annum. In India it is c. 15%.
    So it is almost an impossibility to have a whiskey aged for 20years given the economics involved. In fact the highest till date, as per my understanding is a 8 year old whiskey from Paul John. Most would not go beyond 3 years.
    This significantly reduces the entry barrier for this industry in India. If you have distribution in place, making a premium whiskey shoouldnt be so hard. If course you still would have to spend money on branding.

    When Bira was launched, it was perhaps the only craft beer. Today there are over 50.
    In such a scenario how do I place Radico khaitan? At 8pm level it’s more like a commodity. A few percentage change in price would definitely impact volumes. (limited pricing power, more a volume game). And at premium level I am not sure how things would turn out.
    Also do you have any thoughts regarding the company’s valuation?

  2. Hi,

    Had some thoughts regarding Radico premium whiskeys and would love to hear your thoughts on the same.

    Globally premium whiskeys command higher margins. Of course backed by significant advertising expenses.
    Also usually the more a whiskey is aged, the higher the price, given everything else is same.
    Now this acts as a significant entry barrier. Even with every deep pockets, a new entrant cannot launch a 20 year old whiskey.
    Now when whiskey is matured in oak barrels some portion is lost due to evaporation. This is called Angel’s share.
    In Scotland it is 2% pet annum, in India it is nearly 15%.
    So what this means is that you are never going to have a very old Indian whiskey. In fact the oldest as per my understanding is a 8year old brand from Paul John. Most would settle at 3 years.
    So if I have my distribution in place, it’s not very hard to make and sell a premium whiskey for a new entrant. It would then be more of a branding game.
    When bira was launched, it was perhaps the only craft beer, today there are over 50.
    At 8pm level its more of a volume game, as per my understanding the company dosent really have much of a pricing power here. At premium level I an not so sure about how competition will turn out.
    Also do you have any thoughts about valuation of this company?

  3. Hi,

    Had some thoughts regarding Radico premium whiskeys and would love to hear your thoughts on the same.

    Globally premium whiskeys command higher margins. Of course backed by significant advertising expenses.
    Also usually the more a whiskey is aged, the higher the price, given everything else is same.
    Now this acts as a significant entry barrier. Even with every deep pockets, a new entrant cannot launch a 20 year old whiskey.
    Now when whiskey is matured in oak barrels some portion is lost due to evaporation. This is called Angel’s share.
    In Scotland it is 2% pet annum, in India it is nearly 15%.
    So what this means is that you are never going to have a very old Indian whiskey. In fact the oldest as per my understanding is a 8year old brand from Paul John. Most would settle at 3 years.
    So if I have my distribution in place, it’s not very hard to make and sell a premium whiskey for a new entrant. It would then be more of a branding game.

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