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Radico Khaitan: Magical Moments and Price Tags 🍸

Updated: Jul 31, 2023

When we sat to research the topic for this week, we fondly reminisced the times when we’d visit the theatres or sit together and watch a movie on the television, only to be comically interrupted by a rather ambiguous ad of a brand selling music CDs or “experiences” or calendars or even bottled water, while the adults in the room shared smirks and glances.

Cut to our adulthood - the products that those brands actually sold came into the light, and for some, knocked their lights out! We’re obviously referring to the variety of products that has made India the 3rd largest alcoholic beverage market, the 9th largest consumer of alcohol, and the fastest growing alcoholic beverage market in the world!

Amongst the multitude of brands offering an even larger array of beverages to choose from, one company has done a fantastic job at being an absolute growth machine, giving its investors more than a 3x return in the past 5 years - Radico Khaitan.

While this name may not resonate with you, its brand portfolio surely will!

What has the Khaitan father-son duo been cooking to make all this happen and will the company continue to create “magical moments” even after the clock strikes “8pm?” (the series of brand puns must be appreciated)

1. From Dark Spirits to White Spirits

The Indian spirits market is valued at about US$ 27 billion (almost Rs. 2 lakh crore), which is 6x the beer market and about 150x the wine market! But, what exactly is the entire alcohol market made up of?

Within spirits, the market for white or clear spirits have started becoming a growing preference, especially among the younger drinking population, driven by a few underlying trends:

  1. While cocktails and visiting bars have become a frequent occurrence, the trend has shifted from incessantly consuming alcohol to drinking a little lesser but drinking better

  2. As the drinking population mix gets younger, with 3-5 million young drinkers being added each year, vodka and gin are said to become a more preferred choice with the range of flavours, versatility and premium feel

  3. Multiple new international and domestic brand launches have been adding to the choice and preference for white spirits. International brands like Absolut and Stoli are banking on the import market for vodka growing, and the domestic gin revolution is already taking off with companies like Nao Spirits producing semi-premium gins in Goa

What is Radico Doing?

  • Among the new-age products and to keep up with trends, it has recently launched a ready-to-drink, cocktail-in-a-bottle called Magic Moments Electra that is priced at around Rs. 250 for a 275 ml bottle with various flavours like Appletini and Cosmopolitan

  • Coupled with partnering with famous Bollywood actors like Tiger Shroff to promote their new lines and other promotional activities at bars and liquor stores, Radico has shown great promise, receiving accolades on a global front for its premium selection

  • In fact, the Magic Moments brand has already shown immense promise, with volumes growing from 1.3 million cases in FY18 to over 5 million cases in FY23, going from 6% of total volumes to almost 18%!

2. From Sharabi To Connoisseur

Prior to the last decade, the market was driven primarily by the products below the Rs. 1,000 price point, with more than 95% of revenue coming in from them. However, this trend is rapidly shifting towards more expensive alcohol, driven by:

  1. Increased disposable incomes, and a growing population getting out of the brand-insensitivity zone

  2. Millennial / Gen-Z drinkers entering the market

  3. Improving preferences

This has led to products around the Rs. 1,000 range and above getting traction (with the above Rs. 1,000 products now making up 20% of the market)!

But does this work for those manufacturing these products? Well, just ask United Spirits, the masterminds behind McDowell’s (the world’s largest selling whiskey) who has already played this premiumisation game:

What is Radico Doing?

Radico Khaitan is fairly early in its transition, with about 48% of revenue coming in from the premium segment as apposed to United Spirits at almost 80%, but has been amping up on the premiumisation run, launching high-end versions of its existing brands via the halo effect that they have established:

  1. Magic Moments launched their Dazzle and Verve variants that are priced at Rs. 1,800 compared to the regular variant priced at Rs. 800

  2. 8PM Whiskey launched a Premium Black variant priced at Rs. 1,350 compared to the regular variant that costs Rs. 650

  3. The company has also launched a luxury, single malt under the Rampur brand which is more than Rs. 6,000 and a high-end gin under the Jaisalmer brand priced at almost Rs. 4,000

Getting High on Earnings

The last 5 years have been a crazy ride for the company, embarking on this accelerated pace of being a company that offers more, and boy have they delivered:

While Radico’s margins (along with the entire industry) took a hit in FY23, due to fluctuating raw material prices and logistics + packaging costs that were higher than normal, these are likely to see normalisation going forward, and in line with the premiumisation story that is set to play out for Radico Khaitan now!

With valuations at a 60x 1-year Forward PE (60% premium to historical averages), the changing brand mix and new story that is redefining what Radico is about, might justify these higher multiples, as earnings growth follows suit in the years to come.

If this story excites you, check out this father-son duo, where manufacturing and marketing expertise meets to create magical moments for the company’s consumers and investors alike!


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