Sula Vineyards Limited incorporated on February 26, 2003, is India’s largest wine producer and seller as of March 31, 2022. It has been a consistent market leader in the Indian wine industry in terms of sales volume and value (based on the total revenue from operations) since Fiscal 2009 crossing 50% market share by value in the domestic 100% grapes wine market in Fiscal 2012. It has a market leadership position across all 4 price segments, ‘Elite’ (Rs. 950+), ‘Premium’ (Rs. 700-950), ‘Economy’ (Rs. 400-700), and ‘Popular’ (<Rs. 400), with a higher share of approximately 61% by value in the ‘Elite’ and ‘Premium’ categories in Fiscal 2022, as compared to their overall market share of 52% in the Indian wine industry. Its popular brands include “RASA”, “Dindori”, and “The source”, “Satori”, “Madera” and “Dia”.
Their business can be broadly classified under two categories i) the production of wine, the import of wines and spirits, and the distribution of wines and spirits (the “Wine Business”); and ii) the sale of services from ownership and operation of wine tourism venues, including vineyard resorts and tasting rooms (the “Wine Tourism 195 Business”). Sula distributes wines under a bouquet of popular brands. Currently, Sula produces 56 different labels of wine at 4 owned and 2 leased production facilities located in the Indian states of Maharashtra and Karnataka.
Promoters & Shareholding:
Rajeev Samant is the company promoter.
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Public Issue Details:
Offer for sale: OFS of approx. 26,900,530 equity shares at Rs. 2, aggregating up to Rs. 960.35 Cr.
Total IPO Size: Rs. 960.35 Cr.
Price band: Rs. 340 – Rs. 357.
Objective: To carry out OFS and To achieve the benefits of listing the equity shares on the stock exchange.
Bid qty: minimum of 42 shares (1 lot) for Rs. 14,994 and maximum of 13 lots.
Offer period: 12th Dec 2022 – 14th Dec 2022.
Date of listing: 22nd Dec 2022.
Pros:
- Established market leader in the Indian wine industry with the leading brand.
- Largest wine distribution network and sales presence.
- Secured supply of raw materials with long-term contracts exclusive to Sula.
- Professional and experienced management team.
- Early adoption and focus on sustainability
Risks:
- The industry that the company operates in is subject to a licensing and excise regime with changing laws, rules and regulations, and legal uncertainties, including the adverse application of corporate and tax laws.
- The company relies heavily on its brand portfolio.
- The wine tourism business is subject to seasonal and cyclical variations that could result in fluctuations in the results of operations and cash flows.
Subscribe or avoid?
Sectorial outlook – India is predominantly a spirits market with more than 90% of alcohol consumed in the form of spirits. The per capita consumption of spirits in India is one of the highest among top economies of the world but A growing economy and positive demographic factors along with globalization are set to redefine the alco-beverage market in India. The share of wine and beer is projected to increase both through the expansion of the market and by taking a share of the market from spirits. The Indian alcohol industry size is estimated at more than 1 billion cases per annum in FY20 while its percentage of the drinking population is projected to be close to ~33% in FY21 and 39% in CY25. Indian alcobev is projected to grow at a CAGR of 8% in volume for the period between FY22 and FY25 against the projected world market growth of 1.5% in volume for the same period. The Indian market is projected to grow at 12%. per annum in value terms in FY22-25 since India, with a per capita income of close to $2100 in the calendar year 2019, has crossed the per capita income threshold as benchmarked for the growth of wine consumption. All the above factors can have a positive impact on the sectors as a whole.
The financials (revenue and net profit) are shown in the graph below:
Valuation – For the last 3 years average EPS is Rs. 1.7 and the P/E is around 210x on the upper price band of Rs. 357. The EPS for FY22 is Rs. 6.79 and the P/E is around 52x. If we annualize Q1-FY23 EPS of Rs. 3.7, P/E is around 48x. It has United Spirits Ltd (76.14x), Radico Khaitan Ltd (53.36x), and United Breweries Ltd (119.83x) as its listed peers as per the RHP. The company’s P/E is between 210x and 48x. Net margins and EPS have been growing consistently in the last few quarters. Looking at the valuation, it seems to be a little expensive.
Recommendation – The Company is a market leader with strong brand value, and the revenues, as well as profitability, are also growing but the stock will be a pure sectors play and any disruption will have a massive impact on the company. After considering all the factors the listing still seems a little expensive with good prospects, we would recommend “Subscribe” to this IPO for investors with a high-risk profile from a medium to long-term perspective.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any investment decision.
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