Sula Vineyards jumps 9% as CLSA initiates coverage with ‘Buy’ rating

Shares of Sula Vineyards (Sula) surged 9 per cent to Rs 371 on the BSE in Wednesday’s intra-day trade in an otherwise range-bound market after the brokerage firm CLSA initiates coverage with ‘Buy’ rating on the stock and target price of Rs 475 per share. In past two trading days, the stock of breweries & distilleries rallied 12 per cent. In comparison, the S&P BSE Sensex was up 0.22 per cent at 58,205 at 10:31 AM.

Sula is India’s largest wine producer and seller (52 per cent market share in FY22). The company produces 56 different labels of wine at four-owned and two-leased production facilities in Maharashtra and Karnataka. Sula has the largest distribution network among wine companies in India ~13,000 retail touchpoints in India.

The company had raised Rs 960 crore through initial public offering (IPO) by issuing shares at price of Rs 357 per share. It made its stock market debut on December 22, 2022. Post debut, the stock hit a low of Rs 305.35 on December 26, 2022. It touched a record high of Rs 432 on January 23, 2023.

According to analysts at CLSA, Sula is well placed to leverage the global consumer shift towards the low-alcohol beverage segment – beer and wine. With strong backend capabilities and a pan-Indian distribution network, Sula is India’s market leader in wines with a >52 per cent market share in the 100 per cent grape wine category. Its healthy Ebitda margin (>29 per cent in 9mFY23), gives Sula the ability to invest in category development which would be key for long-term growth.

The brokerage firm expects a 17.5 per cent revenue CAGR and an 18.6 per cent EPS CAGR over the next two years but Ebitda margins should moderate to 27.3 per cent by FY25CL as the company focusses on category development. Change in wine incentives schemes remains a key regulatory risk, it added.

Meanwhile, last week, Sula said the 2023 grape harvest is shaping up to be excellent in terms of quantity as well as quality. The unseasonal rainfall in March has had minimal impact on the wine grapes, which tends to be much more resilient to inclement weather than table grapes, and the company’s new 2 million litre cellar facility at Domaine Dindori is up and running in time to receive the record grape tonnage. This is the third consecutive excellent harvest, putting us in a great position to meet the expected increase in demand for wines in FY24, the company said.

In other news, the company has recently given up the sole import agency of Beluga Vodka, the last imported spirit in its portfolio, and will henceforth focus only on wines, Sula said.