Sula Vineyards raises a toast to 44% upside by CLSA. Check out the details here

CLSA notes that Sula has a strong backend capability and a pan-India distribution network, making it India’s market leader in wines with over 52 percent market share

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Foreign broking firm CLSA has initiated coverage on Sula Vineyards with a target price of Rs 475, which indicates a 44 percent upside from March 21 closing price.

According to CLSA, Sula is well-placed to take advantage of the global consumer shift towards the low-alcohol beverage segment, which includes beer and wine.

At 10.00am, the stock was quoting at Rs 363.45, higher by 7 percent. It is trading above its IPO price of Rs 357. It is down 17.5 percent from its all-time high level. On March 20, the company’s anchor lock-in period ended and the stock had closed 5.5 percent lower.

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CLSA notes that Sula has a strong backend capability and a pan-India distribution network, making it India’s market leader in wines with over 52 percent market share.

“With a healthy EBITDA margin of over 29 percent, the company has the ability to invest in category development, which is crucial for long-term growth,” it said.

It has also forecast a compounded earnings per share growth of 18.6 percent for Sula over the next two years.

The size of India’s wine market remains minuscule when compared to that of spirits. The entire alco-beverage consumption market in India stands at 987 million cases. Of this, 30 percent is beer, 69.3 percent is spirits, and only 0.7 percent is wine.

During its IPO, industry experts had told Moneycontrol that India’s weather conditions were not optimal for growing grapes used in wines. So, Indian wines cannot be compared to the premium wines of Napa or Europe.

Another risk for the company is that India’s top wine producing states, that’s Maharashtra and Karnataka, are also the top consuming states, accounting for close to 57 percent of the overall market in India. Only a change in consumer behaviour in tier 2 and tier 3 cities can expand the market, said sommeliers.

In February, mutual funds pared some of their stake in Sula Vineyards. Mutual fund holding came down to 8.10 percent from 8.19 percent in January. Aditya Birla Sun Life Mutual Fund sold the largest chunk, as per data compiled by Prime Database.

On March 17, the company said that grape harvest for the calendar year 2023 was shaping up to be “excellent in terms of quantity as well as quality”.

A new 2 million litre cellar facility at Domaine Dindori is also up and running in time to receive the record grape tonnage, the management informed.