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

Shares of Sula Vineyards (Sula) rose 9 per cent to Rs 371 on the BSE in Wednesday’s intra-day trade after brokerage firm CLSA initiated coverage with ‘buy’ rating on the stock and a target price of Rs. 475 per share. In the last two trading days, the stock of Breweries and Distilleries has gained 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 percent market share in FY22). The company manufactures 56 different labels of liquor across four-owned and two-leased production facilities in Maharashtra and Karnataka. Sula has the largest distribution network among liquor companies in India with ~13,000 retail touchpoints across India.

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

According to CLSA analysts, Sula is well positioned to take advantage of the global consumer shift towards the low-alcohol beverages segment – beer and wine. With strong backend capabilities and a pan-India distribution network, Sula is India’s market leader in wine with >52 percent market share in the 100 percent grape wine category. Its healthy EBITDA margin (> 29 per cent in 9mFY23), gives Sula the ability to invest in category development which will be critical to long-term growth.

The brokerage firm expects 17.5 per cent revenue CAGR and 18.6 per cent EPS CAGR over the next two years, but should see EBITDA margin narrow to 27.3 per cent by FY25CL as the company focuses on category growth. Changes to alcohol promotion schemes remain a major regulatory risk.

Meanwhile, last week, Sula said that the 2023 grape crop is shaping up to be excellent in terms of quantity as well as quality. Unseasonal rain in March has had minimal impact on wine grapes, which tend to be more resilient to inclement weather than table grapes, and the company’s new 2 million liter cellar facility at Domaine Dindori is running just in time to achieve the record Is. Grape tonnage. This third consecutive excellent harvest puts us in a good position to meet the expected growth in wine demand in FY24, the company said.

In other news, Sula said that the company recently gave up the sole import agency of Beluga Vodka, the last imported liquor in its portfolio, and will thereafter focus solely on wines.



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