Sula Vineyards Shares Jump 9% on CLSA’s First “Buy” Rating

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Shares of Sula Vineyards (Sula) surged 9% to Rs 371 on BSE in intraday trade on Wednesday after brokerage CLSA initiated coverage on the stock with a ‘buy’ rating and a target price of Rs 475 per share. Shares of breweries and distilleries have rallied 12% over the past two sessions. In contrast, the S&P BSE Sensex rose 0.22% to 58,205 at 10:31 am.

Sula is India’s largest wine producer and marketer (52% market share in FY22). The company has four owned and two leased production facilities in Maharashtra and Karnataka, producing 56 different labels of wine. Sula has the largest distribution network among Indian wine companies, with around 13,000 retail touchpoints in India.

The company raised Rs 960 crore in its initial public offering (IPO) by issuing shares at Rs 357 each. It will debut on the stock market on December 22, 2022. After debuting, the stock touched a low of Rs 305.35 on December 26, 2022. It hit an all-time high of Rs 432 on January 23, 2023.

According to CLSA analysts, Sula is well-positioned to capitalise on a global consumer shift toward lower-alcohol beverages — beer and wine. With solid back-end capabilities and a pan-India distribution network, Sula is the leader in the Indian wine market, with over 52% market share in the 100% wine category. Its healthy Ebitda margin (>29% in 9M FY23) enables Sula to invest in category development, which will be key to long-term growth.

The brokerage expects a revenue CAGR of 17.5% and an EPS CAGR of 18.6% over the next two years. Still, the Ebitda margin should drop to 27.3% by FY25 as the company focuses on category development. It added that changes to the wine incentive scheme remained a key regulatory risk.

Meanwhile, last week, Sula said that the 2023 grape harvest would be excellent in quantity and quality. Unseasonable rainfall in March had minimal impact on wine grapes, which are more resilient to inclement weather than table grapes. The company’s new 2 million litre cellar facility at Domaine Dindori was up and running in time for record grape tonnage. The company said this was the third consecutive bumper crop, putting us well-positioned to meet the expected growth in wine demand in FY24.

In other news, Sula said that the company recently relinquished the exclusive import agency for Beluga vodka, the last imported spirit in its portfolio, and will focus solely on wine going forward

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