Sula Vineyards IPO Analysis

Sula Vineyards
IPO
An Analysis
About Sula Vineyards
• Founded in 1999 by Rajeev Samant.

• Sula is India’s largest wine producer and seller as of March 31, 2022.
• Its market share of grape wine grew from 33% in FY 2009 to 52% in FY2022.
• The company is the market leader across all four-price segments: (1) Elite: Rs 950+, (2) Premium: Rs 700-
950, (3) Economy: Rs 400- 700, and (4) Popular: less than Rs 400.
• Further, the company has a higher share of approximately 61% by value in the elite and premium
categories in FY 2022, compared to its overall market share of 52% in the Indian wine industry.
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Product
Sula produces 2 types of wine:
1. Still wine: Wine that is neither sparkling nor fortified. Still wine constituted 85.38% of their total production as of September
30, 2022 with 15 labels under the Elite category, 22 labels each under the Premium and Economy categories and 9 labels under
the Popular category;
2. Sparkling wine: Wine that contains bubbles from dissolved carbon dioxide. Sparkling wine constituted 14.62% of their total
production as of September 30, 2022 with 6 labels under the Elite category and 2 labels each under Premium and Economy
categories.
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Details of IPO
• The IPO will be a complete offer for the sale of Rs 960.35 crore by the existing shareholders.
• The price band for the IPO is Rs 340 to Rs 357 per equity share of face value Rs 2 each.
• The company will not directly receive any proceeds from the offer. All proceeds will be received by the
selling shareholders, in proportion to the offered shares sold by them.
• The promoter of the company is Rajeev Samant. Promoters and promoter groups hold an aggregate of
23,945,864 equity shares, aggregating to 28.44% of the pre-offer issued and paid-up equity share capital.
The post-IPO shareholding is expected to be around 27.33%.
• The issue, through the book-building process, will open on 12 December 2022 and close on 14
December 2022
• Based on the upper band of the issue price, the company is looking for a market cap of Rs. 3005.90 cr.

Financials
• On the financial performance front, for the last three fiscals, SVL has (on a consolidated basis) posted a
turnover/net profit –
Turnover(Rs in crores) Net Profit/Loss(Rs in crores)
FY20 523.19 -15.94

FY21 421.51 3.01
FY22 456.70 52.14
• The company has emerged stronger in the aftermath of the covid-19 pandemic, gaining additional market
share, and accelerating its profitability.
• For the first half of FY23 ended on September 30, 2022, it earned a net profit of Rs. 30.51 cr. on a
turnover of Rs. 225.76 cr.
• For the last three fiscals, SVL has reported an average EPS of Rs. 3.06 and an average RoNW of 5.24%.
The issue is priced at a P/BV of 6.11 based on its NAV of Rs. 58.40 as of September 30, 2022.
• If we annualize FY23 earnings and attribute it to post-IPO fully diluted equity capital, then the asking
price is at a P/E of around 49.24. Thus the issue is fully priced discounting all near-term positives.

Shareholding
Number of shares: 84,198,74
Pre-Issue Post-issue
Promoters 27.15% 26.04%
Promoters Group 1.29% 1.29%
Public-Investor Selling S/h 28.16% 2.07%
Public-Other Selling 10.71% 5.97%
Public-Other 32.69% 64.64%
Total 100.00% 100.00%

Our competition
• As per the offer document, SVL has shown United Spirits, Radico Khaitan, and United Breweries as their
listed peers. However, they are not truly comparable on an apple-to-apple basis.

Business
• Their business can be broadly classified under 2 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 Business”). However, since the Wine Tourism Business is incidental and complements the
overall Wine Business, the Company's chief operating decision makers (which includes the CEO, CFO,
COO and members of the board) monitor and review the operating result of the Group as a single
operating segment of manufacture, purchase and sale of alcoholic wines and spirits.
• Sula distributes wines under a bouquet of popular brands. In addition to the flagship brand “Sula,”
popular brands include “RASA,” “Dindori”, “The source,” “Satori”, “Madera” & “Dia” with its flagship brand
“Sula” being the “category creator” of wine in India. 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.

Business
• As India’s largest wine producer, Sula aims to harness their market leadership position for future growth
opportunities in the Indian wine market with their wide range of offerings for consumers across various
price points. Their consumer proposition focuses on offering their consumers extensive varieties of wine
at varying price points, with 56 labels to choose from a portfolio of 13 distinct brands as of September 30,
2022.
• Furthermore, their wines are available at various price points between ₹235 to ₹1,850 per 750 ml bottle in
Maharashtra, making them accessible for consumers with different budgets —appealing to mass markets
as well as having a premium product strategy.
• Sula serviced close to 8,000 hotels, restaurants and caterers, which makes them the leader in terms of
footprint among wine players in India and experienced a significant rise in their Off-trade sales in the last
3 years with their Off-trade sales contributing 72.25% of their secondary sales during Fiscal 2022,
compared to 61.33% in Fiscal 2020.

Business
• Wine market in India will remain concentrated with high barriers to entry due to the nature of the product
in addition to the trade barriers prevalent in the alcoholic beverage market. They had entered into long-
term supply arrangements (of up to 12 years) with grape growers for approximately 2,290 acres as of
September 30, 2022.
• Sula is one of the fastest growing alcoholic beverage companies in India as of March 31, 2021, with a
CAGR of 13.3% between Fiscals 2011 and 2022. They have emerged stronger in the aftermath of the
COVID-19 pandemic, gaining additional market share and accelerating their profitability.

Business
• WINE TOURISM BUSINESS:
Sula also has a strong direct to consumer (“D2C”) selling channel primarily through their Wine Tourism
Business facilities in Nashik and Bengaluru, with the highest number of D2C sales in the Indian wine
industry in Fiscal 2021. Their D2C sales were ₹24.20 crore during the Financial Year ended March 31,
2022. Their D2C sales were ₹15.75 crore, ₹7.28 crore and ₹24.20 crore during the 6 months period ended
September 30, 2022 and September 30, 2021, and the Financial Year ended March 31, 2022,
respectively. Their products are available over various ecommerce platforms, which is helping them
further increase their D2C footprint

Business

Key Performance Indicators
Strengths
• The company has established market leadership in the Indian wine industry,
with leading brand Sula. The company is market leader across price segments
and wine variants.
• Positive demographic factors, including the addition of more than ten million
people each year to the population of eligible alcohol consumers, make India
one of the most attractive markets for alcoholic beverages.
• Sula Vineyards is the largest wine producer in India with the widest and
innovative product offering supported by an efficient production mechanism.
With access to more than 23,000 points of sale (including over 13,500 retail
touchpoints and over 9,000 hotels, restaurants, and caterers) as of March 31,
2022, its products have a high visibility and availability across the country.
• The company has long-term supply arrangements (of up to 12 years with an
option to renew further with mutual consent) with approximately 500 contract
farme

Weaknesses
• Revenue performance depending on licensing, excise regime, and tax laws
might change in future with any of the above changes
• Future cash inflow can be impacted if there is any change in the current import
duty regime.
• Wine and grape products are subject to climate conditions that can impact
future revenue earnings.
• The wine tourism business is subject to seasonal and cyclical variations that
could result in fluctuations in results of operations.

Growth
• The share of wine as a form of alcohol consumption in India in the calendar year 2021 was less than 1%,
whereas globally, the contribution of wines to alcohol consumption was close to 13.5% in the same period,
suggesting significant room for growth.
STRATEGIES:
• Company’s main strategies is to continue focusing on their Own Brands over Third-Party Brands that they
import and distribute.
• Increasing wine awareness and consumption, and penetrating further into Tier-1 and 2 cities
• Effectively use digital media to increase awareness of wine in India.
• Continue to make sustainability and climate change readiness the heart of the long-term strategy
• Pursue strategic investments and acquisitions to further consolidate the Indian wine industry
• Continue to expand the Wine Tourism Business

Final Verdict
•The company enjoys leadership in the wine

segment with over 52% market share and
registered a CAGR of 13.7% between 2011
and 2017. Based on its financial track record
the issue appears to reflect its full and fair
value and discounts all near-term positives.
•So according to me investors may

consider investment for a long-term
reward.
2022 17
Thank You
By: ADITYA KHANDELWAL

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Sula Vineyards

• Founded in 1999 by Rajeev Samant.

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FY20 523.19 -15.94

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•The company enjoys leadership in the wine

•So according to me investors may

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