Sula Vineyards Ltd (SVL) is India’s largest wine producer and seller as of March 31, 2022 (Source: Technopak Report). The company has been a consistent market leader in the Indian wine industry in terms of sales volume and value (based on the total revenue from operations) since FY09. The firm has consistently gained market share (in revenue terms) from 33 percent in FY09 in the 100 percent grapes wine category to 52 percent in value in FY22.
SVL is the market leader across all four price segments, ‘Elite’ (Rs 950+), ‘Premium’ (Rs 700-950), ‘Economy’ (Rs 400-700), and ‘Popular’ (<Rs 400). It had a higher share of 61 percent by value in the ‘Elite’ and ‘Premium’ categories in FY22. The company is also recognised as the market leader across wine variants including red, white, and sparkling wines.
SVL is the pioneer of wine tourism in India with many firsts to its credit, such as the first wine tasting room in India, the first vineyard resort, the first wine music festival, and the first winery tours at its facility in Nashik, Maharashtra
Features of the IPO
The offer is entirely an offer for sale of up to 2.69 crore shares by selling shareholders in the price band of Rs 340-357 per share. The company aims to garner Rs 960 crore at the upper level of the price band.
The offer will open for subscription on December 12 and the closing date will be December 14. The shares of the company will list on stock exchanges on December 22.
The company on December 9 had already garnered Rs 288.10 crore from anchor investors, ahead of its initial public offering when it finalized the allocation of 80.70 lakh shares to anchor investors, at the upper end of the price band.
The objective of the offer is to carry out the Offer for Sale and achieve the benefits of listing the Equity Shares on the Stock Exchanges. The company will not receive any proceeds from the offer and all proceeds from the offer will go to the selling shareholders.
The market experts are cautiously optimistic about the offer and while some analysts advise investors to “subscribe” to the offer, some experts advise investors to “subscribe for listing gains” or “subscribe for high-risk takers”.
The domestic market is predominantly a spirit market with more than 90 percent of alcohol consumed in the form of spirits. The contribution of wine to overall alcohol consumption in India is less than one percent against the world average of around 13 percent. Moreover, India’s per capita consumption of wine is less than 100ml, which is lower in comparison to certain developed and developing economies.
Thus, experts suggest that considering the lower wine consumption levels, positive demographic factors and annually expanding target population, India seems to be one of the most attractive markets for wine manufacturers.
The wine market is segmented into 100 percent grape-based wine and fortified mixed wines, while the former contributed more than 90 percent (by volume) to the market. The domestic 100 percent grape wine market which is estimated at Rs 1,345 crore in FY22 is likely to grow by 22 percent CAGR over FY22- 25 to reach a size of Rs 2,550 crore.
“At a higher price band, Sula is demanding a P/E multiple of 38.5x (to its TTM earning), which seems to be in line with the peer average (though the peers are from a slightly different alcoholic beverage segment)”, said the analysts at the brokerage firm Choice Broking.
Considering the lower wine penetration in the domestic market and expanding demographic factors like rising per capita income and expanding target population, experts believe the domestic wine market is on the cusp of exponential growth.
“Sula being the largest producer & seller of wine is well placed to capture the future growth opportunities in the Indian wine market and hence we assign a “subscribe” rating for the issue”, added the analysts at Choice Broking.
The analysts at Canara Bank Securities Ltd also have a “subscribe” rating for the public issue. “The company-owned brand’s contribution has been on the rise from 65 percent to 80 percent plus and would continue to be so and considering the higher share of high margin segments in the revenues and focus on owned brand, the company would be able to expand its margin going forward”, said a note from Canara Bank Securities. They think that the company’s strong position is a high barrier and the fast-growing segment would help it to gain further in terms of sales in the long run based on which they recommend investors to “subscribe” to the issue for listing gains.
However, some experts advise investors to consider the fact that the offer is entirely an offer for sale and the company will not be getting any proceeds from the issue that could have been used for expansion purposes or repayment of debt. This adds risks to the offer.
A note from the brokerage firm Swastika said, “This Issue of Sula Vineyard is coming at a P/E valuation of 54.67 which is lower than its peers, however, the issue is a complete offer for sale and low promoter holding is also a concern thus we recommend subscribe rating to this IPO only for high-risk Investors”.
Sharekhan by BNP Paribas sees limited scope for listing gains for now and advises the investors to “look at the stock in case of weakness post its listing”.
Grey Market Premium
The company’s shares are currently commanding a premium of Rs 40 per share in the grey market, according to IPO Watch, which tracks grey market movements.
According to IPO Central, another platform that tracks the grey market, the premium currently being offered for the shares of the company is Rs 35 per share.
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