IGI Logo

Established in 1999 by Rajeev Samant, Sula Vineyards has emerged as a dominant force, capturing over 50% of the Indian wine market. In its recent announcement of Q3FY24 results, the company showcased a 4% year-on-year revenue growth. Notably, its own brands and wine tourism segments experienced revenue upticks of approximately 4% and 16%, respectively. Capitalizing on the trend of premiumization, Sula's Elite & Premium wines, which contribute roughly 77% of its revenue, demonstrated a robust 7.3% year-on-year growth. The wine tourism division also flourished, achieving a remarkable 16% growth, with wine tourism revenue reaching Rs. 14.7 crore, buoyed by record-breaking visitor numbers, revenues, and tastings during the festive Christmas holiday weekend. Overall, the company's EBITDA surged by 12.8% year-on-year to Rs. 73.3 crore, boasting EBITDA margins of 33.7%. Additionally, the inclusion of the VAT refund of approximately Rs. 1.5 billion under the Wine Industrial Promotion Scheme (WIPS) bolstered trade receivables for the quarter. While acknowledging the company's robust fundamentals and promising future prospects, we exercise prudence regarding valuation and hence recommend a "HOLD" rating for Sula Vineyards, with a target price set at Rs. 565/-.

Sustainable performance:

The company exhibited significant growth, with around a 4% increase in overall revenue value and approximately 4.6% growth in overall volume. Notably, the Elite and Premium segment saw robust performance, experiencing a value growth of about 7.3% and a volume growth of approximately 3.5% year-on-year (YoY). The contribution of this segment to the company's own brands' value surged from around 72% to about 77%. Additionally, the wine tourism segment achieved remarkable results, recording revenue of Rs. 14.7 crore, driven by setting new records for visitor numbers, revenues, and tastings during the extended Christmas holiday weekend. Looking forward, management foresees sustained growth momentum in the second half of FY24. Moreover, the company increased its reliance on renewable energy from around 50% in the previous quarter to approximately 60% during the quarter, with plans to elevate it to around 70% by FY25, advancing from the earlier targeted year of 2026.

New Launches:

The Company introduced canned versions of its top-selling wines: Sula Chenin Blanc (white), Rose Zinn (rosé), and Red Zin (Zinfandel).

Gain in Market Share:

During the quarter, Maharashtra, Sula's primary market, witnessed fierce competition among wine producers, marked by volume discount battles. While competitors offered volume discounts such as 40 additional cases with the purchase of 100 cases, Sula opted for cashback incentives. This strategic shift aimed to counter intensified competition, especially in the Elite and Premium segments. Consequently, Sula succeeded in expanding its market share compared to its rivals. A significant milestone was reached during the quarter as Sula attained a record-high share of approximately 77% revenue from its Elite and Premium wines.

 Outlook:

Sula Vineyards shows promising future growth potential, contingent on surpassing competitors in the alcoholic beverage industry and strengthening its market presence in both domestic and imported wine sectors. The revival of VAT refunds under WIPS has influenced price action, with approximately Rs. 1.5 billion included in trade receivables quarterly. However, a phased reduction appears more plausible, offering better manageability for the company. Furthermore, Sula's leadership in wine tourism bolsters its competitive position. Despite strong fundamentals and future prospects, caution regarding valuation leads to a recommendation of a "HOLD" rating for Sula Vineyards, with a target price set at Rs. 565/-.