Sula Vineyards IPO Opens Today, Should You Subscribe? Know What Brokerage Says

The Initial Public Offering (IPO) of Sula Vineyards Ltd. opens today for subscription. The offer is entirely an offer for sale of 26,900,530 Equity shares of Face value Rs. 2 each (Comprising of Offer for Sale by Selling Shareholder). The company aims to garner Rs. 914.6 - 960.4 Crore at the upper level of the price band. The price band for the IPO is Rs. 340 to Rs. 357. The minimum lot size is Rs 42 Equity Shares and in multiples thereof. The bid opens on 12 December 2022 and will close on 14 December 2022.

Objects of the Offer

Offer for Sale The Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder. (up to 937,203 equity shares by Rajeev Samant, up to 7,191,835 equity shares by Cofintra S.A., up to 200,000 equity shares by Haystack Investments Limited, up to 687,389 equity shares by Saama Capital III, Ltd., up to 121,076 equity shares by Swip Holdings Limited, up to 7,191,835 equity shares by Verlinvest S.A. and up to 6,579,565 equity shares by Verlinvest France S.A., up to 50,000 equity shares by Dinesh G. Vazirani, up to 2,250 equity shares by J.A. Moos, up to 479,063 equity shares by Karishma Singh, up to 8,625 equity shares by Major A.V. Phatak (Retd.), up to 1,007,314 equity shares by Narain Girdhar Chanrai, up to 2,014,758 equity shares by Ruta M. Samant and up to 429,617 equity shares by Sanjay Naraindas Kirpalani)

Should you subscribe?

According to Ashika Research, Sula is India's largest wine producer and seller with a market share of 52% in the Indian wine industry. The company is also the market leader across all 4 price segments, being 'Elite' (Rs 950+), 'Premium' (Rs 700-950), 'Economy' (Rs 400-700) and 'Popular (<400, with a higher share of approximately 61% by value in the 'Elite' and premium' categories in FY22.

Sula's business can be classified under two heads: (a) Wine Business: production/import of wines and distribution of the same and (b) Wine Tourism Business: sale of services from ownership and operation of wine tourism venues, including vineyard resorts and tasting rooms. Apart from its flagship brand "Sula," popular brands include "RASA", "Dindori", "The source," "Satori", "Madera" & "Dia".

The company has 4 owned and 2 leased production facilities located in the Indian states of Maharashtra and Karnataka. The business has strong entry barriers given the nature of the product with high capital investment as well as time (ageing) and only one raw material production cycle in a year. Wine grapes require significant work by farmers; hence Sula has term supply arrangements (of up to 12 years) with grape growers for approximately 2,290 acres as of September 30, 2022. Revenue for the company grew at a CAGR of 13.3% between FY11 and FY22 and have only emerged stronger post-COVID-19 pandemic as share of 'Off-trade' via supermarkets and licensed wine shops grew at a higher rate than 'On-trade' due to restrictions on on-premise consumption venues, such as hotels, bars, restaurants and caterers. Besides, the company has consciously increased revenue contribution of own brands in wine business from 63.57% in FY20 to 83.91% in FY22 while imports came down drastically from 30.96% to 7.87% during the same period.

"Sula's Wine Tourism Business also contributed 7.63% of revenues in FY22 from 5.40% in FY20 and is expected to improve further, with higher traction for tourism industry. Sula's Average Occupancy at Resorts improved from 43.66% in FY21 to 70.97% in FY22 and further to 77.37% in H1FY23. Capacity utilization of manufacturing units also improved to 79.3% in FY22 from 69.4% in FY21. Moreover, Sula has focused on 'Elite and Premium' products with their revenue share improving from 67.81% in FY20 to 70.57% in FY22 and at the cost of 'Economy and Popular' categories. These steps have led to improvement in gross margins/EBITDA margins from 47.76%/9.68% in FY20 to 65.29%/25.57% in FY22 respectively. Together with reduction net-debt to equity ratio from 1.23 in FY20 to 0.58 in FY22, ROCE (reported) improved from 4.09% in FY20 to 20.86% in FY22. Based on the above factors, we advice investors to 'SUBSCRIBE' to the issue," the broekrage has said.

Disclaimer

The IPO has been picked from the brokerage report of Ashika Research. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.