The share price of this leading wine producer surged 17 percent to an all-time high of Rs 648.75 per share after CLSA raised the target price of the company’s stock with an upside of 35 percent.
At 12:25 p.m.Sula Vineyards Ltd shares were trading at Rs 638.30 per share, up 15.09 percent on the National Stock Exchange. The company has a market capitalization of Rs 5,367 crore.
Sula Vineyards shares have gained 38 percent in the last six months and 95 percent in a year.
Sula Vineyards Ltd is a wine producer and seller. The company’s operations are divided into two categories: wine production and the import of wine and spirits.
Sula’s strategy relies heavily on premiumization. In terms of volume and value, premium products now account for 65-70% of the company’s portfolio, up from 50% previously. The company is the Market leader with close to 60 percent market share in the premium wine category.
In terms of the company’s sales, off-trade sales account for 70% of total sales, while on-trade sales account for less than 30%.
Currently, the company produces 56 different labels of wine at four owned and two leased production facilities located in the Indian states of Maharashtra and Karnataka. The company has a winery capacity of 16.7 Mn liters, amongst the top 5 wineries in Asia
The company’s revenues have increased by 12 percent year on year from Rs 116 crore in Q2FY23 to Rs 130 crore in Q2FY24, while net profit has slightly increased by 14 percent from Rs 21 crore to Rs 24 crore.
CLSA has revised a ‘buy’ rating on Sula Vineyards with a target of Rs 863 per share from Rs 571 per share, with an upside of 35 percent based on Monday’s trading price.
The reason behind such a huge upside from the brokerage is that based on the rising middle class, fast growth of restaurants, and rising incomes, wine consumption is likely to grow at a Compounded Annual Growth Rate (CAGR) of 15% over the next 10 years, While Sula Vineyards to be the biggest beneficiary.
Brokerage upgraded the stock price after the Maharashtra government approved a five-year extension of the Wine Industrial Promotion Scheme. Wineries are subject to a 20% VAT, of which 16% is reimbursed as a rebate under this arrangement. The state cabinet also authorized a four-year rebate return under this arrangement, beginning in fiscal year 2021.
According to CLSA, Maharashtra is Sula’s largest market, contributing to over half of company’s income and 45% to 50% of volumes. Sula is also a leader in wine tourism, which is a revenue driver and is increasing the interest in wines in the country.
The firm also intends to boost tourism at its wineries beyond of Maharashtra. CLSA has increased its projections for Sula for the fiscal years 2024-2026 by 0% and 4%, respectively.
As of the September quarter of 2023, Marquee investor Mukul Mahavir Agrawal holds 20,00,000 equity shares, representing a 2.37 percent stake in the company.
Written by Omkar Chitnis
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