Is stock of Sula Vineyards a Bargain or a Red Flag?

During Thursday’s trading session, the shares of India’s leading wine producer moved down by nearly 5 percent to hit an intraday low at Rs. 348 on BSE and below its IPO price, following muted quarterly results.

Stock Performance

With a market cap of Rs. 2,953 crores, the shares of Sula Vineyards Limited closed in the red at Rs. 349.85, down by nearly 4.3 percent, as against its previous closing price of Rs. 365.55.

The stock hit its 52-week high at Rs. 654.8 on 7th February 2024, and compared to its current trading price of Rs. 350.6, the stock is trading at a discount of nearly 46 percent.

Shares Below IPO Price

Sula Vineyards’ IPO had a price range of Rs. 340 to Rs. 357 per share. The IPO opened on December 12, 2022, and closed on December 14, 2022. 

The shares of Sula Vineyards were listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on 22nd December 2022. On the NSE, the stock was listed at Rs. 361, a premium of only 1.12 percent over the IPO issue price of Rs. 357.

Currently, the stock is trading at Rs. 349.85, which is approximately 3 percent below its listing price of Rs. 361.

Factors Contributing to Muted Q3 FY25 Performance

Subdued Revenue Growth: Q3 FY25 revenue growth was subdued due to: a widespread slowdown in consumption across Urban India; election-related disruptions in Maharashtra (including dry days and restrictions); a reduction in WIPS credit by Rs. 4.7 crores due to the cap of Rs. 20 crores p.a. at Domaine Dindori; and increased Selling & Distribution (S&D) spending in distribution markets.

Impact on Gross Margins: Gross margins were mainly affected by the lower WIPS credit and higher S&D costs in distribution markets. These factors also contributed to a decline in EBITDA.

Increase in Other Expenses: Other expenses rose due to higher investments in market and brand development across India.

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Growth Strategy

The management aims to drive earnings growth over the next 3 years (FY25-FY28) through enhanced EBITDA margins and improved capital efficiency.

Product Development: Continue to launch new products catering to evolving consumer preferences.

Calibrated Capacity Expansion: On track to increase cellar capacity by 2.5 million litres by FY26 with 33 percent lower capex.

Expand Market Penetration: Explore new markets, including Andhra Pradesh, Denmark, and Iceland, while significantly expanding the reach of ‘The Source’ range through broader state rollouts and additional labels to more states.

Expand Wine Tourism & D2C Business: Launch the Dindori Tasting Room and Bottle Shop in Q4 FY25, followed by an expanded tasting room, bottle shop, and restaurant at Domaine Sula in H2 FY26, along with 30 Key Resort at York Winery in H2 FY26.

Augment Wine Adoption & Brand Visibility: Drive targeted promotions, and events like SulaFest, and continue expanding tastings across India.

Strategic M&A: Pursue strategic investments and acquisitions in the Indian AlcoBev Industry.

About the Company

Sula Vineyards Limited is principally engaged in the business of manufacturing, purchasing and selling premium wine and other alcoholic beverages.

Financials

Sula Vineyards reported a marginal decline in revenue from operations, experiencing a year-on-year fall of nearly 1.5 percent, decreasing from Rs. 203 crores in Q3 FY24 to Rs. 200 crores in Q3 FY25.

Similarly, during the same period, the company’s net profit decreased from Rs. 43 crores to Rs. 28 crores, representing a decline of around 35 percent YoY.

EBITDA for Q3 FY25 fell to Rs. 54 crores, reflecting a decline of around 26.3 percent YoY from Rs. 73.2 crores in Q3 FY24, while the EBITDA margin decreased by 866 bps to 24.8 percent from 33.5 percent, over the same period.

Written by Shivani Singh

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