Sula Vineyards IPO Opens on December 12
Should you Buy their wine or their shares?
I have covered everything about the business in the thread below and have answered the above question as well -
Please retweet for a wider reach, have made it detailed this time :)
Should you Buy their wine or their shares?
I have covered everything about the business in the thread below and have answered the above question as well -
Please retweet for a wider reach, have made it detailed this time :)
1/n
About Sula -
- Indiaβs largest wine producer and seller as of FY22
- A consistent market leader in the Indian wine industry in terms of volume and value since FY2009 crossing 50% market share by value in the domestic 100% grapes wine market in FY2012
About Sula -
- Indiaβs largest wine producer and seller as of FY22
- A consistent market leader in the Indian wine industry in terms of volume and value since FY2009 crossing 50% market share by value in the domestic 100% grapes wine market in FY2012
2/n
Consumer proposition -
- Extensive varieties of wine at varying price points
- 56 labels + 13 distinct Own Brands - September 30, 2022
- They also import and distribute 21 international labels (18 wine labels, 2 vodka labels, 1 brandy label)
Consumer proposition -
- Extensive varieties of wine at varying price points
- 56 labels + 13 distinct Own Brands - September 30, 2022
- They also import and distribute 21 international labels (18 wine labels, 2 vodka labels, 1 brandy label)
3/n
- First to introduce varietal wines in India in 2003, with Sauvignon Blanc, Chenin Blanc, Zinfandel, Riesling, Red Sparkling, dessert wine offerings
- First one to adopt use of refrigerated stainless steel tanks for wine production, which revolutionized tropical winemaking
- First to introduce varietal wines in India in 2003, with Sauvignon Blanc, Chenin Blanc, Zinfandel, Riesling, Red Sparkling, dessert wine offerings
- First one to adopt use of refrigerated stainless steel tanks for wine production, which revolutionized tropical winemaking
4/n
Sula fest -
- An annual musical festival
- 2-day celebration of wine, music, and food, in Nashik, Maharashtra
- Recognized as the largest wine festival in India, with 10,000+ people in attendance in 2020, making it one of the largest wine music festivals in Asia as well
Sula fest -
- An annual musical festival
- 2-day celebration of wine, music, and food, in Nashik, Maharashtra
- Recognized as the largest wine festival in India, with 10,000+ people in attendance in 2020, making it one of the largest wine music festivals in Asia as well
5/n
Distribution -
- 25 states and 6 UTs in India.
- Entered the overseas markets in 2003
- Offering wines in over 20 countries, including Spain, France, Japan, UK & US
- 23000 points of sale including over 13500 retail touchpoints and 9,000 hotels, restaurants, and caterers
Distribution -
- 25 states and 6 UTs in India.
- Entered the overseas markets in 2003
- Offering wines in over 20 countries, including Spain, France, Japan, UK & US
- 23000 points of sale including over 13500 retail touchpoints and 9,000 hotels, restaurants, and caterers
6/n
- Distribution platform - 50 distributors, 11 corporations, 14 licensed resellers, 7 company depots, 3 defense units
- As of September 30, 2022, they had a sales force
of 141 permanent employees
- Distribution platform - 50 distributors, 11 corporations, 14 licensed resellers, 7 company depots, 3 defense units
- As of September 30, 2022, they had a sales force
of 141 permanent employees
7/n
Wine Value Chain -
- The wine value chain process is long, and wine may require a few years before it is ready to be bottled.
- Once planted, grape seeds require a minimum of 2 years to mature, and during this period the vines
require intense care.
Wine Value Chain -
- The wine value chain process is long, and wine may require a few years before it is ready to be bottled.
- Once planted, grape seeds require a minimum of 2 years to mature, and during this period the vines
require intense care.
8/n
- Post-harvest, it takes ~2 yrs to manufacture wine
- The economic life cycle of a vineyard in India is 15-20 yrs, with a relatively long gestation period (of ~2 yrs) associated with its establishment.
- The long gestation period creates an entry barrier for new players
- Post-harvest, it takes ~2 yrs to manufacture wine
- The economic life cycle of a vineyard in India is 15-20 yrs, with a relatively long gestation period (of ~2 yrs) associated with its establishment.
- The long gestation period creates an entry barrier for new players
9/n
- The wine business has a high inventory business model compared to other alcoholic beverages
- Unlike other alcoholic beverages, the wine industry has only one raw material production cycle in a year, (usually from Dec to March)
- The wine business has a high inventory business model compared to other alcoholic beverages
- Unlike other alcoholic beverages, the wine industry has only one raw material production cycle in a year, (usually from Dec to March)
10/n
About the IPO -
- IPO size of 960.4 cr
- Pure OFS
- Offer of up to 26,900,530 Equity Shares meaning - 32% of the company being sold - Not promoters, but others - What do they know that we don't? :)
About the IPO -
- IPO size of 960.4 cr
- Pure OFS
- Offer of up to 26,900,530 Equity Shares meaning - 32% of the company being sold - Not promoters, but others - What do they know that we don't? :)
11/n
Raw Materials -
- Grapes & Glass Bottles
Facilities -
- Flagship facility located in Nashik
- Wine processing units located in Nashik and Dindori in Maharashtra, and Bengaluru and Basavakalyan in Karnataka
Strategies going ahead -
Raw Materials -
- Grapes & Glass Bottles
Facilities -
- Flagship facility located in Nashik
- Wine processing units located in Nashik and Dindori in Maharashtra, and Bengaluru and Basavakalyan in Karnataka
Strategies going ahead -
12/n
Changing Consumer Tastes -
- 7 new labels to address changing tastes over the past 5 years
- Launched 4 labels under βThe Sourceβ brand
- Rebranding of the βRASAβ brand in FY22
Risks -
- Litigation of Rs 125 cr
Changing Consumer Tastes -
- 7 new labels to address changing tastes over the past 5 years
- Launched 4 labels under βThe Sourceβ brand
- Rebranding of the βRASAβ brand in FY22
Risks -
- Litigation of Rs 125 cr
13/n
- Flip flop of rules - Dec 2016 - Supreme Court of India imposed a complete ban on the sale of alcohol products by outlets located on highways or within 500 meters of a highway. Subsequently, in Aug 2017, they clarified that this was not applicable within municipal areas
- Flip flop of rules - Dec 2016 - Supreme Court of India imposed a complete ban on the sale of alcohol products by outlets located on highways or within 500 meters of a highway. Subsequently, in Aug 2017, they clarified that this was not applicable within municipal areas
14/n
- They may only adjust the retail prices of products with approval from the state governments (including respective excise departments) in certain states where the wine market is price controlled, including but not limited to Delhi, Telangana, TN, Orissa, AP, and Kerala
- They may only adjust the retail prices of products with approval from the state governments (including respective excise departments) in certain states where the wine market is price controlled, including but not limited to Delhi, Telangana, TN, Orissa, AP, and Kerala
15/n
More points -
- Import of Alco-beverages in India attracts an import duty of 150% (on value of wine). The wine market in India thus has only a few international entrants
- Advertising of alco-bev products is restricted in India
- Wine demand - highest during Nov-Jan
More points -
- Import of Alco-beverages in India attracts an import duty of 150% (on value of wine). The wine market in India thus has only a few international entrants
- Advertising of alco-bev products is restricted in India
- Wine demand - highest during Nov-Jan
16/n
Capital issuance -
- August 2021 times were bad and the preferential allotment at that price can make sense given they wanted to raise capital
Capital issuance -
- August 2021 times were bad and the preferential allotment at that price can make sense given they wanted to raise capital
17/n
Sula IPO story that is being told -
- Wine under penetration
- Brand leadership
- Wine tourism
- Aspirational brand - consumption, and Gifting
Truth -
- No volume growth
- No Financials growth (+ the cyclicality,All eyes on H2)
Sula IPO story that is being told -
- Wine under penetration
- Brand leadership
- Wine tourism
- Aspirational brand - consumption, and Gifting
Truth -
- No volume growth
- No Financials growth (+ the cyclicality,All eyes on H2)
18/n
- Revenue hasn't moved much. EBITDA & net profit have but it's shown cyclicality - Doesn't give confidence
- FY23e topline (given the H1FY23 run rate) will be probably at par with the FY22 number with a 15-20% jump in net profit (52 cr in FY22, 60 cr expected in FY23)
- Revenue hasn't moved much. EBITDA & net profit have but it's shown cyclicality - Doesn't give confidence
- FY23e topline (given the H1FY23 run rate) will be probably at par with the FY22 number with a 15-20% jump in net profit (52 cr in FY22, 60 cr expected in FY23)
19/n
Valuations β
- 6MFY22 EPS is 3.76.
- assume 8Rs expected EPS for FY23
- the 44.6x PE at upper band of 357
- Pure OFS so no dilution in EPS
Valuations β
- 6MFY22 EPS is 3.76.
- assume 8Rs expected EPS for FY23
- the 44.6x PE at upper band of 357
- Pure OFS so no dilution in EPS
20/n
Conclusion -
- The fact that all the stories of under-penetration of Wine haven't translated into volume growth or financial growth is disappointing
- This is despite the fact they hold 52% market share - again disappointing
- 32% of the company being sold via OFS
Conclusion -
- The fact that all the stories of under-penetration of Wine haven't translated into volume growth or financial growth is disappointing
- This is despite the fact they hold 52% market share - again disappointing
- 32% of the company being sold via OFS
21/n
- Indian Alcohol market is such that folks try to find value here also (we all know the objective)
- Hence, the market is dominated by Spirits
- It's difficult to change habits - extensive marketing has to be done to influence and push
- Indian Alcohol market is such that folks try to find value here also (we all know the objective)
- Hence, the market is dominated by Spirits
- It's difficult to change habits - extensive marketing has to be done to influence and push
22/n
- My sense is Sula fest is one of the giant marketing tools (Direct marketing is not allowed, so make it a food music wine festival)
- The Firm's financials are nothing great, it's better to wait on the sidelines for this one
- My sense is Sula fest is one of the giant marketing tools (Direct marketing is not allowed, so make it a food music wine festival)
- The Firm's financials are nothing great, it's better to wait on the sidelines for this one
23/n
Key factors driving Wine demand β
Industry -
- The Indian alcoholic beverage market is the world's 3rd largest market after China & Russia
- Indiaβs Wine per capita consumption is ~100 ml
- Contribution of wine to overall alcohol consumption is 1% v/s world average of 13%
Key factors driving Wine demand β
Industry -
- The Indian alcoholic beverage market is the world's 3rd largest market after China & Russia
- Indiaβs Wine per capita consumption is ~100 ml
- Contribution of wine to overall alcohol consumption is 1% v/s world average of 13%
24/n
So to sum up -
Buying Sula IPO? Can Wait. Track the company's volume & financial performance ahead
Buying their wine? If u like it, go ahead :)
Please don't construe this thread as financial advice. Consult your financial adviser and do own research before taking a call
So to sum up -
Buying Sula IPO? Can Wait. Track the company's volume & financial performance ahead
Buying their wine? If u like it, go ahead :)
Please don't construe this thread as financial advice. Consult your financial adviser and do own research before taking a call
24/n
Thanks, Ritika Maheshwari for the old financials data.
Thanks, @bharatbetpf of @GsnInvest for some key points on Qualitative Alcohol Consumption trends
A good thread by him here -
End of the thread, thanks for reading :)
Thanks, Ritika Maheshwari for the old financials data.
Thanks, @bharatbetpf of @GsnInvest for some key points on Qualitative Alcohol Consumption trends
A good thread by him here -
End of the thread, thanks for reading :)
How do you find the Sula Wine taste?
Good or bad? Which brand of wine do you prefer?
Good or bad? Which brand of wine do you prefer?
The India-Australia FTA should increase competitive intensity in the Wine Industry
As Earlier, 150% duty was there
Also Maharashtra did this recently -
hindustantimes.com
As Earlier, 150% duty was there
Also Maharashtra did this recently -
hindustantimes.com
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