Sula Vineyards makes tepid debut; lists at 1% premium to issue price

Post listing; the stock price of Sula Vineyards slipped to Rs 345.85, a 3 per cent discount to its issue price of Rs 357 per share on the BSE.

Sula Vineyards has made a tepid stock market debut, with its shares listed at Rs 361, a 1 per cent premium to its issue price of Rs 357 per share on the National Stock Exchange (NSE) on Thursday. The stock of breweries & distilleries company opened almost on par at Rs 358 on the BSE.

Post listing; the stock price of Sula Vineyards slipped to Rs 345.85, a 3 per cent discount to its issue price on the BSE. At 10:02 AM; the stock traded at Rs 348.50, lower by 2 per cent from its issue price. In comparison, the S&P BSE Sensex was up 0.14 per cent at 61,155.

The company’s Rs 960 crore initial public offering (IPO) was subscribed 2.3 times recently. Most of the brokerage houses believes Sula Vineyards IPO was fairly priced and recommended a “Subscribe- Long Term” rating to the IPO.

Sula Vineyards is India’s largest wine producer and seller (52 per cent market share in FY22). The company produces 56 different labels of wine at four-owned and two-leased production facilities in Maharashtra and Karnataka. Sula has the largest distribution network among wine companies in India ~13000 retail touchpoints in India. The company’s owned brand contribution has been steadily increasing from 63.6 per cent in FY20 to 83.9 per cent in FY22.

However, amid worries on an upcoming Covid wave, any imposition of restrictions on travel may prove to be a deterrent for the hospitality sector.

Post pandemic, Sula has shown strong growth on the profitability front from FY22 onwards, which the management expects to stay range bound (due to higher premiumisation and own brands sales). The stock is a pure play on the wine sector, which currently sits on a low base (less than 1 per cent of alcobev industry) but is expected to surpass industry growth due to higher acceptability, affordability, perceived health benefits, etc, analysts at ICICI Securities said in its IPO note.

The brokerage firm had assigned a SUBSCRIBE rating with a long term horizon to the IPO as the industry is currently in a nascent stage and demand centres remain concentrated mainly in a few metros.

The management would continue to focus on increasing contribution of owned brands going ahead. The management would also focus on upgrading consumer to its premium brand to increase the share of high margin segments in revenues, analysts at Indsec Securities and Finance said.

The brokerage firm believes, Sula is on growth trajectory on account of strong brand equity and distribution network, dominant market position, long-term supply contracts for raw material procurement, and premiumization.