Q4FY23 Review Sula Vineyards: Strong performance continues

5 May 2023 , 11:01 AM

In Q4, Sula missed estimates slightly, largely on sharp decline in Imports business, while own brands and Hospitality continued to perform robustly. FY23 EBITDA margin of 30.5% expanded further by 380 basis points YoY, resulting in ROIC of ~15% from 11.6% in FY22. Sula has established strong moats in a fast growing Wine market in India. 

Sula is the market leader in 100% Grape Wine industry in India, which has grown at 22% CAGR over FY14-19 versus overall alco-bev market growth of 11%. Analysts at IIFL Capital Services expect it to grow 400-500 basis points faster in the future as well. Moreover, with a series of strategic actions like premiumizing portfolio, import rationalization, efficiencies in manufacturing and distribution — the company has improved business fundamentals significantly, expanding EBITDA margin to 30.5% in FY23 from 10.1% in FY20. Supported further by secured long-term contracts for grapes and the highest distribution in the industry, Sula is well placed to benefit from the secular growth story of wine.

At 30 times FY25 estimated EPS, valuations are attractive trading at a ~30% discount to United Spirits. Key risk of discontinuance of VAT refund by Maharashtra remains but company is confident that in an unlikely scenario of it being phased out, the impact on financials will be mitigated via reduction in trade margins.