Q1FY24 Review: Sula Vineyards: Premium wines drive growth

11 Aug 2023 , 11:51 AM

Sula’s gross sales growth of 21% YoY was robust, driven by 30%/35% volume/value growth in elite and premium wines. At 28%, Ebitda margin continued to be healthy — up 58bps YoY; the company expects it to be at a similar level for FY24. With its strong fundamentals, Sula is best-placed to benefit from the secular growth story of the Wine market. Analysts of IIFL Capital Services keep their estimates unchanged. At 39x, valuations have re-rated since the IPO; but are still at ~20% discount to United Spirits. Maintain BUY, TP of Rs550. 

Broadly in-line: 

In Q1, Sula reported robust gross sales growth of 21%, driven by 29.8% growth in its own brands. Volumes grew by 15% YoY, driven by 30% growth in elite and premium wines. Hospitality business grew by 12.3% YoY. At 17.6% YoY, net sales growth was also strong. Ebitda margin expanded by 58bps to 28% (on net sales) with gross margin expanding by 100bps YoY. 

Premiumisation play working well: 

India’s domestic Wine market grew by 22% Cagr over FY14-19 vs 11% growth for the Alco-bev market. Analysts of IIFL Capital Services expect it to grow 400-500bps faster in future as well. Moreover, elite and premium wines are expected to clock even higher growth due to premiumisation. This was visible in Sula’s results as well, as elite and premium volumes grew by ~30% vs 2.5% growth by popular wines. Consequently, share of elite and premium wines for Sula expanded to 74% of gross sales from 69% in Q1FY23. This resulted in a healthy mix of ~10% in the quarter. 

Maintain Buy, TP of Rs550: 

Analysts of IIFL Capital Services keep their estimates largely unchanged and forecast ~20% EPS Cagr over FY24-26. Amidst strong business fundamentals, Sula is best-placed to benefit from the secular growth story of wine. As for Maharashtra excise duty case, management is confident of a favourable verdict and accordingly, no material impact on its financials. The stock trades at 39x FY25 EPS, which is ~20% discount to United Spirits standalone. Analysts of IIFL Capital Services maintain BUY, TP of Rs550.