Q2FY24 Review: Sula Vineyards: Premiumisation playing out

13 Nov 2023 , 11:47 AM

Sula’s gross sales growth of 12% YoY in Q2FY24 was driven by strong growth of 13%/15% volume/value growth in elite and premium wines. Premiumisation resulted in gross margin expansion of ~170bps and a higher Ebitda margin of 33.1%, up 196bps YoY. Analysts of IIFL Capital Services believe Sula, being the largest wine brand in India, will be a direct beneficiary of the growth and premumisation in this market, driving mid-high teens growth on top-line and bottom-line in the medium-long term. Valuations at 37x FY25 EPS are attractive, trading at 25% discount to UNSP. Maintain BUY, TP of Rs.580. 

Ebitda above estimates: 

Sula reported strong gross sales growth of 12% in Q2 driven by 15% growth in elite and premium brands. Wine tourism business grew 27% YoY as tasting count increased to 43% YoY. Ebitda margin expanded by 196bps to 33.1% (on net sales) on account of ~170bps of gross margin expansion and lower S&D and marketing expense. 

Share of premium brands on a rise: 

Sula is the market leader in 100% Grape wine industry in India with 60%+ share in premium wines in India. The company’s “Source” range has been successful in catering to higher-end wine drinkers, in the range of Rs1,100-1,300, below imported wine pricing, but higher than most other domestic wines. Sula’s premiumisation strategy is playing out well as the share of premium brands expanded to 73.5% vs 71.6% YoY which is likely to increase even more in the future 

Maintain Buy, TP of Rs580: 

Analysts of IIFL Capital Services increase their EPS by 4-5% across years to account for higher Ebitda margins vs expectations. They forecast forecast ~20% EPS Cagr over FY24-26. Management mentioned that they expect a favourable verdict on the Maharashtra excise case probably next quarter. Amidst strong fundamentals of the company in a high growth industry, the stock trades at 37x FY25 EPS which is ~25% discount to United Spirits standalone. Maintain BUY, TP of Rs580