Sula Vineyards jumps 9% after CLSA assigns 'Buy' rating

Shares of Sula Vineyards (Sula) rallied 9% in intraday trade on Wednesday after the global brokerage house CLSA initiates coverage with a ‘Buy’ rating, citing the homegrown wine producer is well-placed to take advantage of the global consumer shift towards the low-alcohol beverage segment, including beer and wine. The foreign brokerage has given a target price of ₹475, a potential upside of 39% from Tuesday’s closing price of ₹340.85 on the BSE.

"Sula is the market leader in India’s wine industry, dominating in value and volume and across price segments and wine variants. The vineyard’s key competitive advantages include the largest national wine distribution network, robust manufacturing capabilities and strong sourcing ability with respect to long-term contracts with third-party farmers," CLSA said in a report. 

According to CLSA, Sula is India’s market leader in wines with over 52% market share in the 100% grape wine category. "With a healthy EBITDA margin of over 29%, the company has the ability to invest in category development, which is crucial for long-term growth," it said in the report.

The report said Sula has strong brand recognition and backend capabilities as well as strategy to grow its own brands over third parties. "It guides consumers towards its premium wines through upselling. Strategic investments to further drive market penetration and expand its wine tourism business are additional levers for growth," said CLSA.

Reacting to the CLSA report, Sula Vineyards shares opened 2.1% higher at ₹348 against the previous closing price of ₹340.85 on the BSE. During the session, the stock gained as much as 8.9% to hit an intraday high of ₹371.2, while the market capitalisation surged to ₹3,023 crore. On the volume front, there was a surge in buying activities as 1.5 lakh shares changed hands over the counter as compared to the two-week average volume of 0.57 lakh stocks.

The Nashik-based company, which made its market debut on December 22, 2022, currently trades 4% higher than the issue price of Rs ₹357 apiece. The wine maker raised ₹960 crore through initial public offering (IPO), which was entirely an offer for sale by promoters. The issue, which had a price band of ₹340-357 apiece, was subscribed 2.33 times as it received bids for 4,38,36,912 shares against 1,88,30,372 shares on offer. The issue of the Nashik-based company, which opened between December 12-14, got lower than expected response from investors with a quota reserved for qualified institutional buyers subscribing 4.13 times. The portion set aside for high net-worth individuals was booked 1.51 times. The portion for retail investors received 1.65 times bidding.

Established in 2003, Sula Vineyards is India's largest wine producer and seller, which owns some popular brands including RASA, Dindori, The source, Satori, Madera & Dia, with its flagship brand Sula being the "category creator" of wine in India.