The IPO of Sula Vineyards Ltd begins today: Should you sign up?
The company’s market leadership position in the Indian wine market, combined with high entry barriers, makes it a strong investment proposition, but the offer being a complete OFS can be a deterrent.
As of March 31, 2022, Sula Vineyards Ltd (SVL) is India’s largest wine producer and seller (Source: Technopak Report). Since FY09, the company has consistently been a market leader in the Indian wine industry in terms of sales volume and value (based on total revenue from operations). From 33% in FY09 in the 100% grapes wine category to 52% in value in FY22, the company has steadily increased its market share (in revenue terms).
SVL leads the market in all four price categories: ‘Elite’ (Rs 950+), ‘Premium’ (Rs 700-950), ‘Economy’ (Rs 400-700), and ‘Popular’ (Rs 400). In FY22, it had a higher value share of 61 percent in the ‘Elite’ and ‘Premium’ categories. In addition, the company is recognised as the market leader in red, white, and sparkling wines.
At its facility in Nashik, Maharashtra, SVL is the pioneer of wine tourism in India, having established the first wine tasting room in India, the first vineyard resort, the first wine music festival, and the first winery tours.

The IPO’s Features
The offer is entirely a solicitation of up to 2.69 crore shares from selling shareholders at a price range of Rs 340-357 per share. At the top of the price range, the company expects to earn Rs 960 crore.
The offer will be open for subscription on December 12 and will close on December 14. On December 22, the company’s shares will be listed on stock exchanges.
On December 9, the company had already raised Rs 288.10 crore from anchor investors ahead of its initial public offering, when it finalised the allocation of 80.70 lakh shares to anchor investors at the top of the price band.
The offer’s goal is to complete the Offer for Sale and reap the benefits of listing the Equity Shares on the stock exchanges. The company will receive no proceeds from the offer, and the selling shareholders will receive all proceeds.

Brokerage suggestions
Market experts are cautiously optimistic about the offer, and while some analysts recommend that investors “subscribe” to the offer, others recommend that investors “subscribe for listing gains” or “subscribe for high-risk takers.”
The domestic market is primarily a spirit market, with spirits accounting for more than 90% of all alcohol consumed. Wine accounts for less than 1% of total alcohol consumption in India, compared to a global average of around 13%. Furthermore, India’s per capita wine consumption is less than 100ml, which is lower than in some developed and developing economies.
According to experts, India appears to be one of the most appealing markets for wine manufacturers due to lower wine consumption levels, positive demographic factors, and an ever-expanding target population.
The wine market is divided into two categories: 100% grape-based wine and fortified mixed wines, which account for more than 90% (by volume) of the market. The domestic 100% grape wine market, in FY22 was estimated at Rs. 1,345 crores, growing at a CAGR of 22 percent from FY22 to FY25 to reach Rs. It is expected to reach 2,550 crores.
“In the higher price band, Sula is demanding a P/E multiple of 38.5x (to its TTM earnings), which appears in line with the peer average (although peers are in a slightly different alcoholic beverages segment),” analysts at brokerage firm Choice Broking said.
Experts believe the domestic wine market is on the verge of exponential growth, owing to lower wine penetration in the domestic market and expanding demographic factors such as rising per capita income and an expanding target population.
“Sula, as the largest producer and seller of wine, is well placed to capture future growth opportunities in the Indian wine market,” said Choice Broking analysts.
Canara Bank Securities Ltd analysts also rate the public offering as “subscribe.” “The company-owned brand’s contribution has increased from 65 percent to 80 percent plus and would continue to be so, and given the higher share of high margin segments in revenues and the focus on owned brand, the company would be able to expand its margin going forward,” Canara Bank Securities said in a note.
They believe that the company’s strong position is a high barrier, and that the fast-growing segment will help it to gain more sales in the long run, so they advise investors to “subscribe” to the issue for listing gains.
However, some experts advise investors to keep in mind that the offer is entirely for sale, and the company will not receive any proceeds from the issue that could have been used for expansion or debt repayment. This raises the risks of the offer.
According to a note from brokerage firm Swastika, “this issue of Sula Vineyard is coming at a P/E valuation of 54.67, which is lower than its peers, but the issue is a complete offer for sale and low promoter holding is also a concern, thus we recommend subscribe rating to this IPO only for high-risk Investors.”
Sharekhan by BNP Paribas sees limited potential for listing gains for the time being and advises investors to “look at the stock in case of weakness post-listing.”
Premium Grey Market
According to IPO Watch, which tracks grey market movements, the company’s shares are currently commanding a premium of Rs 40 per share in the grey market.
According to IPO Central, another platform that tracks the grey market, the current premium being offered for the company’s shares is Rs 35 per share.