Sula vineyards - pioneers in indian wines

High Court has set aside the order on excise duty (source link)

Pursuant to the Order, the Hon’ble High Court of
Bombay has set aside the order dated July 21, 2023,
(“Excise Order”) passed by the Minister (State Excise).

The Excise Order had vacated the interim stay granted
in terms of the order dated September 19, 2019, passed
by the then Minister (State Excise), Government of
Maharashtra. The interim stay was granted on the
demand notice issued by the Collector of Nashik,
Maharashtra (State Excise) for recovery of excise duty
from the Company (“Demand Notice”) and the appeal
filed by the Company before the Commissioner of State
Excise, Maharashtra State, Fort, Mumbai, Maharashtra
challenging the Demand Notice.

Sula Vineyards Q1 concall -

Sales-118 vs 92 cr (up 17 pc)

Operating profit-30 vs 25 cr (up 20 pc, margins 28 vs 27 pc)

PAT-14 vs 11 cr, up 27 pc

Growth in Own brands @ 30 pc vs muted growth for imoprted wines

Elite and Premium wines grew even more @ 35 pc (30 pc in Volumes)

Wine tourism revenues grew 12 pc. Have added 27 rooms to their resort at Nahsik taking the total room count to 100

Likely to continue to see high occupancy and room rates

Sula’s Vineyards continue to be the most visited vineyards in India

Q1’s volume growth @ 15 pc

Volume growth in popular and economy segment was muted at 2.5 pc vs 30 pc for elite and premium segment

Company gets VAT refunds in the state of Maharashtra. Company is yet to receive Rs 120 cr from Maharashtra Govt

Q1 has been a fourth straight Qtr of strong double digit volume growth for Sula and they r guiding for similar growth for rest of the year

Company is hopeful of receiving the 120 odd cr from Maharashtra Govt within the course of this CY

LY, company did 30 pc EBITDA margins for full FY. This yr, company intends to do 27-28 pc margins but with greater vol growth

Capex for FY 24 to be around 60 cr towards expanding production capacity. Capex for expanding rooms and infra for wine tourism is done by local partners

Sula leases the infra ( extra rooms etc ) and keeps it asset light

Among own wines in Q1, 74 pc revenues came from elite and premium and rest from economy and popular. LY, the contribution from elite and premium was 69 pc

Company’s three biggest Mkts are - Maharashtra, Karnataka and Telangana - in that order

Disc : hold a tracking position


Interesting excerpts from the book: The Ten Commandments for Business Failure

For a number of years consultants had been telling the leaders of The Coca-Cola Company that it needed to diversify. The core business of soft drinks and juices gave us no hedge against the future and the company needed to look around to acquire businesses that were compatible but different. And the consultants had a number of recommendations. One of them was a very nice wine company. So listening to the consultants, the company acquired the wine business.

There was no question that the wine business was charming. It had a fine group of managers and they operated a separate unit called the Wine Spectrum. Management enjoyed having the bottles gracing the tables at our various corporate dinners and cocktail parties. The Wine Spectrum didn’t get much real attention from the senior management of The Coca-Cola Company. It was sort of like owning a pet.

By that time, Robert Woodruff, well into his eighties, was still a great influence but not active in the day-to-day business. He decided, however, to take a personal look at this wine business “his” company had gotten into.

So the revered gentleman gathered his doctor and a few friends and took a company plane out to California. When he got back he had lunch with then CEO Roberto Goizueta and me. And as I remember his remarks, they went like this:

Well, the wine business is interesting. I went out to California to see the vineyards.

It seems that it takes five or six years for a vine to be mature enough before you can start harvesting grapes. During those years you’ve got quite a few people tending to the vines and praying for the right kind of weather so they yield a good crop. Finally, though, if everything works out, they pick the grapes and they take them to the plant where they squeeze them and put them into these great, hugely expensive stainless-steel tanks where they ferment. From these expensive tanks the wine goes into many small casks made out of equally expensive French oak. The casks cost fifty-five dollars each. The wine then ages for some time in the many small expensive casks. Meanwhile, about 15 percent of the wine is lost through evaporation.

Soon, however, after aging quite awhile, the wine goes into bottles. They pay a tax at that time on each bottle and then put the bottles away for more aging. You keep the bottles for years, and if everything has gone well during the process and you have a reasonably good vintage, then you finally send the
bottles into retail stores where there are hundreds of different kinds of wines on the shelves. At that point, you hope to God that out of that whole array of similar bottles someone is going to buy yours.

Now I grew up in a business where you bottle it in the morning and sell it in the afternoon and in a lot of places there is no other competition. Seems to me that’s the kind of business we want to be in!

Mr. Woodruff struck a chord with Roberto and me. Despite what all the consultants had said about how good this business was, and despite the fact that we had acquired about 11 percent of the total U.S. wine business—a not insignificant share—we decided to take a closer look at the business. So we met with the managers of the Wine Spectrum in early 1981 shortly after we had taken our assignments to lead the company.

We asked wine executives to make the assumption that every business decision they would make between then and 1990 would be perfect. We asked those executives to use volume and profit projections that were generous but rational and report what the expected return on invested capital would be by 1990. When we received that information the decision would be made on whether
to build the business or get out of it. We assured the executives that they would have a place in the company should we sell the wine business.

Every one of those wine executives concluded that with the very best possible results, the return on capital would be equal to or less than our cost of capital. That gave us pause. Did we really want to be in this business?

But what could we do with it?

It always pays to be lucky and The Coca-Cola Company has been lucky over the years. Shortly after we concluded that we didn’t really know how we could make a decent return in the wine business, a call came from Seagram’s. They were interested in looking at our Wine Spectrum. And “reluctantly” we negotiated a deal that worked out very nicely for both parties.


France to spend €200m on destroying excess wine as demand falls | France | The Guardian

Very informative about the hazards of wine business. However, in India, we do not have much competition in wine sphere. And our huge middle class population has just started drinking wine. Sula is a market leader. So odds may be in its favour as far as Indian market goes. Company is witnessing strong tail winds of late.
P.S. I am invested.

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FII and DII are showing too much interest in the company.
The company’s PE is good right now.

It is on account of Verlinvest Asia’s 21% stake being reclassified from Public to FII category in Sep2023 quarter. Though 38% Institutional stake is a positive sign, these reclassifications present a skewed view a lot of the times!


@Anubhav_Garg How does this reclassification happen? Why wasn’t it an FII from the start?

The guy putting the data in Screener portal should add investors to correct category from the start. This reclassification happens in 100s of companies each quarter (from my personal experience). Try comparing the shareholder structure of a random company from different sources eg. Screener, Trendlyne, Finology, Brokerage reports etc and you would observe some differences!

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Sula Vineyards Limited, India’s largest listed wine producer, has achieved its highest-ever Q2 revenue and profits, showcasing robust growth and a continuation of the premiumization trend.

Financial Highlights:

  1. Q2FY24 Performance:
  • Revenue increased by 11.6% YoY, reaching an unprecedented level.
  • EBITDA rose by 18.1% YoY.
  • The EBITDA margin crossed 30% for the first time in Q2.
  • PAT grew by 18.4% YoY.
  1. Premiumization and Market Share:
  • The company’s premiumization efforts increased Elite and Premium wine share to 73.5% in Q2, up from 71.6% a year ago.
  • The EBITDA margin surpassed 30% due to this premiumization strategy.

Financial Details:

  1. Q2FY24 Financials:
  • Revenue from Operations: Rs. 142.8 Cr (11.6% YoY growth).
  • Own Brands Revenue: Rs. 126.8 Cr (12.0% YoY growth).
  • EBITDA: Rs. 45.1 Cr (18.1% YoY growth).
  • EBITDA Margin: 31.6% (173 bps increase).
  • PAT: Rs. 23.1 Cr (18.4% YoY growth).
  • PAT Margin: 16.2% (93 bps increase).
  1. Consolidated H1FY24:
  • Revenue from Operations: Rs. 259.4 Cr (15.6% YoY growth).
  • EBITDA: Rs. 77.0 Cr (19.8% YoY growth).
  • EBITDA Margin: 29.7% (102 bps increase).
  • PAT: Rs. 36.8 Cr (20.5% YoY growth).

  1. Premiumization and Market Share:
  • The company’s premiumization efforts increased Elite and Premium wine share to 73.5% in Q2, up from 71.6% a year ago.
  • The EBITDA margin surpassed 30% due to this premiumization strategy.
  1. Wine Tourism:
  • The wine tourism business showed substantial growth, with revenue up by 26.9% YoY in Q2.
  • The CEO highlighted impressive numbers in tasting events and the popularity of new additions like lakeside villas.
  1. Sustainable Practices:
  • Sula Vineyards aims to be one of the world’s most sustainable wine producers.
  • Plans include increasing renewable energy investments, with a target to power 70% of operations with solar energy by 2026.
  1. Future Outlook:
  • The strong rebound of the monsoon in September bodes well for the upcoming harvest in early 2024.
  • The company is optimistic about entering Q3 with favorable conditions and maintaining wine quality across its wineries.

Other Highlights:

  • The Elite & Premium wines drove growth, recording a 15.0% YoY increase in Q2.
  • The wine tourism business contributed significantly to revenue, with impressive numbers in tastings and visitor footfall.
  • The vineyard resorts ‘The Source’ and ‘Beyond by Sula’ showed strong occupancy rates.
  • The company’s sustainable practices and renewable energy goals were emphasized.
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Sula Vineyards Q2 highlights -

Sales - 142 vs 128 cr, up 11.6 pc

EBITDA - 45 vs 38 cr, up 18 pc (margin @ 31.6 vs 29.8 pc )

PAT - 23.1 vs 19.5 cr ( up 18 pc )

Sales breakup -

Sale of Wines - 126 vs 113 cr

Wine Tourism - 12 vs 9 cr

Sale of Elite and Premium wine sales ( > Rs 700/bottle ) @ 73 vs 71 pc YoY. Elite and premium sales grew by 15 pc, while economy and popular sales grew by 4.5 pc YoY

The Source - brand doing really well

Company conducted 49k+ tastings at their vineyards and 35+ cities across India - up 45 pc YoY

Popular and Economy segment facing heavy discounting and intense competition

Institutional shareholding (FII + DII) @ 36 pc now

In Q1, Q2 - CSD sales more than doubled

India’s per capita wine consumption currently @ 25 ml vs 850 ml for China. In Europe, it is > 2000 ml

Grape harvest likely to be robust leading to supply security

Currently, the Wine Tourism is primarily happening from Nahsik facility. Aim to set up a similar resort near the Bangaluru facility as well. Availability of land is not an issue

In UP, Haryana - 90 pc of sales were from Noida, Gurugram. Company now actively trying to expand into smaller cities

Sales contribution from Maharashtra in first half @ 48 pc vs 54 pc last year

Current Gross Margins @ 78 pc - company very happy with the same

Company’s is gradually losing mkt share in the economy segment because of its premium focus

Disc: holding, biased, not SEBI registered, hoping for buoyant Q3 results