Sir, as per my knowledge. Europe and Australia are biggest market. There is very high production this year. Local government gave package to vinery.
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More concerning is so called premium wine market is showing flat growth in india and worldwide.
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Interesting point. I think for liquor direct advertising is not allowed in country…not sure about what are rules on wine.
So for liquor companies, advertising and promotions ought to be either more innovative or much bigger budget avenues like sponsorships etc.
What is more interesting that never seen anything by wine companies yet, not even any international biggies.
If the TAM is so huge, which no doubt it is, why are big pockets international biggies not interested in the advertising & promotion to educate consumers?
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Something seems to be up. Retail seems to be lapping this up. Never is a good sign when promoters, FII and DII are all selling at the same time. Everything else seems interesting about the company except this.
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I think the slow down in top line is apparent - although if I wanted to give the management the benefit of doubt, then there may be several one-offs in Q1 and Q2 FY25 that may have resulted in sluggish numbers - as explained below
- Q1 FY25 headwinds: Ban on sale of alcohol due to elections, Pune Porsche incident resulting in bar closures (based on a quick google search Only 23 pubs in Pune city are authorised: RTI reveals - Hindustan Times)
- Q2 FY25 headwinds: Karnataka policy to reduce excise seems to have resulted in lower supplies by manufacturers until policy officially notified (Rates of premium liquor come down in Karnataka - The Hindu), Delhi excise portal malfunction (https://indianexpress.com/article/cities/delhi/excise-portal-up-and-running-after-weeks-of-malfunction-relief-for-liquor-traders-9599023/)
In any event, these could also be excuses - but thought of at least presenting the other side as indicated by the management.
Looking at the numbers in the table below more closely - I am only focusing on Own Brand sales here - as a general conclusion, growth has slowed at the Total Own Brands level .
| Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | |
|---|---|---|---|---|---|---|
| Own brands revenue by categories (Rs mn) | 1,017 | 1,268 | 1,928 | 1,129 | 1,146 | 1,272 |
| Elite | 751 | 932 | 1,485 | 848 | 814 | 1,018 |
| Premium | ||||||
| Economy | 266 | 336 | 443 | 281 | 332 | 254 |
| Popular | ||||||
| Own brands revenue growth by categories | 29.9% | 11.9% | 3.9% | 9.1% | 12.7% | 0.3% |
| Elite / Premium | 39% | 15% | 7.4% | 14.3% | 8.4% | 9.2% |
| Economy / Popular | 10% | 4% | -6.3% | -4.0% | 24.7% | -24.3% |
However, there is a difference between the segements - Premium / Elite is still growing - e,g. it was 9% YoY in Q2 FY25. This is much less than the suggested mid-teens growth guided in Premium / Elite (please see excellent youtube video from @amit151190 above). If the headwinds highlighted above are fair, then perhaps they may be able to pick up growth again. This is a clear amber flag.
The Economy / Popular segment is gyrating in a far more dramatic fashion: +25% in Q1 and -25% in Q2! This is something to understand better after the results are out / Q2 conference call. If I had to hypothesise, this could be related to the change in distribution approach. Since they appointed a third party distributor for Economy / Popular in Q1, they may have pushed extra volumes in that quarter and are normalising in Q2. The H1 FY25 growth for Economy / Popular is -3% - so this still looks challenging (perhaps exacerbated by the headwinds mentioned above?)
There could be a positive note on the financials for Q2 though - as the Elite / Premium contributed 80%, there should be a bump in margins? So the EPS growth may not be as flat. Still to be seen when results are out though.
In conclusion, several warning flags are flashing - but for me they are more amber than red at this stage - however, they do merit tracking. Numbers are not great - but probably not as bad as they may appear at first glance?
Anyone with alternate interpretations of the numbers?
Disc: Invested with a near full position so likely to be biased. Not a SEBI registered advisor and not investment advice
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My 2 cents on Sula
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If one go back a bit, two of their CXOs (including cfo) left within 6-8 months of IPO - red flag.
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hiding more than revealing, e.g. in none of the mgmt interviews that followed Q1FY25 results, their was any indication of sub-par q2 performance.
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Business is solid but leadership seems to be missing ‘fire in their belly’ - I have not seen any serious attempts by the mgmt in last 2 years to expand their footprints, they continue to be Maharashtra/ Karnataka player.
Disc: exited my positions recently.
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Actually in one of the concall Mr. Samant mentioned that he needed to pay for warrants that’s how he sold the shares and he wasn’t having a house also , so used the money to buy one.
However I found 2 of his family members also had shares and they have either reduced the position or sold it all out.
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Won’t Maharashtra elections cause continued drag for this quarter? And depending on result, risk of unfavorable political alliance in this highly regulated industry…
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Does mukul Agrawal exited Sula. Pls confirm
Alcoholic Beverages - Oct24_IC.pdf (4.1 MB)
good initiating coverage report by DAM capital in alcoholic beverage industry in India and major segments & players in them
Target for Sula is given 560 with below valuation basis
Revenue to grow by 13.6% CAGR over FY24-27E: Sula has strategically reduced its
focus on distribution of ‘Third-party Brands’, the contribution of which came down
from Rs1,615 mn in FY20 to ~Rs366 mn in FY24. It divested its majority stake in
PADPL, a subsidiary involved in the trading of beer, spirits, and other liquor. This led
to a rise in the contribution of its own brands to the company’s total revenue from
~64% in FY20 to ~88% in FY24. Sales from own brands grew at ~13% CAGR over
FY20-24, driven by higher sales from ‘Elite and Premium’ segment which grew at
~16% CAGR compared to 5.6% CAGR for ‘Economy and Premium’ segment. We
expect Sula to deliver ~13% growth in the own brands business driven by
14.5%/~11% value/volume growth in Elite and Premium categories over FY24-27E.
Revenue from the Wine Tourism segment has grown at a 18% CAGR over FY20-24.
Room additions and tailwinds in the hospitality sector should see a continued
momentum in the hotels sector. Going ahead, we expect the Wine Tourism Segment
to grow at a 21.3% CAGR over FY24-27E.
At a consolidated level, we estimate ~13.6% CAGR in net revenues over FY24-27E.
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Low promoter holding is concern for me here, once wine segment grows & become big in size Sula will be potential acquisition target, PE players or existing wine industry players will love to get hold in Sula, as its leader in growing segment with focus on Niche area and strong pillars of growth
do share your views or any information about management plans
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They are using debt to fund dividends. That itself is a big turn off. I was earlier excited about sula but after looking through their cash flow statement I felt that in a way they are financing their dividends through debt. I thought it as poor capital allocation. Please rectify me if I’m wrong. Here to learn.
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