Crime Today News
The alco-bev industry in India looks set for solid and sustained growth owing to the favourable demographic shifts and lower per capita consumption of alcohol. And Sula Vineyards (Sula), India’s leading wine producer, which enjoys a market share of around 50 per cent in the 100 per cent grape wine segment, is well placed to ride the macro trend.
Sula is the only listed wine producer in India, while other big players in the industry — United Spirits, Radico Khaitan and Allied Blenders & Distillers manufacture spirits (whisky, gin, vodka et al).
Trading at around 27 times its FY26 earnings, it is at a discount of 28 per cent to its average levels since its listing in December 2022. It is also cheaper compared with its competitors United Spirits, Radico Khaitan and Allied Blenders and Distillers, which trade at 59 times, 62 times and 40 times respectively.
With sustained new launches, premiumisation of portfolio, continued investments in new initiatives like canned wines and focused event campaigns like SulaFest alongside other factors listed below, from a long term investing perspective, the risk-reward in the stock is favourable at current price levels. Given markets are likely to remain volatile due to uncertainties related to global tariff wars, long term investors can look to accumulate the stock on opportunistic corrections.
The business
Sula generates around 98 per cent of its revenue from domestic business, but it does have presence across 29 countries.
Currently, Sula produces 56 different labels of wine at four owned and two leased production facilities located in Maharashtra and Karnataka. ‘Sula’ is the flagship brand alongside other brands like ‘RASA’, ‘Dindori’, ‘The source’, ‘Satori’, ‘Madera’ and ‘Dia’. Customers are State-run corporations, wholesalers and independent distributors.
Across all four price segments — elite (more than ₹950 a bottle), premium (₹760-950), economy (₹400-760) and popular (less than ₹400) and wine variants — white, red and sparkling, Sula leads the market.
The wine tourism vertical of Sula, with D2C initiatives via three wine-tasting rooms and two vineyard resorts (with 100-plus keys) alongside other customer engagement, complements the wine-selling business. It contributed 9 per cent to the topline in FY24 and has been on an increasing trend in the past three years.
Reliable supply
The company has its primary production facility in Nashik, Maharashtra – the wine capital of India, with the best climate for viticulture (cultivation of grapevines).
Sula works closely with the farmers in cultivation and harvest of grapes, focusing on both the quantity and quality.
The company sources from around 2,800 acres of accessible vineyards, which cover 90 per cent of Sula’s annual supply. Around 2,200 acres are under long-term supply contracts of up to 12 years and an option to renew with mutual consent and built-in price hike. The company is secured on the supply side with operational stability and cost predictability.
Harvest, typically, happens during December-March, followed by processing and fermentation. Blends get finalised between the following April and September. And bottling is done throughout the year based on the demand.
Financial metrics
Revenue grew at a healthy CAGR of 13.5 per cent during FY21-24. But the same dropped to 1.8 per cent in 9M FY25 over 9M FY24 owing to volume growth slowing. Premium and above (P&A) segment clocked a mere 0.8 per cent volume growth in 9M FY25 year on year, while the non-premium segment de-grew 7.3 per cent as against growth of 11 per cent and 7 per cent respectively in FY24. However, realisations improved around 4.9 per cent during the period.
The national and a few State elections (especially in Maharashtra, which contributed 52 per cent of domestic sales in FY24) resulted in a reasonable number of dry days affecting sales. The company also noted a slowdown in urban demand akin to FMCG companies. United Spirits, on the other hand, noted growth moderating in the premium segment.
Margins compressed too, with gross margins impacted by increasing input costs (up 6.4 per cent due to inflation). Higher sales and distribution expenses (S&D) to expand sales to non-core areas (up 2 per cent to 18 per cent) and higher employee costs (up 10.9 per cent due to ESOPs) hit profitability during 9M FY25. While the EBITDA margins recorded during FY23 and FY24 at around 30 per cent are unsustainable, 26-27 per cent could be the range for the company for FY26, from 25.2 per cent in 9M FY25.
Net debt to equity is at an acceptable 0.6 times and net capital turnover ratio improved to 5.1 times in FY24 from 3.9 times in FY23, signalling improvement in working capital management.
What works
The portfolio mix, within own brands, is improving favourably, with the increasing revenue contribution of the premium and above (P&A) segments from 67.8 per cent in FY20 to 77 per cent in 9M FY25, growing at a faster 27 per cent CAGR in FY21-24 against the 14 per cent CAGR growth recorded in the non-premium segment.
The company is expanding its wine tourism segment. In H2 FY26, 30 more keys (to the existing 100 keys) will be added to the resort in Nashik. And new wine-tasting rooms, bottle shops and wineries are planned, which will add to deeper penetration. Vineyard resorts recorded an improved occupancy rate of 81 per cent in Q3 FY25 against 76 per cent in Q3 FY24, while the average room rates also increased 34 per cent, thanks to increased footfall.
The company expects at least a 200 bps cut in S&D expenses in the near term, which will directly aid the margins. The wine tourism segment is expected to add to the customer base with increased brand awareness and thus, a pull effect alongside the traditional channels.
Monitorables
Sales from imported brands dropped significantly from around 27 per cent of revenue to just 3 per cent in FY24. Strategic shift to focus on own brands alongside the ever-prevalent high import duties and operational challenges in importing, especially during Covid, were the factors. Whether import duties change amid the ongoing tariff wars is a key monitorable.
On the other hand, Sula’s SulaFest, a wine, music and gourmet event, that took place after five years, in February 2025, saw wine sales sharply up against previous editions. This is expected to cushion Q4 and help top-line growth to around 4 per cent for FY25.
Proposed privatisation of the alco-bev market in Andhra Pradesh is a key positive for the company. Nevertheless, the industry is highly sensitive to policy changes both at the Centre and State levels, and one needs to closely monitor the external factors too.
Published on April 5, 2025
📰 Crime Today News is proudly sponsored by DRYFRUIT & CO – A Brand by eFabby Global LLC
Design & Developed by Yes Mom Hosting
