Shares of India’s largest wine-maker Sula Vineyards surged nearly 9 percent on Wednesday after brokerage firm CLSA initiated coverage on the stock with a Buy rating with a potential upside of 40 percent from current levels.

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CLSA projected a price target of Rs 475 against Tuesday’s closing price of Rs 340.85.

CLSA noted that the winemaker would benefit from the global consumer shift towards the low–alcohol beverage market. The company has strong backend capabilities and a pan Indian distribution market and its ability to invest in its own premium brand is a key for the long term.

Over the next two years, CLSA expects Sula's revenue to grow at a Compounded Annual Growth Rate (CAGR) of 17.5 percent and EPS growth of 18.5 percent.

The valuation of Sula Vineyards, which is a market leader with more than 52 percent market share in the 100 percent grape wine category, is projected at 34x FY25 EPS – a 15 percent discount to other alcohol beverage companies.

In an interaction with CNBC-TV18, Rajeev Samant, MD & CEO, of Sula Vineyards expressed optimism about the potential for Sula Vineyards in tier-2 and tier-3 cities.

These areas represent an untapped market for the company, and if it can successfully expand its reach into these regions, it could drive significant growth in the coming years.

Samant said, " We do have a couple of new markets that we are looking at that we hope to announce in our April update once we have the full details there. We hope to be in more tier-II cities and with more promotion behind that than what we have been in the past. In the past, we have been very metro and tier-I driven. We really hope that FY24 is going to be a year of tier-II city growth."

These areas represent an untapped market for the company, and if it can successfully expand its reach into these regions, it could drive significant growth in the coming years.

Samant reassured investors that Sula's dividend policy allows for the payment of up to 80 percent of profits, which should be a welcome piece of news for those looking for income from their investments.

One thing that Samant made clear during the interview is that the promoter has no intention of selling any shares in Sula.

Sula Vineyards made its debut on BSE on December 22 at a listing price of Rs 358 apiece against the issue price of Rs 340-357 while on NSE the stock was listed at Rs 361 per share.

The company has reported record breaking quarterly results for the third quarter of the current financial year in net profit and EBITDA, backed by strong revenue growth.

The company’s revenue surged 14.5 percent to Rs 209.1 crore year-on-year in the December quarter compared to Rs 182.7 crore in the same quarter a year ago. Profit after tax (PAT) stood at Rs 39 crore for the latest quarter, 16 percent higher than Rs 34 crore reported in the December quarter a year ago.

Shares of Sula Vineyards are trading 5.7 percent higher at Rs 359.

(Edited by : Rukmani Krishna)

First Published:Mar 22, 2023 12:05 PM IST