Sula Vineyards Ltd. is not keen on delaying its proposed maiden offer even as a spike in market volatility has compelled many IPO-bound companies to postpone their plans to go public or reduce offer size.
A strong brand recall, a long track record of profitability and a growing appetite for wine—all of these make a strong case to pursue listing without delay, Founder and Chief Executive Officer Rajeev Samant told BQ Prime. If the plan fructifies, it would arguably be the country’s only initial public offering by a pure-play winemaker.
“We aren’t much concerned about the market ups and downs as would be somebody who doesn’t have a track record and yet looking at aggressive price,” he said. “Sula is a great play for anyone who believes in the wine story of the still-niche but rapidly growing market.”
Historically, India has been a spirit-consuming country. The share of wine as a form of alcohol consumption in India was less than 1% in FY21, whereas globally, the contribution of wines to alcohol consumption was close to 13.5% during the same period, according to a Technopak report.
“The low penetration suggests significant headroom for growth,” said Samant. “Today, India consumes less than 50 ml per capita compared to more than a litre per capita in China or 15 litres per capita in the UK.”
Drawing parallels from consumption in the world’s most populous country, he said, “In China there was no wine market two decades ago but today it is among the top eight producers as well as consumers. Their growth story as well as others like the U.K. points out that countries that produce their own wines have seen a big jump in consumption.”
The Indian alcoholic beverage market is the largest in the world after China and Russia. “The wine industry grew at a much quicker pace at 18.3% by between FY14 and FY21 than the Indian-made foreign liquor market (10.8%) during the same period,” Samant said, citing the Technopak report. By volume, the wine category is estimated at two million cases in FY21 and projected to grow to 3.4 million cases by FY25 with a CAGR of more than 14%. “We are in a sweet spot.”
The country’s largest winemaker, which filed for an IPO last month, has a 55% share in the domestic market. “We have been the market leader for the last 13 years and today Sula is synonymous to wine in India, so definitely the brand has an advantage in this case,” Samant said.
The 25-year-old company is not looking to raise fresh funds to rev up growth. The public offer will entirely consist of an offer-for-sale aggregating up to 2.55 crore equity shares with face of Rs 2 each led by its key shareholder Verlinvest, a Belgian investment firm, according to its draft red herring prospectus.
In FY22, the company registered an 8.6% year-on-year jump in revenue to Rs 453.9 crore. Yet, that was lower than Rs 521.6 crore registered pre-Covid or FY20, according to its draft prospectus. Operating margin improved from 9.68% in FY20 to 15.44% in FY21 and 25.57% in FY22, aided by annual price hikes of 3-6%. The company has grown at an annualised rate of 13.7% between FY11 and FY21.
“We have emerged stronger in the aftermath of the Covid-19 pandemic, gaining additional market share and accelerating profitability,” Samant said.
Growing Demand Calls For Expansion
Sula Vineyards, according to its CEO, is in the process of expanding capacities to cater to the growing demand.
“We are seeing double-digit growth in wine sales annually and so we have started construction of a new facility with a capacity of six million litres that will add to our existing 14 million litres capacity,” said Samant. The plant will be built in three phases, with the first one likely to be operational in December this year, followed by the second phase in 2023 and the third phase in 2024.
“While the infrastructure will be ready in the first phase itself, more tanks will be added in the following years.”
One big factor that is driving demand, he said, is the rise of women drinkers. “The change is driven by the metros.”
The tier-II cities, however, are emerging as the next big driver of consumption. “About a decade ago, consumption was more concentrated in Delhi, Mumbai and Bangalore. Today, we have cities like Pune, Thane, Gurugram and Hyderabad also accounting for the bulk of consumption. Every year a new market comes up… this year cities like Noida and Ghaziabad in Uttar Pradesh have been the biggest growth drivers.”
“So, our focus will now be to drive penetration in tier-2 cities for the next couple of years.”
Premiumisation In Own Brands
The company is steadily moving away from unprofitable third-party imported wine business to focus on its own brands, including Rasa, The Source, Dindori Reserve, Madera, Dia, Sula Classics and Satori.
“Our imports business is now 8% from 30% three years ago. This has also helped us in staying insulated from all the supply-chain disruptions.”
The company, he said, has seen its own brands grow 20%, led by the premium and the ‘elite’ category. “Our elite category wines, priced above Rs 1,000, have seen the biggest growth by far, growing at a rate of 30% annually, contributing to a jump in profitability.”
“As we come out of the worst of Covid, we are only likely to see more growth over the next few years.” The company will continue to focus on premiumisation. “Currently, our wines are available at price points ranging from Rs 235 to Rs 1,850 (Maharashtra) but the premium and the elite, with price points above Rs 700, will see new product launches as we look to drive profitable growth.”
Volumes for its elite and premium categories grew to 442,833 cases sold in FY22 from 393,878 cases sold in FY20, signifying a greater demand for premium wines in the domestic market,” according to its DRHP.
The volume share of our ‘elite’ and ‘premium’ wines in its own brands portfolio increased from 46.09% during FY21 to 49.56% in FY22.
Sula currently has 21 labels under the elite category compared with the second largest player Fratelli’s eight labels. Pernod Ricard has limited wine labels under the brand Jacob’s Creek, while Grover Zampa, the oldest wine company, has 12 labels under the elite category.
Technopak also estimates the elite and premium categories to grow much faster than others at a compounded annual growth rate of 32.8% and 22.7% between FY21 and FY25, respectively.
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