As Sula Vineyard, the largest wine maker in India, listed on bourses without any fanfare, analysts said only those expecting long-term gains should stay invested, while the rest can bow out of the stock if they get the allotment.
The stock debuted with 1 percent gain but slipped in trade soon as supply pressure mounted. As of 11am, the counter was trading at Rs 344.50, down nearly 4 percent from the issue price.
“Considering the market mood, we advise allotted investors to exit on the listing day and wait and watch for buying on better lower valuations after listing and if investors wish to add this on the listing day, conservative investors should better wait and watch, while risk-takers can add and keep it for long term only,” said Prashanth Tapse, Sr VP Research, Mehta Equities.
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The initial public offering (IPO) of Sula Vineyards was subscribed 2.33 times during December 12-14 with every category getting full subscription, but overall it was lower than analysts' expectations. The issue was entirely a share sale by existing shareholders, meaning the company did not get any proceeds from the IPO.
Narendra Solanki, Head- Equity Research Anand Rathi Shares & Stock Brokers, highlighted that Sula vineyards is India’s largest wine producer and seller and has been a consistent market leader in the Indian wine industry in terms of sales volume and value.
“The management plans to increase awareness and consumption of wine in Tier-1 and Tier-2 cities as consumption of wine in India is less compared to other alcoholic beverages,” he said. “Investors need to hold for long term for gains.”
Over the last five years, Sula’s financial performance has been inconsistent. For the year ended March 2018, it reported a net profit of Rs 12.3 crore. Next year, net profit was Rs 7.2 crore, followed by a loss of Rs 16 crore. For the year ended March 2021, which was the Covid-hit year, the net profit was Rs 3 crore. And the year after that, right before the IPO, it jumped to Rs 52 crore.
Sula also has outstanding borrowings of Rs 231.5 crore and cash and cash equivalents of just Rs 13 crore, which are areas of concern.
Though, in the long term, growth prospects outweigh these concerns, said analysts.
Rajnath Yadav, Research Analyst at Choice Broking, said that considering the lower wine penetration in the domestic market and expanding demographic factors like rising per-capita income and expanding target population, he believes the domestic wine market is on the cusp of exponential growth.
The entire alco-beverage consumption market in India stands at 987 million cases. Of this, 30 percent is beer, 69.3 percent spirits and only 0.7 percent is wine.
“Sula being the largest producer and seller of wine is well placed to capture the future growth opportunities in the Indian wine market. Long term investors are recommended to remain invested in the counter,” Yadav added.
Astha Jain, Senior Research Analyst at Hem Securities, also echoed the sentiments, adding that the company has secured supply of raw material with exclusive long term contracts, which is a big positive.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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