Sula CEO ahead of IPO: Women are the demand drivers of wine in the country

Sula Founder and CEO Rajeev Samant

Sula Vineyards' journey began serendipitously over 20 years ago. Founder and CEO Rajeev Samant’s family was trying to sell ancestral land in Nashik when he decided to put it to use instead. He tried growing organic mangoes and other fruits, but since agriculture wasn’t his scene, he decided to leverage Nashik’s grape-growing tradition to make wine.

The journey from pioneering winemaking in India and dealing with the lack of support from excise officials, to surviving a segment shakeout that saw the early Indian wine pioneers shut down businesses, to an IPO in 2022, has been long and eventful.

In an exclusive interview, he spoke about going public and what it would mean to Sula Vineyards, which is looking to raise around Rs 950 crore via the initial public offering (IPO). Excerpts:

Why has Sula Vineyards decided to take the IPO route?

It has been nearly 25 years since I put those first Sauvignon Blanc grapes in the ground in Nashik. Twenty-five years is a long journey for a company before it goes public. At Sula, we accessed private equity early and that allowed us to take the great growth path we have been on without going to the markets.

For me, going public is a milestone. It will be great to be more widely owned to share our success with the public. Also, our largest shareholder, Verlinvest, has been on-board Sula for more than a decade. Private-equity horizons tend to be much shorter. Verlinvest has been a great supporter and investor. The time has now come for them to cash out some part of their stake. However, they are still holding on to a significant share of the stake because they believe in our company’s journey.

What is the size of the IPO? Is it a primary or secondary offering?

Approximately one-third of the outstanding shares are being offered, and it is a 100 percent secondary offering. The company is in an excellent financial position. Though we have some serious Capex coming up, we can easily finance that through internal accruals. There will be no primary offering. We have excellent lines of credit available to us and we are not drawing down all lines of credit.

In the last year or so, a lot of companies have gone public. Seven of the recently listed players have seen a drop in margins. What has Sula done differently to avoid this situation?

We do not have much in common with a lot of these companies. Sula has been around for over 20 years and has a strong record of profitability. Some of the companies that went public did not have margins; everything was negative. I would like to believe we will be leaving something on the table for incoming investors. I would say our Q1 (first quarter) in 2022 has been stronger than any other Q1 before. I believe whatever has come up in our DRHP (Draft Red Herring Prospectus) is strongly sustainable.

What is Sula’s share of revenues in the different business segments the company is involved in—wine, hospitality, and trading? How is this revenue break-up likely to change in the coming years?

I will not be able to be specific about projections for regulatory reasons. However, over the last couple of years, our own wine brands have given us the highest share of revenues—in the region of 80 percent. Hospitality and third-party brands, or our import businesses, are in the region of 8-10 percent each.

Our focus has been premiumization, which is the reason why our own brands generate such a large share of our revenues. We are pushing towards launching more premium wines, in the Rs 1,000-plus segment. Today, Sula’s installed capacity is around 14 million litres. The last couple of years have seen some very strong growth and we are putting in place the capacity that we need for the future. We have begun constructing a new winery building.

From what research tells us, for Sula, the cash conversion cycle looks long, when compared to listed players such as Radico Khaitan and United Spirits. What is the typical time duration from raw material procurement to manufacturing, storing, bottling, and cash realisation from sales?

These are quite different businesses. Wine is characterised by seasonality, both on the manufacturing and sales fronts. All our grapes are crushed in the last quarter of the year. On March 31, our storage tanks are full, and we have our highest inventory. Some of the young wines and some of the whites you begin selling immediately in Q4 (the fourth quarter). But some of the reds take longer, between six months to one year to mature; some expensive reds take even 18 months.

March 31 is also the focus of the financial matrix in India. We make wine in Q4, and we sell it out from Q1 to Q3. If you look at the records on December 31, the inventory would be a fraction of what it would be on March 31. Other alco-bev segments, on the other hand, follow a continuous process. Beer has a fresh batch once a week.

The prices of alcoholic beverages are mostly regulated by the government. How is the spike in inputs costs across Agri, glass bottles, and power segments, impacting margins?

We are nowhere as impacted as other manufacturing or goods companies. One of the big reasons is that our main input, the grapes, is expensive. The packing material doesn’t compare with the number of grapes that go into a bottle of wine. Grape prices are a direct contract between grape farmers and Sula. The state governments play no role in it. We typically sign 13- to 14-year pacts, with fixed prices and fixed increases.

Over the last couple of years, we have also indigenised our operations and processes. Almost 96 percent value of our packaging comes from India. Ninety-nine percent of our glass bottles come from India; that number used to be only 50 percent four years ago. The move towards localization has driven down the cost. We work closely with our vendors to improve their capabilities, so we get the quality we want within India. Also, states like Maharashtra and Karnataka are offering incentives for wines that are made from grapes grown in India.

What are your flagship wines or your best-selling ones? What have been the learnings of the premiumization exercise?

Our absolute flagship is Sula Vineyard’s Shiraz Cabernet. It is India’s number-one-selling wine by value. It reveals that India now prefers reds over whites. A decade ago, the wine story was about white wines. Our portfolio includes several other best-sellers—Sula Vineyard’s Chenin Blanc, a white wine; Sula Vineyard’s Zinfandel Rose, a rosé; and Sula Brut, a sparkling wine.

We dominate every category of wines, starting from those priced at Rs 250, all the way up to Rs 2,000. In the premium category of wines priced at Rs 1,000 and above, we have two bestsellers—Sula Brut and Dindori Shiraz. We recently relaunched RĀSĀ, a range of top-end reds and that has been a big success.

Among our well-crafted small batch wines cost just above Rs 1,000. The Source Grenache Rosé, which is widely recognised as an excellent dry rosé, is unlike the Sula Zinfandel which is a bit sweeter. The rosé segment has seen the biggest story. But when it comes to the percentage of wine being drunk today, the clear leader is red.

Sula Vineyards set up its first winery in 1999. The company now has more than 13 brands. (File Image)

What is Sula’s geographical break-up of revenues, especially in non-Maharashtra states? What are your expansion plans to capture newer markets and segments?

Maharashtra continues to be our largest market, while Karnataka comes in at number two. There are other significant markets such as Telangana and Haryana, with Gurgaon being a clear leader. The fastest-growing market is Uttar Pradesh. Wine is no longer the story of three cities. A decade ago, the wine story was about Mumbai, Bengaluru, and Delhi. Today, Pune, Goa, and Gurgaon are huge markets. We have started to see massive growth in Noida and Ghaziabad. Kolkata and Hyderabad are coming up strong.

What are the demand drivers for wine in India? How do you see the wine segment reaching out to a younger audience, which is the market of the future?

In a word, women. They are the demand drivers of wine in the country. A generation back, Indian women did not drink. Today, women, especially younger women, especially in the cities, are choosing to have a glass of wine on social occasions. It is culturally acceptable in more communities and milieus. You can see the change in demographics at our tasting room in our vineyards, which is one of the most visited tasting rooms in the world. We had more than 3.5 lakh visitors in the year just before the pandemic, and 2022 has shown strong numbers. Close to 50 per cent of all visitors are women.

There are several international wines and brands in India. How does that affect your business?

Sula has shone through even as international brands have become more available. People will experiment with different kinds of wines, but when it comes to consistent quality at a great price, Sula stands out. In Mumbai, a decent international wine costs a minimum of Rs 1,500. Our sweet spot is the Rs 700 to Rs 1,200 range. If you must pick up a couple of bottles for an evening, the difference in cost can be large. We are delivering international quality at that price. We also have our own international wine business and are among the four top importers of international wines in India; in Mumbai, we are among the top 2.

When you first launched Sula, your mission was to introduce wine to a country and people who do not drink wine. It looks like Indians continue to drink a lot of whiskies and beer. What is the wine segment looking like?

It is 22 years since Sula sold its first bottle of wine. We have gone from selling 3,000 cases of wine in our first year, to close to a million cases now. That has been quite a phenomenal journey for us, and the wine industry. Without a doubt, whiskies are a huge category, but India has a long history of (these) spirits. There are cultural reasons for it. We were ruled by the British and not by the French. If the French had won a couple of those battles they fought, maybe we would all be drinking wine today.