Sula Vineyards shares skyrocket 17%, hit new high as CLSA revises target price; here's what the brokerage expects

Sula Vineyards, the largest wine producer in India, saw a massive rise in its stock price in today's trade, increasing by almost 17.30% to reach a new historic high of ₹649.95 apiece, following an 11.40% jump in the previous trading session. 

Today's surge came in response to global brokerage firm CLSA's positive outlook on the company. The brokerage in its latest note has upgraded the rating on the stock to 'Buy' from an earlier rating of 'Neutral' and also lifted the target price to ₹863 apiece from a previous target price of ₹571 apiece, CNBV-TV18 reported.

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This revised target price indicates an upside of 55.77% for the stock from its previous closing price of ₹554. The brokerage estimates wine consumption in India to grow at a CAGR of 15% over the next 10 years, driven by the rising middle class, the fast growth of restaurants, and rising incomes.

The brokerage underscores that Sula Vineyards stands to benefit significantly from this trend, given its dominant market share in the wine industry and its leading position in wine tourism. 

Wine tourism serves as both a revenue driver for the company and a catalyst for heightening interest in wines within a regulatory environment where advertising alcoholic beverages is restricted, as highlighted by the brokerage.

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On December 27, the company said in an exchange filing that its Wine Tourism business set new records for visitor numbers, revenues, and tastings over the long Christmas weekend.

"5,300 visitors entered the gates of Sula on a single day for the first time ever on December 24th. Visitor numbers set a single-day, two-day, and three-day record with over 12,000 visitors from December 23rd to 25th at Sula’s Nashik and Bengaluru wine tourism facilities," the company said in an exchange filing.

During this period, the company said it recorded a record revenue of ₹2.28 crore.

Boost for Wineries

According to recent media reports, the Maharashtra government is set to revive the Wine Industrial Promotion Scheme (WIPS). This decision was announced in the state cabinet on January 04. WIPS, an incentive scheme, was introduced to encourage the wine industry in the state in 2009. It applies to those who produce wine from grapes grown in Maharashtra.

However, the scheme was temporarily stalled to overcome the financial crunch in the wake of successive lockdowns imposed to contain the Covid-19 pandemic in June 2020.

In addition, wineries are given a 16% rebate on 20% of value-added tax. This announcement came as a big relief for wine producers in Maharashtra, particularly for Sula Vineyards, where it has a strong presence.

Record Run

Sula Vineyards is engaged in the manufacture, purchase, and sale of premium wine and other alcoholic beverages. The largest selections of wines in the Indian wine market under the 'Elite' and 'Premium' categories are presently produced and marketed by Sula under a total of 34 labels.

The company's shares made their debut on the exchanges on December 22, 2022, at ₹331.2 per share, reflecting a 7.2% decrease from the issue price of ₹357. However, the stock swiftly recovered in the following seven months with a rally of 57%. 

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This upward trajectory has persisted, with the stock maintaining its momentum to date, gaining 78% over its IPO price.

At 12:45 PM, the stock was trading with a gain of 14.85% at ₹636.70 apiece. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.