Seven brokerages advise subscribing to Sula Vineyards Ltd's initial public offering (IPO) due to the Nasik-based company's position as the largest wine producer in the nation with a sizable distribution network, innovative products, improving financials, decreased threat from peer groups, and emphasis on owned brand.
The IPO opened for subscription on Monday and will close on Wednesday, December 14.
Kotak Mahindra Capital Company Ltd, CLSA India Pvt Ltd, and IIFL Securities Ltd are the book-running lead managers.
The public issue with a face value of ₹2 per equity share is a complete offer for sale of 26,900,530 equity shares by existing shareholders aggregating up to ₹960.35 crore.
The Nasik-based wine producer, according to brokerage Motilal Oswal Financial Services Ltd, dominates the nation's grape wine market, particularly for luxury brands. It has high entry barriers and is ideally positioned to benefit from the expansion of the sector.
"We like its focus on D2C model, premiumization and efforts on improving its operational efficiencies. Given first of its kind listing in wine category, there could be fancy for the IPO. We suggest investors can 'Subscribe' for listing gains," said the brokerage.
Similarly, brokerage Swastika Investmart Ltd believes the company will enjoy the benefit of high entry barriers in this industry, and considers it as a pioneer in the wine tourism business.
"This issue of Sula Vineyards is coming at a P/E valuation of 54.67, which is lower than its peers. The issue, however, is a complete offer for sale and low promoter holding is also a concern thus we recommend 'Subscribe' rating to this IPO only for high-risk investors," said Swastika Investmart.
In terms of valuations, brokerage Angel One Ltd too considers it to be less than its indirect peers like United Spirits, United Breweries Ltd and Radico Khaitan Ltd, but it does not find the financials much attractive.
"Sula Vineyards has a niche offering, which peers don’t have much expertise in. However, its financials are not much attractive at this juncture considering 10% yoy growth in net sales and along with the fact that it has recently turned profitable. Considering all the factors, we believe this valuation is at reasonable levels," the brokerage said.
Hence, the brokerage recommends 'Neutral' rating on the issue.
Choice Equity Broking Private Ltd believes that there are no comparable peers to Sula.
"We believe the domestic wine market is on the cusp of exponential growth. Sula, being the largest producer and seller of wine is well placed to capture the future growth opportunities in the Indian wine market. Thus we assign a 'Subscribe' rating for the issue," said the brokerage.
Canara Bank Securities Ltd has recommended 'Subscribe for listing gains' to the stock. "Considering the higher share of high margin segments in the revenues and focus on owned brand, the company would be able to expand its margin going forward. Its strong position in a high barrier and fast growing segment would help it to gain further in terms of sales in the long run," said the brokerage.
Similarly, Arihant Capital Markets Ltd too advises investors to subscribe for listing gains. The brokerage claims that the company has seen stellar EBITDA growth, and is well-positioned in its target markets, and has limited competition domestically.
"Considering its active product management activities and plans for aggressive distributor network growth, the company is well poised to grow its market share in the years to come," said the brokerage in its report.
According to ICICI Direct Research, the stock is a pure play on the wine sector, which currently sits on a low base (less than 1 percent of alcobev industry) but is expected to surpass industry growth due to higher acceptability, affordability, perceived health benefits, etc.
"We assign a rating of 'Subscribe' with a long term horizon to the IPO as the industry is currently in a nascent stage and demand centres remain concentrated mainly in a few metros," said the brokerage.
Anand Rathi Share and Stock Brokers Ltd too recommends a 'Subscribe- Long Term' rating to the IPO, and believes the wine producer's IPO is fairly priced.
Brokerage Kotak Securities Ltd has released a report for informational purposes without rating the IPO.