Nashik Bottling And Premium Wine Tourism Will Foster Success

Key Takeaways

• Strategic expansion in bottling capacity and premium segments could improve margins and future earnings, benefiting from wine subsidies and high-value markets.
  
• Diversification through wine tourism and innovative brand strategies like wine in cans is likely to enhance revenue streams and consumer engagement.
  
• Urban consumption slowdown and election-related disruptions impact revenue, while increased expenses and receivable delays challenge profitability and financial stability.

Catalysts

Manufactures, purchases, and sells wine and other alcoholic beverages.

• Sula Vineyards is expanding its bottling capacity with a new Nashik unit, which will allow the company to capture 100% of its eligible WIPS (Wine Industry Promotion Subsidy) benefits starting from FY '26, potentially boosting revenue and improving net margins.
  
• The company is witnessing strong growth in its elite and premium wine segments, with these categories recording a 6% growth in a subdued market, and plans to focus on higher-margin segments, which could enhance future earnings.
  
• Sula is expanding its wine tourism business with new facilities and resorts, including a 30-key resort near Nashik set to open in H2 FY '26, which could increase tourism revenue and broaden its income streams, positively impacting overall earnings.
  
• The company is focusing on reducing selling and distribution expenses to improve profitability, and implementing strategic measures to lower costs, potentially leading to improved net margins and higher future profits.
  
• Sula Fest's successful re-launch and the introduction of wine in cans are expected to enhance brand visibility and consumer engagement, fostering long-term revenue growth and supporting the company's premium positioning strategy.

Sula Vineyards Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sula Vineyards's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.2% today to 14.5% in 3 years time.
• Analysts expect earnings to reach ₹1.1 billion (and earnings per share of ₹10.85) by about May 2028, up from ₹707.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.8x on those 2028 earnings, up from 33.6x today. This future PE is greater than the current PE for the IN Beverage industry at 30.8x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Sula Vineyards Future Earnings Per Share Growth

Risks

• Subdued growth in Q3 due to a broad-based slowdown in urban consumption, with urban markets accounting for more than 90% of Sula's business, may impact future revenue growth.
  
• Election-related disruptions with dry days and restrictions in Maharashtra, Sula's largest market, adversely affected sales and could continue to be a risk in politically volatile periods, impacting revenue generation.
  
• Delay in receivables from state authorities like Telangana resulted in cautious shipment placements, which affects cash flow and working capital management, influencing net margins and financial stability.
  
• Reduction in WIPS credit due to unit capping impacted EBITDA margin negatively, with a direct effect on profitability, indicating potential volatility in profit margins if such credits are not maximized or are further capped.
  
• Increased selling, distribution, and marketing expenses to strengthen geographic diversification and to manage market competition placed pressure on operating profitability and maintaining net earnings.

Valuation

• The analysts have a consensus price target of ₹364.75 for Sula Vineyards based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹450.0, and the most bearish reporting a price target of just ₹279.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹7.5 billion, earnings will come to ₹1.1 billion, and it would be trading on a PE ratio of 39.8x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of ₹281.75, the analyst price target of ₹364.75 is 22.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.