Sula's Subdued Growth Outlook Leads To 40% Target Price Cut By CLSA
CLSA has lowered the target price for Sula Vineyards to Rs 515 apiece from Rs 819 apiece, implying an upside potential of 4%.
CLSA expects pressure on Sula Vineyards Ltd.'s top-line and margins in FY25, and the revised wine industrial promotion scheme may have medium-term implications. "Growth is likely to be subdued in the near term," the research firm said in a May 10 note.
The research firm downgraded the wine company from 'buy' to 'underperform' and lowered the target price to Rs 515 apiece from Rs 819 apiece, implying an upside potential of 4%. CLSA cut FY25-26CL net profit estimates by 10-13% and lowered the relative valuation PE multiple from 50-times to 40-times to factor in a lower WIPS subsidy and subdued growth.
Key Markets Impact Growth
Although Sula Vineyards' topline growth of 9.8% year over year in 4QFY24 was an improvement over the 4% topline growth in 3QFY24, key markets in Mumbai and Goa remained weak.
Own brand revenue grew 9.1% year-on-year with 8.2% volume growth, while the wine tourism business grew 31% year-on-year. Sula continued to focus on elite and premium wines, which grew 14.3% in 4QFY24, the research firm added.
"The company expects subdued demand in key markets in the near term," CLSA said.
Margins Disappoint Due To Higher Other Expenses
Ebitda margin contracted 398 basis points year-on-year and came in at 22.4% due to higher other expenses. This was due to higher sales outside Maharashtra and some write-offs of security deposits, CLSA said. Marketing spend increased 29% year-on-year versus topline growth of 9.8%.
"We expect the cap on the WIPS subsidy to impact margins in FY25 as it directly flows into operating profits," CLSA said.
WIPS Dues Received From Government
Sula noted that it received Rs 90 crore—54% of dues as of FY24—from the government, which was due as a part of the WIPS subsidy, on the last day of the quarter. "However, the company noted that due to the modified WIPS policy (cap per unit), it will be able to claim only 80% of the subsidy it claimed in FY24," it said.
Shares of the company fell as much as 2.05% to Rs 486.55 apiece. It was trading 1.61% lower at Rs 488.75 apiece as of 10:39 a.m. This compares to a 0.65% advance in the NSE Nifty 50 Index.
The stock has risen 13.44% in 12 months but has fallen 2.04% on year-to-date basis. Total traded volume so far in the day stood at 2.4 times its 30-day average. The relative strength index was at 26.21.
Out of five analysts tracking the company, three maintain a 'buy' rating and two suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 14.9%.
