Shares of Sula Vineyards soars 20% extending two day gains to 33.6%- QHN

Shares of Sula Vineyards surged 20 per cent on Monday, extending their two-day gain to 33.6 per cent. The stock has rallied following a news report that the Maharashtra government has decided to extend the Wine Industry Promotion Scheme (WIPS), under which 80 per cent of the value-added tax (VAT) is refunded as a subsidy for five years.

‘The continuation of WIPS would address a key investor concern; it would remove the regulatory uncertainty, offering better earnings visibility that merits a re-rating. We raise fair value to Rs 600, valuing Sula at 40 times FY2026E PE (37X earlier), partly factoring in the upside,’ said Kotak Institutional Equities in a note. Shares of Sula, India’s largest and only listed wine producer, last closed at a record high of Rs 664 on the NSE.

Maharashtra accounts for about half of Sula’s revenues and close to 60 per cent of its operating profit (Ebitda).

Analysts said Sula’s stock traded at a discount to other listed alcoholic beverage producers due to the regulatory overhang around WIPS.

“Favourable regulatory policies, such as WIPS (VAT in Maharashtra is 20 per cent, of which 16 percentage points are refunded as a subsidy under WIPS) and low excise duty (Rs10 per litre) have helped domestic wine manufacturers. VAT refunds of Rs 43.9 crore accounted for 28 per cent of Sula’s overall Ebitda in FY2023. A complete/phased removal of WIPS would have necessitated price hikes to the tune of 3-14 per cent to protect Ebitda, resulting in a reduction in the price gap between domestic and imported wines (WIPS is not applicable to imports),” added the Kotak note.

A recent report by CLSA also featured Sula among stocks expected to benefit from the theme around companies benefitting from spending by the urban wealthy.

First Published: Jan 08 2024 | 11:43 PM IST