SULA - Sula Vineyards Limited Share Price

Management provided an optimistic outlook for Sula Vineyards, highlighting a strategic repositioning aimed at sustainable growth after a challenging few quarters. CEO Rajeev Samant emphasized that recent destocking in Karnataka was essential for better inventory management and anticipated stability in sales moving forward. Despite a difficult Q3 where revenue was adversely impacted by tactical destocking, management noted positive growth trends in key markets such as Maharashtra and Telangana. Revenue in Maharashtra displayed consistent single-digit growth, while Telangana returned to growth following a successful license renewal.

Major forward-looking points from management include:

1. Revenue Recovery: Management expects Own Brands revenue to return to growth in the upcoming quarters, attributed to improving demand conditions across key markets.
2. Wine Tourism Growth: Wine tourism, a significant revenue driver, reported a 34% year-on-year revenue growth in Q3, with ongoing expansion plans for resorts projected to bolster this segment further. Management aims to allocate a large portion of future capex towards wine tourism.
3. Impact of EU FTA: With the impending reduction of import duties under the EU FTA, management believes that although competition may increase, the company is strategically positioned. Only two wines exceed INR 1,600 MRP, allowing 95% of the current portfolio to remain unaffected by the impending duty reductions.
4. Earnings Visions: Management anticipates EBITDA margins will improve as they expect a recovery in revenue streams and cost control strategies in the coming fiscal year.

Overall, Sula Vineyards is optimistic about recovering from recent challenges and expects a stronger fiscal performance, particularly driven by growth in wine tourism and effective market strategies.

1. Question: "So, I had a question on one of the announcements or statements that you gave around a couple of quarters back in which you told like we plan to foray into spirits. So just wanted to take your opinion, like are we venturing into it?"

   Answer: We are looking into opportunities in the spirits space, but we haven't pushed strongly for a greenfield brand. We have a good distribution network, which could work well if we decide to introduce spirits. However, serving spirits at our resorts involves regulatory considerations since wine has a special status in Maharashtra. We're open to discussions but cautious about where we go from here.

2. Question: "What kind of impact would this FTA have? And do you think the points that are made are fair according to you? And have you done a scenario analysis for a price compression or a drop in volumes once the duties, say, fall to 50% and when they fall to 20%, 30%?"

   Answer: Yes, I agree many consumers may shift towards imports when FTA duties drop. However, we have strong brand loyalty, and many consumers appreciate well-made Indian wines. Currently, we're focused on enhancing our quality and positioning ourselves to remain relevant despite potential price drops of EU wines. We need to strategize on how to mitigate the impact of these changes as we have time to prepare before the duties change.

3. Question: "So, what percentage of our sales for the 9 months are in the price range of, say, INR450 to around INR800 and above INR800?"

   Answer: About 80% of our sales are from wines priced above INR750. Our higher-end wines, Rasa Cabernet Sauvignon and Rasa Syrah, are priced above INR1,600 in Maharashtra, which will compete directly with incoming imports once FTA duties are reduced. Interestingly, many imported wines are available at competitive lower price points today, which reflects on our strong market presence.

4. Question: "Are we planning to re-enter the imported wine distribution business or pivot towards accommodating the inflow of wines rather than competing with them?"

   Answer: We are indeed planning to rebuild our imported wine portfolio. The market has changed significantly, and many distributors are not making profits. Thus, we'll approach this cautiously but will ensure we have attractive and strong brands ready to meet demand by the time the duties come down.

5. Question: "Has domestic pricing competition reduced?"

   Answer: Unfortunately, domestic competition persists heavily, primarily driven by aggressive discounting from other local producers. While imports haven't significantly impacted us, some players continue unsustainable pricing strategies, affecting our market share in lower-price segments. Our market share in the elite and premium categories remains strong, though.

6. Question: "There were reports about damage around the Nashik grape belt. So how will that affect us? And how has our crop been doing?"

   Answer: This year's grape harvest is less than usual due to extensive monsoons, affecting vineyards adversely. However, for Sula, we're well positioned with sufficient wine inventory, especially in higher-priced segments. While there's an anticipated shrinkage in lower-range wines, we feel less of an impact in our higher quality offerings because our supply chain is well managed.

7. Question: "Could you explain the breakup of how a wine at EUR2.50 CIF retails at about INR 1,700 MRP in Maharashtra?"

   Answer: The pricing being complicated includes a 75% customs duty on the CIF price, along with state taxes leading to different MRPs. The essential components include distributor margins, VAT, retailer margins, and distribution costs. Importantly, aggressive promotion strategies have also influenced market pricing, often including buy-one-get-one offers to stimulate sales.

8. Question: "Can the state government put a differential VAT on imported wines to protect domestic wineries?"

   Answer: Yes, the state government can implement an additional excise duty to protect local wineries. While there are no current discussions on this matter, the opportunity exists, and states are always looking for revenue sources, which could include different tax structures for imported wines.

9. Question: "What is the real quality of EUR2.50 wine compared to our current portfolio?"

   Answer: The quality of EUR2.50 wines will be good but likely comparable to our Source range. While traditional winemaking in Europe gives imported wines an edge, we are continuously improving our production quality. We aim to offer great value at accessible price points and focus on keeping our branding strong and responsive to market changes.

10. Question: "Why not launch a high-tier wine to improve brand perception?"

    Answer: We are focused on producing good, quality wines that are also affordable. While a premium bottle might enhance brand prestige, it often requires specific marketing strategies, and our primary goal is to cater to a broad consumer base. We are currently enhancing our offerings and working on maintaining quality across our range without overextending into higher price segments at this time.