Target: ₹570

CMP: ₹617.40

Sula Vineyards Ltd. (SVL) reported a 4 per cent growth in total gross revenue on a y-o-y basis, with own brands and wine tourism up by nearly 4 per cent and 16 per cernt, respectively. Elite and premium own brand categories saw volume and value increases of about 3.5 per cent and 7.3 per cent, respectively, leading to a rise in their contribution to total revenue from about 74 per cent to 77 per cent.

SVL conducted around 125,000 tastings, a 30 per cent increase from the previous quarter. Its operating profit increased by ~12% on a YoY basis, with the EBITDA margin improving by about 180 bps to around 35 per cent.

Owing to the strong fundamentals and sustainable growth prospects, we revise our estimates and change our rating from BUY to REDUCE. Our rationale stems from the belief that the present valuation of SVL already incorporates anticipated future growth. Additionally, the revival of VAT refunds under WIPS has impacted the price action.

Nonetheless, the quarterly inclusion of ₹150 crore in trade receivables accounts for the refund amount. Consequently, we ascribe an EV/EBITDA multiple of 25x on FY25E EBITDA, indicating a potential downside of about 4 per cent.