SULA Vineyard - OFS

A Vibrant primary market is crucial for a growing secondary market. It primarily helps in few ways:

1. When new companies get listed, the choice for investors keeps growing.
2. When investors chase few listed stocks (due to lack of choice), their valuations keeps going up. With new companies getting added to the list, the probability of investments getting distributed is quiet high. Thus it helps markets maintain at reasonable valuation.

In primary market, 

1. When a company issues NEW shares for first time to public - it is called Initial Public offer (IPO). Here the money raised in IPO goes to the company for what ever purpose described in the prospectus.
2. If an already listed company issues NEW shares to public - it is called Further Public Offer (FPO). Here again the money raised in FPO goes to the company.
3. If an unlisted company's promoters / existing share holders - sell their shares and dilute their stake - it is called Offer for Sale (OFS). Here the entire OFS sale proceeds goes to the sellers and the company receives nothing.

So whenever a primary issue comes up, we need to check if it is an IPO or FPO or OFS. The first two - that too for business development of the company are the best bet. 

Sula Vineyard - India's largest wine maker - has come up with OFS. One of it's biggest investor - Verlinvest with 47% stake (picked up in 2010) is selling 22% stake. Apart from Verlinvest its Founder and CEO Rajeev Samant, Cofintra, Haystack Investments, Saama Capital etc are selling some portion of their share holdings - taking the total offer to 31.95% of total equity. Post IPO promoters and promoter group will be holding 27.3% stake. This is the risk of a OFS. It leaves little skin in the game.

The Rs.2 face value share is priced at Rs.340 to Rs.357 per share. 

Of India's US$ 33 billion alcoholic market, wine accounts for just 1% which is equal to per capital consumption of 40ml per year. While the world average is 13.50% or 5.45 ltr / annum it is 30% in Europe. Even the chinese consume 1.56 ltr / annum. With per capita income going up, it is obvious that the wine consuming population in India is bound to rise.

Back in 2000's when wine was 100% imported, Sula was and early entrant and got incorporated in 2003. And today they command more than 50% market share in Wine. The company produces 56 different labels of wine at 4 owned and 2 leased production facilities in Maharastra and karnataka.

Sula also has a strong direct to consumer (D2C) selling channel primarily through its Wine Tourism Business facilities in Nashik and Bengaluru, with the highest number of D2C sales in the Indian wine industry in FY21. Its products are available over various ecommerce platforms, which is helping the company further increase its D2C footprint. Sula is the pioneers of wine tourism in India with many firsts to their credit, such as the first wine tasting room in India, the first vineyard resort, the first wine music festival and the first winery tours at its facility in Nashik. As part of its Wine Tourism Business, Sula owns and operate 2 vineyard resorts located at and adjacent to its winery in  Nashik, Maharashtra, under “The Source at Sula” and “Beyond by Sula” brand names, having room capacities of 57 and 10 rooms as of date.

The key concerns / risks of the SULA OFS are:

1. Post OFS - low promoter holdings
2. High dividend pre OFS - scraps off all reserves of the company
3. Erratic climatic conditions can affect wine grape production
4. Changing consumer preferences
5. Changing state regulations
6. Changing legal / regulatory / policy environment.

Analysts view is that the issue is FULLY PRICED. There is no money in the table. There may be listing gains since Sula vineyard is the first wine company to be listed in the market. With recent bad taste set by earlier IPO's like Nykaa, Pay TM etc, retail investors need to be careful here.