Breakingviews: Wine IPO is a very rich toast to affluent India

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A woman arranges grapes in a basket during vintage on the outskirts of the southern Indian city of Bangalore May 6, 2007. Picture taken May 6, 2007. REUTERS/Jagadeesh Nv (INDIA) - GM1DVFBIUTAA

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BANGALORE, Aug 12 (Reuters Breakingviews) - Indians are developing a taste for wine, but it might be a drier than expected year ahead for Sula Vineyards (SULA.NS), the country’s largest producer and seller of plonk that is planning an initial public offering.

Sula is a household brand for well-heeled Indians. Its vineyard is just a few hours’ drive from the financial capital of Mumbai and attracts some 370,000 annual visitors. The nearly two decade-old company commands over half the $160 million domestic wine market expected to grow 23% annually through to 2025. Upstarts would need years to harvest grapes and age wine before being able to compete.

Yet there are reasons to leave this one on the shelf. The country very much remains a spirit-loving nation. While Indian-made gin and beer occupy more and more space on bar menus in big cities, local wine is not held in the same high regard. A new trade deal with Australia will gradually lower import duties on wines from Down Under, ushering in a bigger and better-tasting range of bottles currently too expensive for all but the richest customers.

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Sula is a very rich toast to India’s wealthy. Its up to $175 million share sale could value the company at as much as 86 times trailing earnings, per financial publication IFR. By comparison, 16 out of 23 stocks on BNP Paribas’ “Affluent India” list trade at less, based on Refinitiv data.

What’s more, almost all those Affluent India stocks grew their top line faster than Sula’s 8% in the year to March; many are similarly or more profitable too. Indeed, investors have a growing crowd of overpriced consumer names targeting the wealthy to choose from: about one quarter of the group of 23 including high-end property developer Macrotech (MACE.NS) and online beauty shop Nykaa (NYKA.NS) have come to the market since 2015. read more

Perhaps most tellingly, Sula is not raising fresh funds to supercharge its growth. The deal is comprised entirely of existing shares as investors led by 26% owner Verlinvest, a Belgian investment firm, sell down. As Indians become richer, investors can become more discerning too.

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(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

CONTEXT NEWS

Indian wine producer Sula Vineyards on July 18 filed for a Mumbai initial public offering.

The company plans to sell up to 25.5 million existing shares and no new shares. Stock held by entities related to Belgian investment firm Verlinvest will comprise as much as 75% of the deal.

The deal will generate proceeds of between 12 billion rupees and 14 billion rupees ($150 million and $175 million) for the sellers, according to financial publication IFR.

Kotak Mahindra, CLSA India and IIFL Securities are acting as book running lead managers on the deal.

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Column by Pranav Kiran in Bangalore, Una Galani in Mumbai. Editing by Robyn Mak and Katrina Hamlin

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