Thanks @basumallick for initiating this thread. Some notes / thoughts:
Promoter
Promoter selling in the IPO was 9.37 lakh shares out of the total OFS of 269 lakh shares sold. Out of the total shares outstanding, the promoter sale was around the 1% range – this seems quite normal. They would have got approx 33.5cr of liquidity from this transaction.
The shareholding pattern for Mar-23 shows 22 lakh shares have been pledged out of 230.08 lakh shares held by the promoter – which is about 9.56%. At the current market cap, the value of pledged shares would be around Rs 350cr and they might have borrowed maybe Rs 150-175cr against this. Could be one of the things to check – what this side project might be.
PE Overhang
PE funds’ selling overhang is the key risk in the recent IPOs. Verlinvest is the main investor in the case of Sula and they sold roughly 750cr worth of stock. They still own about a 20% stake in the company and could potentially sell post the one year lock-in (Dec-23). The shareholding of MFs and a few other FPIs are well disributed and is not much to worry about.
In this context, its important to note that
- Verlinvest is owned by the founding family of Ab-Inbev and has a structure where the capital is permanent – unlike private equity funds which necessarily need to exit.
- Verlinvest is generally consumer focused and have also invested in Veeba and Epigamia in India in the food sector. Remy Cointreau is one of their other investments in the alco-bev sector – they sold this fully in 2014 after investing in 2004.
- In the case of Sula they invested in 2010 and IPOed in 2023 – which is already longer than the horizon of typical PE investors. I would imagine with the 750cr selling which they already did they would have earned a good multiple on their invested capital.
It would seem therefore that while there is potentially a supply overhang, at-least there is no ticking clock which is waiting for the lock-in to expire regardless of price.
Business Risks
From a business perspective, I believe they booked 45cr subsidy revenue in FY23 (according to the latest concall). For FY22 this amount was 35cr. There is a risk of this subsidy going away and as per the last available news item on this, its renewal was rejected by the cabinet in Maharashtra. Link
It appears no final decision has been taken on it yet, and the management said in the call that they are optimistic on this based on recent developments. They also believe that if it doesn’t get renewed in the worst case, the level of incentives in the market (distribution channel) will go down and make the impact on EBITDA minimal.
But still, 45cr is a big amount on the Rs 157cr EBITDA in FY23. It’s not fully convincing how this cannot easily shave off a year of growth even in the presence of mitigating factors. If anyone has any further insight on this, it will be very useful.
The other (relatively minor) risk is weather conditions and how it affects the harvest etc. For now, the reservoir levels are quite good and a year of below normal monsoon shouldn’t have much of an impact.
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