Sula and KRBL Similarities
Ageing is critical for both the businesses.
Longer you age grape - Better the wine, better the pricing.
Longer you age basmati - Longer product better aroma, better the pricing.
KRBL Cons inventory Days 2023 - 404 Days
Sula Cons Inventory Days 2024 - 540 Days
In their best of days 2014-15-16 (ROE) for KRBL was touching 30% when the working capital (Inventory being aged ) was funded by debt.
When the company went debt free inventory was funded by retained profits / equity and that started hurting ROE.
Because equity has been cheap for Sula it has been funding wine ageing from equity.
Ideally these business require some sort of LEVERAGE for good ROEs in my opinion.
Only exception would be when the end product is AAA in quality / niche so the company has very strong pricing power.
If Sula wants to Scale up and become the kingfisher of wines without compromising on ROEs then I think they may have to -
Outsource ageing of Grapes
Reduce inventory days (compromise product quality?)
Fund working capital with debt
Somehow manage to get high pricing power with economies of scale
PS - I have not worked in depth @ Sula…these are just observations I made. I was invested in KRBL but was seeing a serious ROE drop due to competition & Promoters unwilling to take debt. Hence Exited.
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