Sula Vineyards’ Rs 116 Crore Excise Duty Woe: Investor Alert
Sula Vineyards Faces Excise Duty Challenge: What It Means for Investors
Sula Vineyards, one of India’s leading wine producers, is facing a legal battle with the Maharashtra excise department over a Rs 116 crore excise duty notice. The notice sent the company’s shares tumbling by more than 7% on August 2, 2023. Here’s what you need to know about the issue and its implications for the company and its investors.
What is the issue?
The issue dates back to 2018, when the Maharashtra excise department alleged that Sula Vineyards had violated the Maharashtra Prohibition Act, 1949, by blending wine brought from outside Maharashtra with wine produced from grapes grown in the state. The department claimed that this amounted to evasion of excise duty and issued a demand notice of Rs 115.89 crore, along with interest, to the company.
Sula Vineyards challenged the notice in the High Court of Bombay and obtained an interim stay on the recovery of the excise duty. However, in July 2023, the Minister of State Excise Revenue vacated the stay and directed the Collector of Nashik, where Sula Vineyards is based, to recover the amount from the company.
Sula Vineyards has filed a fresh writ petition in the High Court of Bombay against the order and is awaiting a hearing. The company has maintained that it has not violated any law and that the demand notice is baseless and illegal.
How does it affect Sula Vineyards?
The demand notice is a huge blow to Sula Vineyards, as it exceeds its net revenue in Q4FY23, which was Rs 113.23 crore. The company reported a net profit of Rs 18.64 crore in Q4FY23, up by 28.6% year-on-year. The company has a market capitalization of Rs 6,480 crore as of August 2, 2023.
The company said that it has sufficient liquidity and financial resources to meet its obligations and that it will continue to pursue its legal remedies. The company also said that the demand order will not have any impact on its existing business or operations.
However, the legal uncertainty and the potential liability have spooked investors, who have sold off the company’s shares in panic. The shares closed at Rs 479.65 on August 2, 2023, down by 7.09% from the previous close of Rs 516.35. The shares have lost more than 20% since July 26, 2023, when they touched a 52-week high of Rs 602.95.
What should investors do?
Sula Vineyards is one of the most successful wine companies in India, with a dominant market share of over 60% in the domestic wine industry. The company has a strong brand recall and loyal customer base, especially among urban millennials. The company has also diversified into other segments such as spirits, craft beer, hospitality and tourism.
The company has been growing steadily over the years, with a compounded annual growth rate (CAGR) of 17% in revenue and 25% in net profit from FY18 to FY23. The company has also improved its margins and return ratios over time.
The excise duty issue is a major setback for the company, but it is not likely to affect its long-term prospects or fundamentals. The company has a robust balance sheet and cash flow position to withstand the legal challenge. The company also has a strong case to defend itself against the demand notice.
Investors who have faith in the company’s growth story and vision should not panic and sell their shares at a loss. Instead, they should wait for the outcome of the legal proceedings and use any dips as an opportunity to accumulate more shares at attractive valuations.
However, investors who are risk-averse or looking for short-term gains may want to exit their positions and book their profits or losses. The stock may remain volatile and under pressure until there is clarity on the excise duty issue.
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