Sula Vineyards IPO GMP (Grey Market Premium)

Sula Vineyards IPO worth Rs. 960.35 crore, comprises entirely of an offer for sale of the said amount. There is no fresh issue component in this IPO. The offer for sale (OFS) component is by the promoters and early shareholders of the company. Here it must be noted that while the fresh issue component infuses fresh funds into the company, it also is EPS dilutive and equity dilutive. On the other hand, the OFS is just a transfer of shares so there is no fresh infusion of funds, but it also does not dilute the equity. The issue has been priced in the band of Rs. 340 to Rs. 357 per share and the IPO allotment price will be discovered post the book building of shares being completed during the IPO process.

Sula Vineyards IPO Review: 

The issue opens for subscription on 12th December 2022 and closes for subscription on 14th December 2022 (both days inclusive). The basis of allotment will be finalized on 19th December 2022 and the refunds will be initiated on 20th December 2022. In addition, the demat credits are expected to happen on 21st December 2022 and the stock is scheduled to list on 22nd December 2022 on the NSE and the BSE. The grey market price (GMP) trading normally starts about 4-5 days prior to IPO opening and continues till the listing date. In the case of Sula Vineyards Ltd, we already have GMP data for the last 6 days, which should give a reasonable picture of the likely listing performance.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP, which includes the levels of the Nifty and Sensex as well as the general IPO market and macro conditions. Secondly, the extent of subscription for the IPO across the retail and the QIB segments also has a deep impact on the GMP as it is indicative of investor interest in the stock. Generally, strong QIB subscription is a trigger for a spike in GMP.

There is one small point to remember here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has been observed to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance of the stock would be.

GMP tends to be a good mirror of the real stock story. More than the actual price, it is the GMP trend over time that gives insights about which direction the wind is blowing. Here is a quick GMP summary for Sula Vineyards Ltd for the 6 days, data is available.

In the above case, the GMP trend shows that the grey market premium has opened at around Rs50, but has since oscillated between the levels of Rs70 and Rs34 in the last 6 days. Of course, we have to await for the actual subscription numbers to flow in when the issue opens for subscription on 12th December 2002, as that would have a very significant impact on the GMP. In the past, stocks which got oversubscribed in the IPO also saw a very robust positive shift in the grey market pricing. For a start, Sula Vineyards Ltd has shown good traction in the grey market, although the momentum of GMP has been tapering.

If you consider the upper end of the price band of Sula Vineyards Ltd at Rs.357 as the indicative price, then the likely listing price is being signalled at around Rs.391 per share as of the GMP indicator on 08th December. One data point to track will be the subscription update on the stock as that would chart the GMP course from here. As mentioned, the institutional QIB subscription is a key trigger for the GMP pricing.

The GMP of Rs.34 on a likely upper band pricing of Rs.357 indicates a listing premium of a healthy 9.52% for Sula Vineyards Ltd over the listing price. That pre-supposes a listing price of approximately Rs.391 per share, when Sula Vineyards Ltd lists on 22nd December 2022. Of course, these are approximations, so you must keep a margin of safety. However, that would depend on the GMP sustaining over the next few days after the issue opens. It must also be noted that the GMP has halved in the last 2 days, so we await further triggers.

GMP (grey market price) is an important indicator, albeit informal, of likely listing price. One cannot take this price at face value However, the GMP tends to be quite dynamic and changes direction with the flow of news and events. Investors must note here that this is just an informal indication and has no official acceptance. The best thing one can do with the GMP is to observe the trend closely as that gives the best hints on listing status. Focus on the time series trend than on numbers.

Sula Vineyards Limited was incorporated in the year 2003 as India's largest wine producer and distributer. Some of its popular brands include the Sula Satori, Dindori, RASA etc. Sula is into the production, import and the distribution of wine and spirits. It also operates vineyard tourism in the state of Maharashtra. Sula Vineyards produces a total of 56 different labels of wine in the states of Maharashtra and Karnataka.

Sula boasts of the largest distribution network among wine companies in India, with 13,000 retail touchpoints pan India. It also has a strong direct-to-consumer (D2C) selling channel. It has already entered into long-term supply arrangements with grape growers for 2,290 acres. The issue is being lead managed by Kotak Mahindra Capital, CLSA India and IIFL Securities Ltd. KFIN Technologies (formerly Karvy Computershare) will be the registrars to the issue.