Fratelli Vineyards Limited August 2024 Concall Highlights: Strong Growth and Premiumization Strategy
Fratelli Vineyards Limited (formerly known as Tinna Trade Limited) reported a solid Q1 FY25 performance, characterized by continued growth in sales volume and a focus on expanding its premium wine portfolio. The company's revenue in Q1 came in at approximately Rs. 45 crore, relatively flat compared to the same period last year. However, management highlighted strong gross margin momentum and indicated that the revenue guidance for the full year remains at north of 15%. The company's transition away from its commodity trading business towards a singular focus on wine production, vineyard tourism, and brand building is well underway, and is anticipated to significantly enhance profitability in the coming quarters.
a. Financial Performance:
Fratelli Vineyards Limited reported revenue of approximately Rs. 45 crore for Q1 FY25, compared to Rs. 46 crore in the same quarter last year. This slight dip was attributed to challenges in obtaining permits due to the general elections. However, management expressed confidence in a strong recovery in Q2 and reaffirmed a full-year revenue growth guidance of over 15%. Gross margins remained robust despite the challenging environment, highlighting a continued focus on cost management. EBITDA margins are also experiencing growth as management focuses on strategic investments in brand development and middle management, and are expected to benefit from a positive multiplier effect in the future.
The company's revenue grew at a CAGR of ~25% over the past 3-4 financial years, with gross profit growing at a CAGR of 26%. More impressively, EBITDA has experienced a CAGR of 100% and PAT, a remarkable 300% during the same period.
b. Operational Updates:
Fratelli Vineyards has been consistently expanding its capacity. It currently has an installed capacity of roughly 4.5 million liters, which is expected to increase to over 5.6 million liters by the end of FY25, primarily driven by expansion initiatives in H2. The company has manufacturing facilities in Maharashtra and Karnataka. A significant portion of its packaging material (95%) is procured domestically, reinforcing its commitment to supporting local economies.
Furthermore, the company continues to strengthen its distribution network, leveraging technology and digital tools for real-time tracking of sales and distribution operations. This is facilitating efficient operations and reach across Tier-2 and Tier-3 towns.
c. Management Insights:
Gaurav Sekhri, Managing Director, highlighted the company's commitment to "building wine consumption lifestyle" in India, which he believes is in the early stages of its journey. He emphasized the importance of integrated operations, from grape cultivation to bottling, in achieving high-quality wine production. He also discussed the company's strong brand portfolio, with a major focus on the premium and luxury segments.
Aditya Sekhri, Executive Director, elaborated on the company's growth strategy. He emphasized the importance of expanding vineyard acreage and winery operations, particularly in the premium segment. He further emphasized the company's focus on developing new and imported varietals, and the importance of building a strong presence in the HoReCa channel. The company has been awarded several accolades for its wine quality and packaging in recent years, both domestically and internationally.
Rajesh Garg, CFO, provided insight into the company's financial position, including the debt structure, and the potential for future fundraising to support ongoing projects.
d. Strategic Initiatives and Future Plans:
The company is focused on several key strategic initiatives:
- Vineyard Expansions: Fratelli plans to add incremental vineyard acreage in the coming quarters, further strengthening its integrated model and supply chain.
- Winery Capacity Expansion: The company is actively investing in expanding its winery capacity to accommodate the growing demand and ensure future growth.
- Vineyard Tourism: Fratelli is actively developing a multi-use property at Akluj that will serve as a destination for vineyard tourism. This expansion is expected to drive revenue and brand visibility.
- Brand Building: The company is investing heavily in brand development and middle management to continue its growth and strengthen its market position.
e. Q&A Session Highlights:
- Clones and Varietal Innovation: Management explained that the "Fratelli owned clones" are grape varietals that have been specifically adapted for Indian growing conditions, leading to higher quality wines. They emphasized their commitment to introducing new varietals.
- Market Share and Segmentation: The company's market share is currently around 30%. They aim to capitalize on premiumization trends by further growing market share within the premium and luxury segments.
- EBITDA Margins: Management acknowledged the ongoing investments that are influencing current EBITDA margins, but indicated that these margins are expected to improve significantly in the coming years.
- Sales Volume and Growth: The company's sales volume increased at a CAGR of 30% over the last 3-4 years, and they expect continued growth, driven by increased capacity and expanding distribution.
- Export Market: The export market is relatively small and remains a secondary focus, but it is growing at a healthy pace, with a target of a 20% increase in the current fiscal year.
- Competition: While acknowledging the existence of other major players, like Sula and Grover Zampa, Fratelli emphasized its distinct focus on building a sustainable and profitable business through consistent brand building and operational excellence.
- S&D Spending: The company is focused on minimizing S&D costs while achieving growth, and aims to optimize this expenditure over time.
- Crop Failure Risk Mitigation: They highlighted their strategy of acquiring land in new locations, aimed at mitigating potential risks related to climate and natural calamities.
- Wine-in-Can Segment: Fratelli sees the Wine-in-Can segment as a future growth opportunity, and emphasized its increased contribution to the company's overall performance.
Conclusion:
Fratelli Vineyards Limited's Q1 FY25 earnings call revealed a company that is well-positioned for future growth. The company's transition to a solely wine-focused business, coupled with a strong emphasis on expanding its vineyard acreage, increasing winery capacity, and promoting its premium brand portfolio, positions it to capitalize on the burgeoning Indian wine market. The expansion into vineyard tourism and continued emphasis on operational excellence also promise to drive long-term value creation. While short-term challenges, such as permit issues, may impact revenue, management's outlook is positive, anticipating robust revenue growth and sustained EBITDA expansion. Investors looking for exposure to the growing Indian wine sector should closely monitor Fratelli Vineyards' future progress.
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