Sula Vineyards case study

Q1. What are the key risks for Shahdadpuri in GIAs investment in Sula?
Suggest ways to mitigate each.
Ans: The major key risks are as follows-
 Product risk
 Founder’s risk
 Sula at growth stage
 Market risk
 Implementation risk
The first step in creating an effective risk-management system is to
understand the qualitative distinction among the types of risks that
organizations face. Our field research shows that risks fall into one of
three categories. Product risk, implementation risk and Founder’s risk are
types internal risks arising from within the organization, that are
controllable and ought to be eliminated or avoided. To be sure company
should have a zone of tolerance for defects that would not cause severe
damage to the enterprise and for which achieving complete avoidance
would be too costly.

A company voluntarily accepts some risk in order to generate superior

returns from its strategy. Growth risk and market risk are types of
strategy risk. These are completely different from internal risks because
they are not inherently undesirable. A strategy with high expected returns
generally requires the company to take on significant risks, and managing
those risks is a key driver in capturing the potential gains. Strategy risks
cannot be managed through a rules-based control model. Instead, you
need a risk-management system designed to reduce the probability that
the assumed risks actually materialize and to improve the company’s
ability to manage or contain the risk events should they occur.
Q3. What share of Sula should GIA look to invest in and at what
valuation? Why?
Ans- GIA is also divesting a part of its holding to indivision, after which
GIA will keep a 20% stake in Sula. Sula has appreciated five times in
valuation over more than 4 years, so this turned out to be a great
investment for GIA. Sula is likely to go for an IPO in near future. Rajeev’s
vision of spreading prosperity has been realized, as contract farming
model has been a great success for prosperity of farmers even. After that
the right planting material has to be used, which was usually identified
and procured by Sula. Sula also train their farmers for harvesting
methods, storage, plant care and other important aspects. Sula was also
providing credit to their farmers for procurement of inputs like probotics,
equipment, fertilizers etc.
Q4. How should GIA structure the shareholder’s agreement to protect
against the downside risks?
Ans- Mr. Rajeev has decided to contract with the original grape growing
farmers in the region in order to have a steady suppl of grapes and
advance an incentive to the local economy of India. That is what the main
reason behind the difference in the retail price of table wine and grape
wine, as the table grape farmer were offered $0.3 per kg, while grapes
retailed for $70 plus. The supplies that were imported to India are:
Sparkling Wines, Premium Wines, Economy wines and others. The most
of the cost was incurred on the import of Premium Still Wines, as the
demand for the premium class wines was high in Indian wine consumers
because of the high quality and fine flavors.
Q5. What role should GIA play in Sula post investment? How do you
propose GIA scale the business? What constraints are currently limiting
Sula’s growth?
Ans- Mr. Samant points out that the new investment comes at an
important moment for the wine industry. After years of lobbying it has
finally managed to persuade more and more state governments to open
up the retail market for wine sales. Supermarket sales for wine (and beer),
which was earlier only allowed in a few markets like Karnataka,
Chandigarh and Goa, has now been allowed in the potentially huge
market of Maharashtra. Haryana has also allowed supermarket sales, and
New Delhi is expected to follow suite. “You will now be able to go and
pick and choose your bottle yourself instead of asking a guy behind a
counter for it,” says Mr Samant. This is a big deal for wine because it
opens up the market for an important new customer — young working
women who might have felt intimidated in older liquor shops.