Q1: What are the key risks for Shahdadpuri in GIAs investment in Sula?

Suggest
ways to mitigate each.

1. Legal uncertainty related to wine-making – Taxation policy is very complex and

stringent in case of alcoholic beverages in India. Each state has its own regulations,
often competing with other states for business. This can hinder the expansion of the
business but it can be averted by hiring a competent lawyer who could help the
company with legal obligations.
2. Distribution of Alcohol in the country- Advertisements of alcoholic beverages is banned
in India and it makes demand low which didn’t allow a company in investing in their
distribution channel. The legal framework doesn’t help in anyway which makes it
difficult for the company. The company can mitigate this risk by strengthening its
distribution network and improve its customer base.
3. Potential for competition from India’s largest spirits companies in India- Competition is
very tough as there are bigger brands in India which offer better quality but it can be
solved by creating a strong customer base and creating brand equity. Strong brand
name can be created by making people aware about the company. It can be done by
sponsoring in events, hosting events or by opening a restaurant under their brand
name.
4. Threat from high-quality imports- It can be curbed by improving the quality of wine and
exporting it other countries which could create a trusted brand image.
5. Risk of limited land suitable for grape farming and pest infestations- This risk can be
mitigated by investing in assets like fertile land for grape farming and expanding the
business thus increasing revenues, There is also a problem of pest infestations in
producing wine which can be avoided by maintain hygienic conditions.
6. Scalability- Small farm holdings owned by Sula are scalability risks in this investment. It
can be mitigated by providing strategic guidance. Working in the background and
guiding Sula about future prospects

Q2: Using comparables & DCF analysis how much should GIA value the EV of Sula
as on Jan 1, 2005? What are the key assumptions regarding growth, capex, etc?

Using comparables and DCF analysis The EV of Sula as on Jan 1, 2005 came about $ 8.7
Million. I assumed the company would grow at 25% as it was mentioned that for the 5 years
they are expecting a CAGR of 25%. Also the domestic consumption in wine industry is
expected to breach 5 Million litres. Due to the limited number of producers and weak brand
recognition outside India for domestically produced wines, the export market remained small
but was expected to expand. Capital expenditure would see a growth of 20% and business
expansion would require purchase of new land for grape farming.

Q3: What share of Sula should GIA look to invest in and at what valuation? Why?

GIA should invest in 32% of shares of the company with a pre-money Enterprise Valuation of $
8.7 Million. . This translates into a valuation of 5.5x forecasted forward 12 months EBITDA.
Q4: How should GIA structure the shareholder's agreement to protect against
the downside risks?
A Shareholder’s Agreement is a contract that binds the shareholder’s to rules  to prevent
issues that could become contentious in the future. It  specifies shareholders’ rights and
obligations, regulates the management of the company, ownership of shares, privileges,
voting and various protective provisions for shareholders. It  is an inexpensive way to
minimise the potential for business disputes by clarifying how certain decisions must be
made as well as providing a framework and procedures for dispute resolution. GIA should
structure the shareholder’s agreement by mentioning the tag along rights, information rights,
anti-dilution provisions, protective provisions and provisions related to funding & future
issuance of shares. Tag-along rights are contractual obligations used to protect a minority
shareholder. If a majority shareholder sells their stake, it gives the minority shareholder the right to
join the transaction and sell their minority stake in the company. Tag-alongs effectively oblige the
majority shareholder to include the holdings of the minority holder in the negotiations so that the
tag-along right is exercised. An anti-dilution provision is an agreement that gives an investor the
right to maintain the percentage ownership of a company by buying a proportionate number of
shares of any future issue of the security. Now, Information right means all shareholders have
rights to company financial and management reports that are usually provided annually.
Larger shareholders may be accorded the right to reports on a monthly or quarterly basis.
Larger shareholders may also negotiate rights to inspect company records, which can entail
company visits, in person discussions with company officers and the ability to copy records,
among other things.  Supermajority provisions are protective because they require a large
number of shares to vote to approve matters such as, share buybacks, mergers and
acquisitions or dispositions of assets, issuance of new company securities, amendments to
the company’s articles of association, adjustments to the number of board members, entering
into obligations or debt commitments in excess of a certain threshold and the decision to sell
shares to the public, among other things. 

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?

GIA should be a strategic investor. Strategic Investors are firms that adds value to the money it
invests with its contacts, experience, and knowledge of market thus brightening the investee's
prospects for additional investment and success.

GIA can help Sula in scaling the business through Reaching out to the untapped market for wine in
India. Average wine consumption in India was only 0.1 litre per capita, there is huge potential. It may
take time for customers to adapt to these changes in taste and preferences, but it can be the
change. They need to make public Relation policies and spread awareness about the products by
sponsoring events, making a presence in society, organise hospitality services and position the
brand for target markets. It Strengthens Brand Equity by marketing about the products since
advertisements are not allowed in India for alcoholic beverages. Improve the distribution channel
across the country and increase exports in order to gain market share in India. Tie up with bar and
restaurants to increase the customer base.