This action might not be possible to undo. Are you sure you want to continue?
A toast to good times!
Champagne Indage Limited (CIL) - India’s largest wine manufacturer - is on a high growth trajectory. CIL has expanded its production capacity, which will enable it to enjoy tax breaks and improve its margins. Introduction of wine coolers (Sinn) and entry into beer segment will add to the company’s revenues FY05 onwards. Recent policy initiatives to classify wine under the agro processing industry will augment its prospects. Established brands like Chantilli, Riviera and Marquise De Pompadour gives it the armory to exploit the growing Indian fondness for wines. We recommend investors to BUY the stock at current levels (CMP Rs34.5) with a 3-year holding perspective.
Nishant Jadav 5675 4479 (firstname.lastname@example.org)
Dealing (+91 22) 2685 0505
Sandeepa Arora Biren Patel 5540 9033 5540 8601
IT’S ALL ABOUT MONEY, HONEY!
is one of the most modern wineries of the world.8mn liters. over the last ten years.7mn liters. 2004 2 . both situated in Narayangaon in Maharashtra. for a total investment of Rs74mn. It was the first company in India to introduce champagne under the brand name “Marquise De Pompadour”. red. we expect the industry to maintain growth rate at current levels. The per capita consumption of wine in India is only 10ml per annum.A toast to good times! Investment Rationale Recommendation Long Term Buy CMP Rs 34.71 19.8/7.28 14. Rising disposable incomes of the Indian population and exposure to new cultures is adding to the growing consumption. The company has a dominant presence in all sub segments namely white. sparkling and rosy wines with a virtual monopoly in the sparkling wine category. Even on a conservative basis.5 Market Cap Rs 230mn Dominant position in Indian wine market CIL is a pioneer in the Indian wine industry with a market share of 71%. The Indian wine industry has been growing at 22% annually. India Infoline estimates Indian wine industry poised for growth The Indian wine industry is in its nascent stage.Champagne Indage . with a capacity of about 1. Commercial operations have commenced at the third winery from March 2004 and full benefits will materialize in FY05. The company recently set up a third winery at the same location.15 5.86 Share Price Chart 14% 71% Champagne Grover Sula Others Source: Company reports. Exhibit 1: Wine Industry Segmentation 12% 3% Share Holding Pattern Promoters Institutional Investors Other Investors General Public % 60. compared to 100liters per year in Argentina and 65liters per year in the European countries. Awareness of the benefits of wine drinking is on the rise and wine is gradually becoming a part of the urban Indian lifestyle.5 52 week H/L Rs 47. July 06. This winery. Production capacity doubled in April 2004 CIL had two wineries with an installed capacity of 1.
The idea behind ‘Sinn’ is to introduce wine to starters who will eventually migrate to red and white wine. which will generate sales of 0. The company also intends to cater to the demand from Indian restaurants in Europe and North America. the reach will increase to embrace the entire country. The drink -available in smartly packaged pint bottles. CIL has ventured into beer marketing.Champagne Indage .is branded as ‘Sinn’. Introducing concept of wine coolers CIL has recently launched fruity wines of different flavors called ‘wine coolers’. CIL targets the large Indian domestic beer market having a size of about 85mn liter cases in volume terms and Rs7bn in value terms. We expect ‘Sinn’ to generate PBT of Rs10mn in FY05. The first year of operations will cover 15 states in India constituting 84% of the total national consumption of about 85mn liter cases. the company now wants to introduce ‘Sinn’ in Mumbai by July 2004. Positioned as an alternative to beer and rum cooler ‘Bacardi Breezer’. Under phase two next year.8mn cases and revenues of Rs120mn. It owns a portfolio of 64 wine brands. The new venture will be launched in two phases. 2004 3 . This complete value proposition will take CIL far ahead of its competitors in the wine industry. CIL is targeting sales of 3mn cases and revenue of Rs100mn from this brand in FY05. CIL will become a complete alcoholic beverages company. With its entry into beer and into other alcohol segments later on. Launched initially in Goa. The top brands among different wine categories are: Wine classification Entry level Popular Premium Estate Varietals Sparkling Brand name Hammer / Figuieira Vin Ballet / Riviera Chantilli Ivy Range Marquise De Pompadour / Ivy Brut / Joie July 06. Brands are the company’s key assets CIL’s key asset is the brand equity earned by the company’s wine over the years.A toast to good times! Entry into the beer segment To capitalize on its established network of warehouses and common dealer network. The total advertisement expenditure planned for this project is Rs50mn. where taste for Indian beer in picking up. We expect beer business to contribute Rs15mn to the PBT in FY05.
Champagne Indage . Forward integration of such kind gives CIL a chance to strengthen its brand image and improve brand loyalty. The emphasis of these places is to give the consumer the perfect wining and dining experience. Hyderabad. Wine classification Wine coolers Entry level Popular Premium Estate Varietals Sparkling International brands Brand name Average price range (Rs) Sinn 30 Hammer / Figuieira 50-110 Vin Ballet / Riviera 190-300 Chantilli / Reserves 390-500 Ivy Range 460-500 Marquise De Pompadour / Ivy Brut / Joie 375-600 Bottled in origin 600-1. the company claims to offer wine for everyone and every occasion. the company spent a lot of efforts in developing a positive image for its wines. 4 . The existing units of the company are: Name Athena Sin Sky Indage Banquets Hotel type Lounge and restaurant Café Bistro Bar Restaurant and Bar Catering service Location Colaba Breach Candy Juhu 3 branches in Mumbai Some of the upcoming units of the hotel company are as follows: Name Athena Zaha Tantra Mimosa Others Location Bangalore. London. This unique chain of elite hotels provides the correct ambiance. opportunity and target audience to promote its wines. During the initial stages of its operations. Overall it is a unique proposition wherein the company has raw materials.000 Group presence in hotel business provides marketing platform The Indage Group’s presence in the hospitality business is marked by their company ‘Indage Hotels’. Ranging from wine coolers (Sinn) priced at Rs30 per bottle to premium segment priced over Rs500. Delhi Mumbai Mumbai Kemps Corner Pune. production and brand portfolio of its own to top the marketing network. CIL regularly participates in international wine competitions. CIL’s wines have so far won 7 bronze and 1 gold medals at The International Wine & Spirit Competition. Such international acclaims enhance its brand’s popularity. pubs and lounges in Mumbai. Price positioning ensures larger reach CIL’s portfolio of 64 brands is priced in such a way that they target different income groups.A toast to good times! CIL’s wines enjoy a strong brand image not only in the domestic market but also overseas. 2004 Indage Hotels is a highly visible profit making company. which will immensely help the winemaking efforts of CIL. Indage Hotels owns some of the most renowned restaurants. Delhi and Mumbai July 06.
which were 4-5 times cheaper. UK. Switzerland. As per a circular issued by the Director General of Foreign Trade in May 2003. Likely changes in wine import regulations may cut competition Currently. Earlier. wines attract basic customs duty of 150% and additional duty of 75% to 150% depending on the value of the brand.A toast to good times! Raw material risk hedged Grapes are the key raw material in the production of wines. This exemption is likely to be removed in the forthcoming budget in light of the complaints from industry players as well as consumers. With additional capacity from the third winery. Europe and South America. the hotel industry was allowed to import spirit and wine upto 5% of their foreign exchange earnings. This had a negative impact on the domestic wine industry as the players had to face competition from duty free imports. CVL. incorporated in 1982. For a wine manufacturer. This backward integration provides a strategic advantage for CIL in the form of guaranteed raw material supply. CIL has tie-ups with leading Indian cuisine restaurants overseas for promoting its wines. Germany and other European countries. production and exports of wines. CIL is hedged against this risk through a long term and exclusive arrangement with group company Champagne Vineyards Limited (CVL) for purchasing grapes. uninterrupted supply of grapes is a must to ensure smooth production. It has also started a contract-bottling unit in Germany. the company will be exporting wine in bulk to Germany where it will be bottled and marketed. After the restructuring of the Indage group in 1997. 2004 5 . 100% of CVL’s grape production in Narayangaon is purchased by CIL for its wineries situated in the same area. CIL will also be exporting its brands ‘Soma Reserve’ and ‘Mist of Sahyadri’ to Sweden. CVL’s wineries were hived off to CIL and the former now focuses only on viticulture. Under this arrangement. July 06. Japan. exports should see a healthy boost this year. due to capacity constraints and growing domestic demand. However the domestic market remains the key focus area for the company given its huge potential. Export revenues expected to record healthy growth CIL is one of the major wine exporting companies in India. efficient logistics management and lower procurement costs. where it was successfully test marketed. CIL was not in a position to focus on the export market. The company already has a presence in USA. It now plans to venture into new markets like North America. It was exporting wines on a very small scale.Champagne Indage . to whom the benefit of duty exemption was not passed on. just to keep the market alive and maintain its brand awareness abroad. was earlier in the business of viticulture.
This implies lower costs of operations for the company. especially those relating to distribution and taxes. The excise benefits arising to CIL from its newly set up plant in Maharashtra. July 06. 2004 6 . This will increase wine consumption by making it more accessible and affordable. Uttar Pradesh government has permitted sale of wines in all recognized grocery outlets. The regulatory structure in other states is also encouraging. after it classified wine as an agro-based product. We expect favorable government policies to be announced. The Maharashtra State government recently announced excise and sales tax reduction for new wineries in the state. For example.A toast to good times! Favorable government policies Recognizing the benefits of wine consumption. is expected to be about Rs25mn.Champagne Indage . the Indian Government has put more emphasis on the development of the wine industry.
both Indian and Foreign. The scrip is listed only on the Mumbai Stock Exchange (BSE). In the event of redemption. The proceeds of the issue will be used for the following purposes: Purpose Amount (Rs mn) Working capital required: • Beer marketing 50 • Sinn 40 Setting up new winery 74 Long term borrowing replacement 90 Total 254 Increasing competition will reduce market share Wine production and marketing is a lucrative business and thus we expect more players. to set up shops in the country. 2004 7 . The maturity period of this 4% coupon paying debt is 18 months. Gradually. We accept the dilution in equity to the extent of 25%. the market share of CIL will slip lower from current 71%. with average daily trading volumes of 15. The company may have to compromise on profit margins in order to maintain the leadership position by the company.7mn shares of Rs10 each) and a low floating stock (40%). Rapid product innovation and enhancing brand loyalty will be critical. The stock has a low liquidity.Champagne Indage . a premium of 4% shall be paid. Illiquid stock with high impact costs CIL has a small equity base of Rs66.000 shares in the last few months. July 06.7mn (6. CIL is planning to raise Rs220mn via issue of Optionally Convertible Debentures (OCDs).A toast to good times! Issues of concern Impending equity dilution To finance its foray into new markets and products. The conversion price of the OCDs is fixed at 10x EPS of FY05.
Apart from this. The Chougule family holds almost 60% of the company’s equity capital. Mr.S. Board of Directors Name S. Maharashtra with an aggregate capacity of 3. Framjee Le Saux Thierry Mulidhar N. S. CIL has three wineries located in Narayangaon.G. G.Chougule. which ensures growth of quality grapes with high yields.D’souza. Japan. It has developed 39 classic varieties and 20 families of grapes so far.200 acres of contract farming.Desai G. Germany and other European countries. the company also exports its wines to USA. Apart from the domestic market. red. Mr.A toast to good times! Company background Champagne Indage Limited (CIL) is India’s leading wine producing company with 71% market share. The vines in the region have two vegetative periods in a year. A wide range of grape varieties will help CIL to introduce new wines at a rapid pace. Located at an altitude of 700-800Mt.B.Champagne Indage . UK.G. Chairman R. The location of the vineyards by the company was undertaken after an extensive all India survey by a team of experts from France. 65 additional varieties are under experimentation in its R&D division. Chougule is assisted by his son Ranjit Chougule to manage the company’s operations.G.Chougule A. It produces white. Chougule. who is currently the Executive Director of the company. Ranjit.Desai Antione Merlaut Michael Wilkomm Sohrab R. 2004 8 .Shah J. In the last two decades. G. July 06. The harvesting of grapes is undertaken in February/March. Management CIL is a professionally managed company promoted by Mr. the soil of Narayangaon is lime rich and chalky and the climate is tropical.5mn liters of wine per annum. Chaini Category Promoter Non Executive Director Promoter Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Grape cultivation The viticulture activities of CIL are located in Narayangaon amidst the Sahyadri Valley in Maharashtra. S. is an MBA in Finance with over 7 years of experience in the industry. sparkling and rosy wines of many varieties. Switzerland. Vice-Chairman Haresh.B. CIL has been instrumental to a large extent in developing the wine industry in India. CIL has developed over 600 acres of captive vineyards and over 1.
July 06. This process is called the first fermentation of wine and it takes about 8 weeks. Wine production process Crushing Fermentation Maturation Bottling Crushing: The grapes are hand picked and transferred to the crusher. The crusher punchers the grapes and transfers it to a de-juicer which separates the pulp from the juice. Bottling: Once the mature wine is ready. The filtered wine is then packed in bottles. A specially set up Biotech Lab is already exploring the idea. it is stabilized through cold treatment. which are washed internally and externally with double filtered water to remove bacteria and germs if any. it then is filtered to screen the balance fine particles. the juice is sent for fermentation. While the skin. CIL plans to develop organic grapes with the help of Biotech techniques.A toast to good times! Going ahead. 2004 9 . Maturation: The first fermentation wine is further stored in tanks and/or oak barrels for 6-8 months for maturation. stems and other remains from the crushing are used as manure.Champagne Indage . After testing the stability of the wine. Fermentation: The grape juice is first chilled in a combination of stainless steel tanks and oak barrels and then fermented by adding yeast. The company is planning to augment it’s grape cultivation through contract farming in Himachal Pradesh.
apart from CIL. Chougule 20 3. S.000 14 Sula Mr.000 12 July 06.000 71 Grover Mr. CIL’s production capacity is 5-7 times higher than the other two players’ capacities. are Grover Wines and Sula Wines.Champagne Indage . Rajeev Samant 4 670.A toast to good times! Peer profile CIL is the oldest wine manufacturing company in India. 2004 10 . introduce new products and build on its brand equity to maintain its market share. Key players in the industry. CIL will have to constantly innovate. Sula wines has increased its popularity and gained significant market share.500. G. Company Promoter Yrs of operations Capacity(liters) Market share(%) Champagne Indage Mr. Even after a delayed entry. Kanval Grover 10 500.
2 44.9 9.5 FY04 (12) 3.8 21.9 2.3 5. of equity shares (in mn) FY02 (12) 1.0 40.0 6.8 0.5 18.4 0.4 4.9 14.3 1.6 11.0 40.1 71.8 0.74 33.9 9.7 13.3 10.6 6.9 0.0 0.4 0.7 FY06P (12) 9.3 10.3 3.1 3.2 7.2 1.5 0.3 6.1 12.Champagne Indage .7 FY05P (12) 7.2 1. 2004 11 .9 0.0 15.9 19.4 FY03 (12) 2.A toast to good times! Key Financial Highlights Period Fully Diluted EPS (Rs) EPS (Rs) Div per share Book value per share P/E P/BV OPM (%) PAT % ROCE RONW Debt / Total equity Dividend Payout Ratio No.7 18.0 6.4 8.5 3.77 30.9 Projected Income Statement Period (Rs mn) Net Sales Operating expenses Operating profit Other income PBIDT Interest Depreciation Profit before tax (PBT) Tax Profit after tax (PAT) Extraordinary/prior period items Adjusted profit after tax (APAT) FY02 (12) 217 (193) 25 4 29 (14) (6) 10 10 2 11 FY03 (12) 229 (183) 46 4 49 (20) (6) 23 (1) 22 (2) 21 FY04 (12) 254 (198) 56 3 59 (18) (5) 36 (3) 34 (4) 29 FY05P (12) 525 (430) 95 4 99 (17) (8) 74 (6) 68 68 FY06P (12) 623 (506) 117 4 121 (17) (8) 95 (8) 87 87 July 06.9 11.03 21.8 7.6 10.5 1.0 10.8 14.9 52.6 19.3 4.8 0.0 19.4 1.9 0.22 24.6 6.9 11.75 0.
2004 12 .A toast to good times! Projected Balance Sheet Period (Rs mn) Sources Share Capital Reserves Net Worth Loan Funds Total Uses Gross Block Accd Depreciation Net Block Total Fixed Assets Investments Total Current Assets Total Current Liabilities Net Working Capital Def Revenue Expenditure Total FY02 (12) 64 196 260 194 454 183 (28) 155 155 12 365 (82) 284 3 454 FY03 (12) 65 198 263 194 457 185 (32) 153 153 14 361 (74) 287 3 457 FY04P (12) 67 228 294 228 522 255 (37) 218 218 16 374 (86) 288 522 FY05P (12) 67 281 348 358 706 265 (45) 220 220 18 648 (180) 468 706 FY06P (12) 89 545 634 138 772 275 (54) 222 222 18 757 (224) 533 0 772 July 06.Champagne Indage .
The EPS for FY06 is calculated after assuming equity dilution arising from full conversion of 18 month OCDs to be issued in FY05. The conversion price of the OCDs is fixed at 10x times EPS of FY05.4x FY05P EPS of Rs10. Dilution assumption We have assumed 100% conversion of the Rs220mn issue of OCDs.2 67 6.7 88.5x FY06P diluted EPS of Rs9.Champagne Indage . The overall OPM will fall due to lower margins in the beer business.9 per share.8 July 06.2 per share and 3. CIL is trading at a P/E multiple of 3. The conversion price thus comes up to Rs100 per share.A toast to good times! Valuation We expect the topline to double in FY05 on back of contribution from Sinn and beer sales apart from a healthy growth in the existing wines segment.9 24. The capital structure will thus change as follows: Conversion Price (Rs) Issue size (Rs mn) Addition in equity capital (Rs mn) Addition to share premium (Rs mn) Addition in equity capital (mn) Current equity capital (Rs mn) Current equity capital (mn) New equity capital (Rs mn) New equity capital (mn) % dilution 100 220 22 198 2. The stock is attractively valued and trades at lower than book value of Rs40 per share (as on 31st March 2003). 2004 13 . The EPS for FY05 is Rs10 as per our estimates.7 8.
0 23. 2004 14 .5 10 13 10.8 July 06.0 15 17 12. The operating margin in this segment is likely to increase on account of duty exemptions marred partially by lower price realization.0 120 100 525 106.1 18.0 18. We expect Sinn to gain market share and grow at the rate of 25% in FY06.Champagne Indage .9 Sales FY05P 305 20.0 56 95 117 22.A toast to good times! Sales and operating profit estimates We have assumed growth of 20% in the wines segment.0 24. Categories Wine % growth yoy Beer % growth yoy Sinn % growth yoy Total % growth yoy Categories Wine OPM (%) Beer OPM (%) Sinn OPM (%) Total OPM (%) FY04 254 10.0 125 25.9 254 10.0 10. much in line with the industry.7 Operating profit FY04 FY05P FY06P 56 70 88 22.5 12.6 FY06P 366 20.0 623 18.0 132 10.
Champagne Indage .36mn liters in FY00.28% Wine 0.6% market share followed by distilled spirits at 47. Exhibit 2: Alcohol consumption in India (% share) Distilled spirits 47. India Infoline estimates From a total consumption of 1. Low awareness and high pricing compared to the other two categories makes wine a low market share category. the Indian wine industry has grown to 2mn liters in FY04. with total consumption of 1.36 100% 80% 60% 40% 20% 0% FY00 FY01 FY02 FY03 Domestic (%) Imported (%) FY04 44 51 56 61 61 56 49 44 39 39 1.14%.A toast to good times! About the Indian wine industry The share of wine in the total alcoholic beverages market in India is a mere 0. The imported wine segment is fragmented with over 1. The percentage of imported wine to total wine consumption in the country has gradually decreased from 56% in FY00 to 39% in FY04.46 1. Most of the importers of wine are five star hotels. Consumption of beer is the highest with a 52.58% Source: Company reports.14% Beer 52. French wine is the most imported wine in the country. Exhibit 3: Wine consumption in India (mn liters) 1.03 Source: Company reports.36mn liters per annum. embassies and other such institutions.86 2.000 labels from various manufacturers on offer.3%. India Infoline estimates July 06.64 1. 2004 15 .
followed by sparkling wine (13%) and rose wine (2%). red wine has the largest market share (45% of total wine consumed).A toast to good times! As per classification based on the type of wine consumed. India Infoline estimates July 06. Although wine is sold in around 20 cities in India. White wine stands second with a market share of 40%. 4 cities namely Mumbai. India Infoline estimates Consumption of wine is unevenly spread across the country. Exhibit 5: Geographical classification 6% 8% 31% 15% 40% Mumbai Dehli Goa Bangalore Rest of India Source: Company reports. 2004 16 . Goa and Bangalore contribute to almost 70% of the total wine consumption. Exhibit 4: Classification based on type of wine 13% 2% 45% 40% Red wine White wine Sparkling wine Rose wine Source: Company reports. Delhi.Champagne Indage . Lack of availability has limited the expansion to other parts of the country.
While the excise duty on wines has been exempted in some States like Maharashtra.A toast to good times! Duty structure in the wine industry Levy of excise duty on wines in India is the domain of the State government. The excise rates thus vary across the country as each State decides the rates after considering its revenue targets and other factors. Going ahead. 2004 17 . High customs duty prevents cheap imports and promotes development of the domestic industry. We expect the industry to maintain the current growth rate on a conservative basis. The customs duty on imported wines ranges from 150% to 175%. it is very high in some others.Champagne Indage . the industry is likely to witness entry of many local and foreign players. The duty structure on imported wines in the last three years is as follows: Items Wines having CIF price up to US$25 for a case of 9 liters (12 bottles of 750ml) Wines having CIF price exceeding US$25 for 9 liters case Additional Duty(CVD)(%) Customs Duty(%) 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 100 75 75 100 100 100 100 50 50 100 100 100 Industry outlook The growing Indian urban population with rising disposable incomes is the key growth driver for the wine industry. Consumption of wines will also get a boost if the benefit of duty exemptions in Maharashtra is passed on to consumers through price reductions. July 06. Positive government outlook towards the sector will go a long way in developing the industry. This will help widen the market further.
Mumbai -63. IISPL is also a Depository Participant with NSDL. Highway. financial or otherwise in the securities mentioned in this report. Off Western Exp. 2004 Construction Sector: Building Fortunes on Strong Foundation . IIL and/or its subsidiaries and/or directors. 2004 Ashok Leyland Ltd: Geared for a long drive . Fax 2685 0585 it’s all about money.June 11. Reference No: IIL/CR01/03/02 Published in June 2004. employees or associates may have interests or positions. legal or taxation advice. Mumbai (BSE). We have exercised due diligence in checking the correctness and authenticity of the information contained herein. India Infoline Ltd. Goregaon(E). Any action taken by you on the basis of the information contained herein is your responsibility alone and India Infoline Ltd (hereinafter referred as IIL) and its subsidiaries or its employees or directors. This report is for information purposes only and does not construe to be any investment. Tel 2685 0101 / 0505. 2004 Kirloskar Brothers Ltd: Pump up your gains .com is the trade name of India Infoline Securities Pvt Ltd (IISPL). 24 Nirlon Complex.July 03. The recipients of this report should rely on their own investigations. It is not intended as an offer or solicitation for the purchase and sale of any financial instrument. 2004 Indian Software Sector: ITs back . © India Infoline Ltd 2003-4.May 28. 2004 Toll Free 1600-22-6555 Email info@5pmail. Our research reports are available on First Call Research Direct/ Thomson Financial and Bloomberg (code: IILL).June 09. IIL or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this publication. but do not represent that it is accurate or complete.com 5paisa. All rights reserved.June 10. associates will not be liable in any manner for the consequences of such action taken by you. IISPL is a member of the National Stock Exchange of India (NSE) and The Stock Exchange. a wholly owned subsidiary of India Infoline Ltd.Our Recent Publications Indian Farm Sector: Ready for a rich harvest . honey! .
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.