Indage Vintners Ltd

Indage Vintners Ltd Indage Vintners Ltd (IVL) is engaged in producing and selling
wines and liquors in the domestic and international markets. IVL is the
CMP:61 Target:144
Target:144
first sparkling wine producing and exporting company of India. It owns
Rating: Strong Buy 40 brands which include exquisite wines like Chantilli, Ivy, and the
Category: Contra Picks Flamboyant Marquise de Pompadour. The company has presence in all
Turnaround Story segment of wines namely Still Wine, Sparkling Wine & Fortified Wine.
Say Cheers to this stock The company has a manufacturing facility at Narayangaon with a wine
production capacity of 15 million litres and a bottling capacity of 15000
bottles per hour. They produce 4,00,000 cases annually and export to
69 countries in the world.

Investment Rationale
Wine market is expected to grow at 25% during the next 5 years: Wine
market should see 25% growth in the next 5 years. Indian alcoholic
beverages industry is expected to witness accelerating growth in coming
years with consumer base likely to expand amid rising disposable
income. The domestic alcoholic drinks market is estimated around $13
billion and has been growing at a CAGR in excess of 10% in the past few
years. The growth rate is higher than other major Asian markets like
China and South Korea.
Global footprints: The Company has acquired Thachi Wines, the seventh
largest wine player in Australia with a winery capacity of 27 mn litres.
This has resulted in significant value creation for the company business
process where the access and control over a strong and economically
superior wine growing region outside of India has added to the flexibility
and reach of company to Indian and Global wine buyers. Similarly, the
company's acquisition of a vertically integrated wine import, bottling,
storage and distribution business in the United Kingdom has greatly
added to the consistency and reliability as a key wine supplier to major
institutional buyers in a powerful wine market such as the UK.
Global Acquisitions: Acquisitions though not well timed, are expected to
bear fruits in the longer term. Indage Vintners through its step down
Subsidiary acquired Australia's VineCrest, a premium boutique winery in
the Barossa valley. The acquisition will facilitate the Company and its
Australian Subsidiary to base their operations in Barossa, a most sought
after and highly awarded wine growing region of Australia and provide a
premium image to all the Thachi brands produced in Australia.
Indage Vintners Ltd

Huge market potential: India has emerged as one of the fastest growing markets for wine on the global map.
Despite the country's vast population of over 1.1 billion, the consumption of wine remains extremely low. The per
capita consumption of wine in the country was estimated at around 9 millilitres in 2008, indicating huge potential for
growth in the coming years. Various factors such as favorable government policies, increasing disposable income,
amplified wine marketing and influence of western culture are helping to drive India's wine consumption. Indage is
the largest producer of wine in India and has a market share of 70% till last year. The company has around 2000
acres of land under cultivation and owns a number of vineyards abroad.

Maharashtra extends tax duty holiday on grape wine In a major push to the wine industry, the state department of
industries has extended the excise duty holiday on grape wine processed in Maharashtra by another 10 years, till
December 31, 2021. The duty holiday till 2021 will enable the industry to overcome the negative impact of recession
and Mumbai terror attacks and explore the huge potential for the developing wine market.

Inventory level is expected to come down with the reduced production as compared to last year. Last year wine
producers were sitting with surplus stock idling away in warehouses. But with wine producers coming back to
India who now believe in the potential of the country and Indian Wine Industry forecast of 25% to 30% growth
annually between 2009 and 2012, the inventory levels are expected to come down. The production of wines fell
from 2.32 crore litres in 2008 to 1.32 crore litres in 2009. This is expected to go up to 1.35 crore litres in the 2010
crushing season. This will lead to rise in prices.

Stake Sale - Company is going through major restructuring and possibility of stake Sale to larger/Global player
cannot be ruled out. It is likely to be a huge boost for the shareholders of the company. Any stake sale/private equity
placement will revive the fortunes of the company given company strong brand presence. We expect there is a
possibility a larger investor is accumulating the stock can be justified by the fact that Reliance Capital has taken
substantial stake in the company while many of the investors are exiting which supports our belief that any major
investor/shareholder is accumulating the stock and news is likely to be out in next six months. The promoters have
pledged most of the stock and there is a possibility this stock will be acquired by some of the stronger players and
strategic investors.

Recent Developments
Indage Vintners sales volumes had fallen 60 percent since September 2008. The company has stopped supplying to
hotels. Salaries at the company have been delayed and on September 1 this year, 250 of the company’s employees
resigned, due to nonpayment of their salaries since November 2008. The reason for the problem was badly timed
global acquisitions. The financial mess that the company got into was basically due to its overseas acquisitions. In
2007, the company guzzled up UK wine agent, McKinley Vintners, and Australian Alcohol Company Tandou’s
winemaking arm. The following year, it acquired the Australian Loxton Winery in March in an all-cash transaction for
60 million Australian dollars (Rs. 225 crore), which it was unable to pay and had to settle a painful lawsuit. After the
acquisition of Loxton, Indage acquired UK’s Darlington Wines and the Australian winery Vinecrest in May, and made
an offer for a Norfolk-based winery in November. In 2007, Indage announced plans for 1,000 wine bars across the
country, and then opened a wine resort and spa in Nashik, Maharashtra. It flooded the market with buy-one get-one
free deals. In Uttar Pradesh, the company shipped 20,000 cases when just 2,000 cases of wine are purchased in the
state per year.

Funding the acquisitions became a burden which consequently multiplied on its books. This resulted in unsold
inventory in nearly every state in India, disputes with distributors and a great deal of wine left in poor storage
turning to vinegar.
Indage Vintners Ltd

The company has recently pledged almost 98 percent of its 25.42% stake in the firm which proves that the company is
still optimistic and can come out of the red. Japanese giants Asahi Breweries, Sappori Breweries, and former marketer
of beer brands like Sandpiper and Zingaro, Ravi Jain, who were reported as suitors for a major stake in the company in
June are showing interest in the company which is encouraging. However, there is no news on that front. Indage is the
only pure public play winery and the wine market should see 25% growth going forward.

The company has now admitted Rs 400 crores of debt to the Corporate Debt restructuring (CDR) cell. The lenders have
accepted the company's plea to restructure the debt across four-five banks, which include Central Bank, ICICI Bank, SBI
and IDBI Bank. The lenders will first prepare a draft CDR package and examine its viability, upon which a further
decision to admit the case to CDR would be taken. The CDR cell will help in interest cost reduction and rescheduling of
the term loan, where bankers will seek promoter’s guarantee for this debt recast.

Company background

Indage Vintners Ltd was incorporated in the year 1985 with the name Indage (India) Pvt Ltd. The company was converted
into a public limited company in the year 1987. In the year 1997, the name of was changed to Champagne Indage Ltd and
in September 2008, the company got their present name Indage Vintners Ltd.

IVL owns a 3.5-million-case winery called Thachi Wines in South Australia that produces a large range of Australian & New
Zealand wine brands such as Red Sky, Broken Earth and South Bay. IVL's Australia operations are based out of Vinecrest, a
boutique estate winery in the famous Barossa region of South Australia. Under Indage UK Ltd, IVL also owns and operates
a fully integrated wine supply chain management business. It runs a bottling plant with a capacity of 3.5 million cases and
distributes to more than 4,000 outlets in the UK. The company has signed a three-year contract with Foster's to bottle its
wine brands at the Indage-owned winery in the UK. This will support IVL's strategy of expanding its global footprint, apart
from being known for its beer business and as a major player in the wine market.

IVL had total exports of approximately 5, 25,000 litre during the year 2007-2008. The company exports to several parts of
the world including the US, UK, France, Asia and African markets. The market has grown more than 150 per cent in the
last four years and the trend will continue as long as a significant value is created in the consumers' mindset both tangibly
and intangibly.

Major Brands

Red Wine Grapes: Cabernet Sauvignon, Merlot, Shiraz, Zinfandel, Pinot Noir, Cabernet Franc

White Wine Grapes: Chardonnay, Chenin Blanc, Sauvignon Blanc

Industry Overview

In 2008 India had 62 wineries operating in the country with a total production of 22.5 million litres annually. Maharashtra
is leading among the states with 58 wineries and 21 million litres production. Apart from this, 72,000 wine cases are
imported mainly by ITDC, Sansula, Brindco, E & J Gallo and other private companies. At present 7,62,000 wine cases are
sold every year, which includes 46,000 cases of sparkling wines, which is in contrast to the much higher figures of other
drinks such as whisky, brandy and rum sold in the country. Eighty percent of wine consumption in the country is confined
in major cities such as Mumbai (39%), Delhi (23%), Bangalore (9%) and Goa (9%). whereas rest of India has only 20%
consumption There is growing awareness about the wine as a product in the domestic market.
Indage Vintners Ltd

In 2009, 10 more projects were started at Nashik, Sangli, Pune, Solapur and Osmanabad taking number of wineries
to 68, but production dipped to 1.32 crore litres by March, when the new crushing season started. The Indian
alcoholic beverages industry is expected to witness accelerating growth in coming years with the consumer base
likely to expand amid rising disposable income. The domestic alcoholic drinks market is estimated around $13
billion and has been growing at a compounded annual growth rate in excess of 10% in the past few years. The
growth rate is higher than other major Asian markets like China and South Korea, say analysts.

Some Indian wine makers have also started importing foreign made wine and bottling and selling it here in India.
Among the importers; ITDC (Indian Tourism Development Corporation), Sansula, Brindco and E&J Gallo predominate.
The Indian market is way behind major wine drinking countries. The per capita consumption in India is only 10-15
ml/person/year as against Europe which has 60 litres, France is 40 litres, and 20 litres in Australia and even China
has 1litre.

Currently, Indian wine market is estimated at 67 million cases per year and is expected to grow at 25 per cent
annually. With an annual growth of about 30% since 1997, the wine market is showing a healthy upswing. Indage
commands 70% of the market, while the balance is shared by Sula Vineyards and Grover Vineyards. Chateau Indage is
introducing a white wine, Rhine Pride. About 50,000 bottles of Rhine Pride are expected to be sold in one year. This is
the result of a joint venture between Chateau Indage and the German partners, Peter Meters, Bernakastel. It is a two-
way joint venture: bulk bottling of the Indian wine produced by Indage will be sold under the brand name Angoori in
Germany and Rine Pride will be bottled and sold by Chateau in India.

High marketing costs, low volumes and high tariffs on imported wines have hit the industry that has grown by a
compounded annual rate of 25-30% a year over the past three years. Maharashtra, for instance, imposes a 200%
tariff on imported wines, while most other states charge about 150%.

Industry Future Prospects

Wine producers this year have found themselves with significant surplus stock idling away in warehouses. This stock
of 1.32 crore litres along with 80 lakh litres from the previous year is still lying unsold. But the International producers
who had stopped visiting India have started returning once more largely because they now believe once more in the
potential of the market. Indian Wine Industry Forecast to 2012" indicates that once more wine consumption in India is
expected to grow by 25-30% annually between 2009 and 2012. The production of wines fell from 2.32 crore litres in
2008 to 1.32 crore litres in 2009. This is expected to go up to 1.35 crore litres in the 2010 crushing season.

Indian alcoholic beverages industry is expected to witness accelerated growth in the coming years with the
consumer base likely to expand amid rising disposable income. The domestic alcoholic drinks market is estimated
around $13 billion and has been growing at a CAGR in excess of 10% in the past few years. The growth rate is higher
than other major Asian markets like China and South Korea.

The size of the Indian wine market is of 1.5 million cases. India has emerged as one of the fastest growing markets
for wine on the global map. Despite the country’s vast population of over 1.1 billion, the consumption of wine
remains extremely low. The per capita consumption of wine in the country was estimated at around 9 millilitres in
2008, indicating a huge potential for growth in the coming years.
Indage Vintners Ltd

Financials
Revenue & profitability: For the year ended March 2009, net loss reported was Rs 607 mn as against net profit of Rs 394
mn during the previous year ended March 2008. Sales declined 18.51% to Rs 1481.1 mn in the year ended March 2009 as
against Rs 1817.6 mn during the previous year ended March 2008. On a consolidated basis sales have gone up to Rs
3027.6 mn in FY09 as compared to Rs 2544 mn in FY08, while the company incurred a loss of Rs 1144 mn as compare to a
profit of Rs 382 mn last year. This was mainly due to slowdown in the economy and the company’s various global
acquisitions wherein it spread itself thinly. The company relied heavily on foreign currency loans for foreign acquisitions
(40 percent of its current debt is in foreign currency).
Mounting prices of Raw material: Raw material prices, particularly molasses has gone up significantly in the last 1 year.
National Federation of Cooperative Sugar Factories suggests that molasses production for the year 2008-09 (provisional)
has fallen to 72.50 lakh tonnes. The production of sugar molasses has gone down significantly over the past three years,
falling from 131.11 lakh tonnes in the 2006-07 season to 113.13 lakh tonnes in 2007-08. Price of molasses currently is Rs
5010 per quintal which is 40% higher as compared to last April. This will make alcohol costlier, but Indage Vintners is
already sitting with huge inventory therefore the impact will not be much. The prices are already down from Rs. 6500
per quintal which hit earlier last year.
In April 2008 the company converted 6,85,000 warrants at a premium of Rs.325 per share. The proceeds received from the
allotment of the aforesaid equity shares were utilized to meet the working capital requirements of the Company.

Financial Outlook
Revenue is expected to grow at a CAGR of 25% in the next 3 years from Rs 1481 mn in FY09 to Rs 2866 mn in FY12 on the
back of rising demand and growth in sales realization per unit which is on the rise, and is expected to move further up in
the next few years.
EBIDTA is expected to go up to Rs 344 mn in FY12 as compared to a loss of Rs 344 mn in FY09. This is due to raw material
expenses which are expected to come down with reduced production and reduction in employee cost. PAT is expected to
move up to Rs 157 mn in FY12 as compared to a net loss of Rs 607 mn in FY09 leading to EPS of 10.3 in FY!2.

Investment Argument
The company’s global acquisition was badly timed, which has lead to the current state of affairs where there is Execution
risk, Funding risk and Exchange risk. Working capital cycle is also a concern as inventories are high due to the fact that
mature wines command a price premium in the market; but the fact that the industry is growing at 30% since last few
years and is expected to grow at 25% going forward and IVL with its growing capacity from 2.5 mn litres in 2006 to 15 mn
litres and with its global footprints into the overseas market and also with the economy out of recession Indage Vintners is
geared for a turnaround.

Outlook & Valuation

We believe that Indage Vintners Ltd at current market price of Rs 61 is really cheap and is a good value from long term
perspective. IVL is a good investment bet for investors with high risk appetite. The negative news on the company has
already been discounted. We recommend a buy on the stock with a price target of Rs 144 in the next 12-18 months. This is
based on our target EPS for FY12 of Rs 10.3 and the industry PE of 14x.This is an upside of 136% from current levels.
Indage Vintners Ltd
Indage Vintners Ltd

Research Team:
Abhishek Jain Head of Research abhishek.jain@sihl.in
Vikas Jain Research Analyst vikas.jain@sihl.in
Rekha Ahuja Research Analyst rekha.ahuja@sihl.in
Swati Gupta Research Analyst swati.gupta@sihl.in
Krunal Modi Dealer

SIHL – Contact number 022-22040722,82,83,84. Email – research@sihl.in

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of
any financial instrument or as an official confirmation of any transaction. The information contained herein is from
publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete
and it should not be relied on as such. Shah Investor home limited. or any of its affiliates 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 report. This document is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.