The Indian wine market currently stands at 4.6 million litres in volume terms and Rs 450 crore in value terms.
The wine market is expected to grow to 8.3 million litres by 2010. Per capita consumption of wine remains extremely low in India; however, there is growing consumer interest in wine with a number of wine clubs opening in Delhi, Chandigarh, Hyderabad and Bangalore.
Nearly 80 per cent of wine sales are accounted for by the major cities, especially New Delhi, Mumbai, Chennai, Kolkata, Pune and Bangalore.
West India accounts for over 41 per cent of total volume sales of wine in India, followed by North India, which accounts for 29 per cent of volume sales.
Nearly 90 per cent of wine sales are for still (that is, red and white) wines. Sparkling and ros� wines, in contrast, target select segments of particularly affluent consumers.
In most states the sale of wine remains restricted to licensed off-and on-trade outlets, which means a limited number of outlets selling wine.
Around 63 per cent of the volume sales of wine are through off-trade channel in five-star hotels, pubs and bar-restaurants.
KIT by Technopak Advisors
Going by the above report, market for wine is Rs.800 crs by 2010 in India.Even if Champagne Indage market share dips to 50%, they can do Rs.400 crs sales from Indian market alone while my guess is that they will do Rs.100 crs sales from Exports (20% of total sales).In all they will do 500 crs sales by 2010. The turnover for FY07 was Rs.143 crs that means3.5 times jump in revenues in three years. I see no reason why the stock won't give significant returns. Also the juice business is exciting. The products are available from Rs.100 to Rs.1000.
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
Excerpt from SSKI Report on Wine Industry & Champagne Indage
Note : This is an old report of November 2006. Since then the stock has appreciated from levels of Rs. 390 to present level ofaround Rs.700
Summary
The wine god Bacchus is smiling upon India. Wine, a poor cousin of “hard” drinkshere, is slowly but surely finding its feet. The industry grew at 25%+ per annum overthe last three years to Rs2.6bn currently. Interestingly, growth rates will be strongergoing forward; with young, loaded Indians aspiring to “arrive” in the society as alsofavorable regulations encouraging viticulture, the industry is estimated to record astrong 60% CAGR over FY06-10 and 24% over FY10-15, to Rs20bn and Rs60bnrespectively. The credit for seeding India with a wine culture goes to ChampagneIndage (CIL), the market leader with a 70% share and the only listed play in the space.We believe CIL is at the vantage point to reap the rewards of its perseverance, and isset to witness exponential growth (90% EPS CAGR over FY06-09E).
Potential unlimited – an Rs20bn market estimated by FY10: At per capita
consumption of 0.07 litres per annum, the Indian wine market offers an exponentialgrowth opportunity for producers. The industry is estimated to log in 60% CAGR forthe industry over FY06-10 and 24% CAGR over FY10-15, to Rs20bn and Rs60bnrespectively.
In India, the total number of wineries stands at 38, of which 36 are in Maharashtra.The state accounts for over 85% of India’s wine production. In terms ofconsumption pattern, around 80% of wine consumption in India is confined to thecities
India has 75,000 acres of vineyards, of which less than 10% (only 7,000 acres) areused for growing wine-grade grapes.
“TROPICAL WINES” FROM INDIA: A LONG-TERM OPPORTUNITY
Besides a huge latent domestic market, there is a window of opportunity for
domestic wine producers to create a unique niche or “position” for Indian wines inthe international market. Given India’s tropical climate, the sunshine factor impartsa unique flavour to the grape grown and wines produced here vis-à-vis those by theworld’s two principal wine producing blocks – the “Old World” and the “NewWorld”. Other than India, only Brazil – which has recently started wine production– boasts of a tropical climate. This offers an opportunity to the domestic producersto create a separate niche or “position” for Indian wines in the international market– that of “Tropical Wines”. However, given that the domestic market is big enoughto absorb even the ramped up supplies in the coming period, we see this as a longtermstory for the domestic industry with a perspective of 5-7 years.
CHAMPAGNE INDAGE: PROXY FOR THE INDIAN WINE INDUSTRY
With 70% of the market under its belt, Champagne Indage is the largest and onlylisted player in the Indian wine industry. The company is vertically integrated with~5,600 acres of vineyards under cultivation – both owned by the group and oncontract farming basis. Its robust portfolio of 35 brands (28 of which are owned)straddles the entire price spectrum in the market place – from Rs99/ bottle toRs600+/ bottle
After Champagne Indage, Sula Vineyards is the second largest player in the Indianwine industry with a 20% market share. Set up in 1998 at Nashik in Maharshtra,this new entrant into the industry has notched up an impressive performance in ashort span to garner this market share. The company has three wineries with a totalcapacity of nearly 2m litres per annum and access to vineyards with an expanse ofabout 400 acres. Besides selling its own products, Sula also imports and distributeswines from leading worldwide players in the domestic market.
Grover Vineyards is another well-known player in India with ~7% market share.
The company owns over 200 acres for growing wine grade grapes near Bangaloreand uses 35 varieties of French wine grade grapes in its production process. GroverVineyards too is a private company with 14% stake held by Veuve ClicquotPonsardin, a leading champagne house of France.
McDowell & Co has acquiredBouvet Ladubay, a winery in France. Before setting up a local winery in France, thecompany would initially ship the wine in bulk and bottle it in India till a strong franchise has been created for its brands.
CIL makes 35 varieties of wine with the help of 100 varieties of grapes. The brands spanacross price points catering to every economic strata. The company has a virtual monopolyin sparkling wine, with brands such as Marquise De Pompadour, Joie, Ivy Brut, Milleniumfor the elite wine lovers. Among still wine range Riviera is the largest selling brand. With India's younger generation getting attracted to wine consumption, CIL has introduced anaffordable range to convert beer drinkers such as Vino priced at Rs99 per bottle and Sin
- a wine cooler economically priced at Rs30 per 330ml bottle. Other brands under JVinclude Cranswick Indage (Australia), Wente Indage (California), Zulu (South Africa) andRhine Pride (Germany).
SSKI Recommendation
We expect CIL to register sales CAGR of 75%+ over FY06-09 on the back of
capacity expansion and strong demand growth. With margins in the 28%+ region,RoCE of 19.5% and RoE of 18%+, the stock compares favourably with peers in thealcoholic beverages industry – both domestic and international. The stock trades at12.8x FY07E EV/ EBIDTA vis-à-vis 14.0-17.5x for the peer group. With estimatedCAGR of 90%+ over FY06-09 in earnings, we initiate coverage on the stock with anOutperformer rating and a 12-month price target of Rs500.
The industry is estimated to log in 60% CAGR forthe industry over FY06-10 and 24% CAGR over FY10-15, to Rs20bn and Rs60bn respectively.
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2000 crs by 2010...WOW!! This stock will go places.Management is expecting to do a turnover of over 300 crs in FY08.
I feel those who are comparing Champagne Indage with UB, is like comparing Pantaloon Retail with Reliance Retail.CIL has experience of over 20 years in this business.
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
Joined: 29/Mar/2007
Location: India
Online Status: Offline
Posts: 4243
Posted: 08/Aug/2007 at 1:09pm
Nice argument, but Mallya is the 'botal ka baadshah'.
90% CAGR growth estimates in EPS is simply amazing. What do you plan to do with this stock?
Like in the developed markets, we can have our own 'VICE' portfolio filled with liquor, tobacco, mining (environment unfriendly), retail (stealing jobs from poor) and real estate (stealing land from farmers for SEZ) companies. I hear VICE PORTFOLIO generally outperforms all others.
The recent jump in this Stock may be because of Outperformed rating by Prabhusdas Lilladher. I like this stock because of it's dominance in the Wine market. Other thing is, wine is not popular in masses in country like India. The consumption per person is much larger in Developed countries. Of course the situation is changing in India. I also bought it at 260 but sold it at 660 few months back. This is one of the company that I like to track.
A few things I remember while purchasing this company :
This a very volatile stock with low volume. It can easily be down to 40%, if for whatever reason Market goes into deep correction, like in May 2006. It's not easy to sell with stop loss if you are holding good quantity, because of it's low volume. Personally I buy this company when fear is all around and sell it when everything looks good. Of course one can hold it during this volatility just like Investing Legends Warren Buffett if you believe in it. Unfortunately I do not have this kind of patience.
Below is the recent report published in Moneycontrol.com
Champagne Indage an outperformer: Prabhudas Lilladher
2007-08-06 16:52:26 Source : Moneycontrol.com
Research firm Prabhudas Lilladher has recommended an outperformer rating on Champagne Indage. At the CMP of Rs 632, the stock trades at 17.6x FY08E earnings of Rs 36.0, and at 10.5x FY09E earnings of Rs 59.9.
Prabhudas Lilladher report on Champagne Indage:
Result Snapshot
Champagne Indage’s Q1 FY08 results excelled our expectations. Net sales jumped 186% yoy (our expectation: 264%), operating profit shot up 146% and net profit rocketed 94% (our expectation: 94%). The operating margin dropped 380bp—from 26.4% to 22.6% (our expectation: 14.6%)— due to the change in product mix. The consolidated results include those of Seabuckthorn Indage, Indage UK and Thachi Wines, which were not there in the same quarter last year and hence the results are not comparable. At the CMP of Rs 632, the stock trades at 17.6x FY08E earnings of Rs 36.0, and at 10.5x FY09E earnings of Rs 59.9. We expect the scrip to be an OUTPERFORMER.
Result Highlights
Strong sales growth
For Q1 FY08, Champagne Indage has reported a 186% yoy jump in net sales—from Rs 117 million to Rs 334 million (we expected Rs 425 million). The results include the sales of Seabuckthorn Indage (fruit juice business), Thachi Wines (Australian wine operations) and Indage, UK (distribution arm), which were not there in the same quarter last year. Hence the results are not analogous. Most of growth came from the rise in volumes, as there has been no major price change. The company has initiated several retail measures like the opening of wine bars, shop-inshop, display at shopping malls, etc. The Maharashtra Government has allowed wine as a “food” item and relaxed storage and distribution norms. It has also abolished excise duty on wines. These steps have helped boost sales growth.
Drop in margin
During the quarter, Champagne’s operating margin 380bp—from 26.4% to 22.6% (we expected 14.6%)—due to the change in product mix, as there was a greater proportion of low-margin products, namely Australian bulk wine and fruit juice. Material costs shot up 2,340bp—3.5% to
26.9% of net sales—from the change in product mix. Personnel expenses slipped 40bp—from 14.1% to 13.7% of net sales—due to strong sales growth. ‘Other expenses’ too dropped, 1,930bp—from 56.0% to 36.7% of net sales—due to strong sales growth and a tight control on marketing expenses.
Higher interest and depreciation
Interest cost jumped 84%—from Rs 14 million to Rs 26 million—due to enhanced working capital in view of strong top line growth. Depreciation also increased, by 347%—from Rs 4 million to Rs 16 million—with the additional depreciation of the Australian operations.
Net profit improved
Net profit shot up 94%—from Rs 14 million to Rs 26 million (matching our expectation)—due to the integration of businesses and strong volume growth. The EPS for the quarter rocketed 76%—from Rs 1.30 to Rs 2.20.
Investment positives
The acquisition of Thachi Wines (TW), Australia, has given Champagne Indage a global footprint. TW has contractual arrangements for vineyards and a winery in Australia, and processes 2.7m litres of wine a year. At present, TW markets its products in Australia, China and Europe under the brand name Broken Earth. Most of this wine is sold unbranded. The acquisition would provide a ready-made market for CIL to hawk its own brands in these countries through TW’s distribution channels.
CIL plans to bring TW’s bulk wine to India and bottle it at its plant here. This is likely to be marketed domestically as a wine of Australian origin. This would generate additional revenue.
The company’s economy brand, Vino, has reported healthy growth in FY07 and brings in about 12% of revenue. CIL expects beer drinkers to migrate to Vino due to the latter’s attractive price of Rs 99 a bottle.
The juice business of Seabuckthorn Indage is growing at 400% (on a smaller base). In the home market CIL has introduced 10 juice varieties under the brand name Leh Berry in 200-ml and 1-litre tetra packs. The juice business is likely to be another growth driver.
The company has set up a 100% subsidiary in the UK under the name Indage (UK) to market its products to Indian restaurants in the UK and Europe. This is likely to enhance its exports.
CIL’s established brands come at all price points. It has more than an 80% market share in the home market. With the national wine policy under implementation and the relaxation of distribution norms, the company is likely to benefit in future.
Sale of wine in supermarkets is now allowed in Maharashtra, Karnataka, Chandigarh, Goa and Haryana. This is likely to widen and deepen wine consumption.
Financials and Valuations
We expect CAGRs of 154% in net sales and 97% in net profit over the next two years — from the acquisition of TW and the juice business of the group company. We expect the juice business to contribute Rs 0.95 billion and Rs 2.5 billion to sales in FY08 and FY09 respectively. We expect TW to contribute Rs 2.1 billion and Rs 2.9 billion to sales in FY08 and FY09 respectively. We expect the operating margin to drop—from 24% in FY07 to
17.7% in FY08, and further to 16.4% in FY09. The decline in the margin would be attributable to the lower margins in TW and the juice business. The CMP of Rs 632 discounts the FY08E EPS of Rs 36.0 by 17.6x and the FY09E EPS of Rs 59.9 by 10.5x. We expect the scrip to be an OUTPERFORMER.
What do you plan to do with this stock?
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I plan to add...portfolio churning is going on......
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
One of my friend who is working in the F&B dept of Taj,Mumbai says people prefer White wine the most with brands like Chardonnay and Sula...Chateau Indage brands are also in great demand...
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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