FCF0009

op
y

Indage Vintners Limited: Debt Hangover!

No
tC

Indage Vintner limited (Indage), a pioneer of authentic wines in India, produces a rich variety of
exquisite red, white and sparkling wines. It has vineyards spread over 2,500 hectors, with 20 varieties
under cultivation and over 137 varietals under plantation.1 It has state-of-art technology at its
manufacturing facility in Narayangaon that produces 15 million litres of wine and a bottling capacity
of 15,000 bottles per hour making it the largest wine production facility in India. It is the first sparkling
wine producing and exporting company in India, exporting to 69 countries across the world. Their
range of exquisite wines include Chantilli, Ivy, the flamboyant Marquise de Pompadour which
have won several awards ranging from International Wine and Spirit Competition (IWSC) held at
London to Wine Style Asia from Singapore to National levels at the INDYs. Stock analysts regarded
Indage stock as the over performer with exciting growth prospects in 2006. But the untimely continuous
global acquisitions through foreign currency convertible loans and raising the debts through mortgages
landed the company into financial crisis in 2009. Companys share prices fell drastically due to losses
and economic slowdown in 2008 and investors were losing their money in the company. Salaries
were not paid and operations took a backseat due to working capital crunch. The company was
planning to raise more funds to pay its debts. However, to what extent will it be able to raise money
to reduce its debt and emerge from the financial crisis remains unanswered.

Breweries and Distilleries Industry: Cheering up

India has emerged as one of the fastest growing markets for wine consumption in the world.
Although only 2% of the population drinks wine, it still accounts for a staggering 20 million people.2
India has a population of 1.1 billion and wine consumption is extremely low which indicates that, it has
a vast potential for future growth. The countrys per capita consumption of wine was estimated at
around 9 milliliters in 2008 and is expected to grow by 25%30% annually between 2009 and 2012.3 As
Indage Vintners Ltd., http://www.indagevintners.com/

Indian Wine industry prospects Tsnumi, Indian Wine News and Messages

Indian Wine industry Forecast to 2012, http://www.researchandmarkets.com/research/34a479/indian_wine_indust , November

2009

Do

This case study was written by Parveen Sultana under the direction of Fathima Reshma Taj H., IBSCDC. It is intended to be used as
the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case
was compiled from published sources.
2009, IBSCDC.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever
without the permission of the copyright owner.

Indage Vintners Limited: Debt Hangover!

per RNCOS4, a market research firm, the anticipated consumption of imported wines is expected to
rise at a Compounded Annual Growth Rate (CAGR) of around 32% during this period.5

op
y

Wine was known to Indians from the times of Vedic period and was often referred to as Somarasa.
It was believed to be associated with Lord Indra (The Rain God), and was a part of religious
festivals. Some of the wines which were consumed between Harappan civilisation and Mauryan
Empire were Drakshasava and Somarasa. It was later that European travellers brought wine to
the Mughal emperors like Akbar, Jehangir and Shahjahan during their reign in India.

No
tC

The next important contribution was made by the Portuguese in the 16th century when they
settled in Goa. They improved the wine quality and introduced a new variety of wine Vindaloo for
the Indian sub-continent. This practice was continued by the sailors who came to India for trade.
The famous Persian wine Shiraz was often sent to the Moguls in India and later to the British rulers
in India through these sailors. But the real growth of wine dates to the time when the British rulers
set up a factory at Surat (Gujarat) in 1612. It was then that wine became familiar to the Indian
society. In order to reduce the high cost of shipping wine to India, British started planting vineyards
in Surat and Kashmir.
The initial growth of vineyards and wine production was on slow pace due to lack of awareness
on the farming and production of grapesviticulture6 in India and also and there was non availability
of standard wine varieties to produce good quality wines. In 1890s, when the Indian wine was
becoming popular, the vineyards were decimated by the grapevine pest phylloxera which affected
the production of wines in the country.7 To meet the domestic demand, British rulers imported grapes
and wine on a large scale from different countries. Since then wine making in India remained a
cottage industry and unknown to the rest of the world until Champagne Indage Ltd., started to
produce wine on an industrial scale in 1982.8

Do

In 1980s and 1990s, the wine market started burgeoning with the new players like Grover Vineyards
(Nandi Hills, Bangalore), Sula wines (Nasik, Mumbai) and Sankalp wineries (Nasik Mumbai) etc.,
and subsequently the wine market grew increasing the revenues of the existing players (Exhibit I).
There are three major types of wine available in the Indian market still or table wine, sparkling
wine and fortified wine. The different categories of wines had increased over the years in terms of
volume and revenue (Exhibit II). However, the premium wine segment in India is dominated by
imported wines because the domestic wines are still unable to demand a high price due to low brand
awareness and lack of quality taste.9
4

RNCOS is a research company that provides company specific reports to give insight into a companys operations,
financials, market position and its core competencies.

India wine consumption to record 28% CAGR, http://www.commodityonline.com/news/India-wine-consumption-to-record28-CAGR-22921-3-1.html, November 13 th 2009

Viticulture is the scientific study of the growing of grapes.

Indian Wine Sector Searches for Supplies in Australia, http://en.epochtimes.com/news/8-3-24/67964.html, March 24th
2008

Ibid.

Indian Wine Industry Forecast to 2012, http://www.milagrow.in/k-solutions/knowledge-bank/products/indian-wine-industryforecast-2012, November 2009

Indage Vintners Limited: Debt Hangover!

Exhibit I
Indian Wine Market Winery Sales
(in INR million)
Company
Indage
Grover
Sula
Others

op
y

The growing demand for wine in India

triggered grape cultivation at a wider scale.
During 2001 2007, grapes cultivation for
the production of wine was increased from
50 acres to 5,000 acres.10 In 2006, the
overall sale of wine was around 600,000
cases (one case contains 12 bottles of 750
millilitres each) a year of which Table wine
accounted for 88%90% of the total
production and the remaining was occupied
by the expensive varieties of vintage wines.

1997

2002

2003

2004

25,000

85,000 100,000

110,000

12,500

21,000

35,000

42,000

12,000

15,000

27,750

2,000

8,000

No
tC

12,500 40,000 60,000 70,000.00

India produced about 1.3 million cases Imported
in 2007, which also includes imports of Total
50,000 158,000 212,000 259,754
220,000 cases compared to 60,000 cases
in 2001. There are nearly 54 wineries Source: Indian Wine Industry Report, http://
across the country of which 52 are in www.centroesteroveneto.com/pdf/Osservatorio%20Mercati/
Maharashtra accounting for 94% of the I n d i a / R i c e r c h e % 2 0 d i % 2 0 M e r c a t o /
Indian%20Wine%20Industry.pdf, page 11
countrys wine production. 11 India at
present imports 72,000 wine cases, of which 32,000 cases are bottled in origin and the rest imported
in bulk flexi bags which is subsequently bottled by Indian wineries.12

Exhibit II
Indian Wine Market: Category-wise

Category

1997

20012002

20022003

20032004

20042005

Volumes Revenue Volumes Revenue Volumes Revenue Volumes Revenue Volumes Revenue
40,000

16.8

120,000

57.6

172,000

82.56

209,840

105.8

272,792

130.9

Sparkling
Wines

10,000

30,000

21.6

35,000

25.2

39,200

29.2

43,120

32.3

Cheap and
Fortified
Wines

100,000

12

220,000

29.04

240,000

34.56

247,200

35.6

271,920

39.16

Do

Premium
Wines (still)

* Note: Revenues are in INR crore

Source: Indian wine Industry Report, http://www.centroesteroveneto.com/pdf/Osservatorio%20Mercati/India/

Ricerche%20di%20Mercato/Indian%20Wine%20Industry.pdf, page 30

10

Menon Sudha, Grape farmers raise a toast to wine industry, http://www.livemint.com/2007/12/29005631/Grape-farmersraise-a-toast-to.html, December 29th 2007

11

Indian Wine Industry,http://www.indialawoffices.com/pdf/wineindustry.pdf, page 4

12

Mitra Amit, Wine adds fizz to Maharashtras economy, http://www.thehindubusinessline.com/2007/10/09/stories/

2007100950140800.htm, October 9 th 2007

Indage Vintners Limited: Debt Hangover!

op
y

The Indian wine industry is not capital intensive. It requires capital of INR 10 million15 million to
setup a wine plant with a capacity of 100,000 litres13. The key raw materials such as grapes, bottles
and cork account for 20% of the total costs, which is higher than the international norms. There are
low entry barriers, high marketing costs and low volumes. At present, the Indian wine industry is
concentrated and dominated by three large players namely Indage, Sula wineries and Grover vineyards.
Together they enjoy over 90% of the total market share.14 The growth of the Indian wine industry is
attributed to the change in drinking habits, changing lifestyle, favourable and promotional government
policies, higher disposable incomes and growth in foreign tourists.

No
tC

The demand for wine has instigated the expansion of wineries in India. There is a strong growth in
the imported wine market with many Indian importers importing from countries like Australia, US and
Bulgaria. Some of the well known wine producers in India are Moet and Hannessey worlds largest
Champagne house, E&J Gallo Winery a US Winery and Howling Wolves Wine Group (HWWG) an
Australian Winery. There is 100% Foreign Direct Investment (FDI) permitted on the automatic route
for distillation & brewing of alcohol subject to licensing by the appropriate authority.15 The wine Industry
is facing competition from other form of beverages such as spirits, alcohols, beer, etc.
The wine industry grew at a rapid pace in the last 5 years (20032008) and came down crashing in
2009 with sales falling for the first time since 2001.16 Although there was an increase in the grape
cultivation for wine production in the year 2008, the economic slowdown followed by November terrorist
attacks in 2008 led to a fall in the sale of wine for 2009. The Industry has seen revival with festival season
during October 2009 to March 2010 which in turn expected to increase the sales by 10%20%.17
Looking at the growth prospects and the demand for wine, Indian farmers began cultivating wine
grapes without having contracts with the wineries which resulted in over-production of grapes. Due
to the drastic fall in industrys growth, no new vineyards were planted in the planting season December
2008. To make the matter worse, banks which were once eager to lend loans to the wine farmers
got impatient, as many of their loans turned into Non-Performing Assets18.

Do

The wine industry is still facing huge challenges in terms of high competition from the global
competitors in Europe. Besides that it is also facing challenges in terms of improving the quality of
wines in India, sustaining high growth rates, and increasing consumption of wine.19 In addition, the
industry is also facing teething troubles like poor storage and transport facilities, lack of promotional
activities and unfavourable rules for domestic marketing20 and discouraging tax structure.

13

Indian Wine Industry report, http://www.researchandmarkets.com/reports/302724/indian_wine_industry_report.htm

14

Ibid.

15

Indian Wine Industry, http://www.emmeplus.eu/index.cfm/3,104,346,0,html/indian-wine-industry-emc.pdf, page 6

16

Samant Rajeev, Indias Wine woes now will benefit consumers later, http://winesinasia.com/?tag=industry

17

Mohandas Poornima, Wine makers expect sales to rise 10-20% in Oct-March, http://www.livemint.com/2009/11/15221853/
Wine-makers-expect-sales-to-ri.html, November 15 th 2009

18

A loan or an advance that is lent by financial institutions/banks which has not been repaid by the borrower is known as NonPerforming assets.

19

Wine Market Outlook in India, http://www.bharatbook.com/Wine-Market-Outlook-in-India.htm

20

Pande Archana, A Profile of the Wine Industry in India, http://www.chillibreeze.com/articles_various/Wine-industry.asp

Indage Vintners Limited: Debt Hangover!

Indage Vintners Limited

They were issuing fresh shares and using them as the basis to buy properties and assets outside the
country, and then leveraging with foreign currency loans. What were they doing?21

op
y

Rajeev Samant, Founder and CEO, Sula Wines

Indage Vintners Ltd., (Indage) formerly known as Champagne India Ltd., is the oldest and the
largest producer of wines in India. It produces more than 1.5 million cases of wine from 4 state-ofthe art wineries and has complete backward integration from nurseries to biotech in its own estate
vineyards of more than 2,000 acres. It is the market leader which controls more than 70% of market
share of wines produced in India.22

No
tC

Indage was set up in 1982 as 100% Export Oriented Unit (EOU) and was named as Champagne
Vineyards and later as Champagne India.23 The company was in technical collaboration with
Champagne Technologies of France for manufacturing wines. Under the agreement Champagne
Technology would provide process know-how, assist in selecting machinery and depute technical
personnel to supervise and monitor the trial runs and commercial production.24 The controlling stake
of the company was under the hands of promoters and directors until 1983.
In 1984, the company diluted its stake by reserving and allotting 1,500,080 equity shares to its
promoters. Around 300,000 equity shares were reserved for preferential allotment to Non
Residential Indians (NRIs) on repatriation basis25 of which only 198,200 shares were subscribed.
The balance of 900,080 equity shares and 101,800 shares not taken up by NRIs were offered to
the general public.26
The EOU norms and regulations prohibited Indage to sell or export wines produced in India and
hence Shamrao Chougule, the founder of Champagne Indage incorporated another company (Indage
India Private Ltd.) in 1985. It issued 80,000 convertible debentures at a coupon rate of 15% at a face
value of INR 100 each in 1986 on rights issue basis in a proportion of 1 debenture for every 25 equity
shares held. In order to facilitate the smooth supply of raw materials (grapes) for production purposes,
Indage set up winery unit at Narayangaon in the state of Maharashtra (India) which was considered
as its main production unit.

Do

In 1987, Indage was converted into a Public Ltd. company 27 In 1988, the company launched its
flagship wine product Marquise De Pompadour which gained recognition in the domestic and
international markets. Since then the company came up with new brands named Chantilli, Riviera
21

Flock Elizabeth, Wine Maker Indage Vintners sees recovery from hangover, http://www.moneycontrol.com/news/
management/wine-maker-indage-vintners-sees-recovery-hangover_425360.html, November 17 th 2009

22

Leaders Speak, http://archives.indiainfoline.com/news/showleader.asp?storyId=768&lmn=1&cat=1, May 22nd 2009

23

Ibid.

24

Company HistoryIndage Vintners, http://www.moneycontrol.com/company-facts/indagevintners/history/IV01

25

Issue of equity shares to selected/specified entities at specific prices and the proceeds of which either Income/dividend interest
earned, or sale/maturity on proceeds of investment can be repatriated outside India at any time or credit to NRI a/c of
Investor subject to deduction/payment of Income Tax.

26

Company HistoryIndage Vintners, op.cit.

27

History, http://www.indagevintners.com/

Indage Vintners Limited: Debt Hangover!

op
y

Blac de Blanc and Ivy. In 1993, the company went into financial crisis as it incurred heavy losses due
to un-remunerative prices for its products and heavy interest payments in the overseas market.28 As a
part of restructuring strategy, hotels and the engineering division of Champagne Indage were hived off
and winery division of Champagne Vineyards Ltd., was merged with Indage in January 1997.29
During 2004, the net sales of the company where INR 235.08 million and had grown at a rate
of CAGR 74.08% for the next three years. The other incomes of the company grew from INR
30.91 million to INR 274.83 million during 20042007. Total cost excluding depreciating and interest
as a percentage of net sales for 2004 is 88.40% and this ration had grown to 94.79% in 2007.
During 20042007 depreciation an interest had grown from INR 5.03 million and INR 16.85
million to INR 18.43 million and INR 41.83 million respectively. Extraordinary expenditure for
2004 was INR 4.40 million. Tax as a percentage of EBT after extraordinary items is 7.84% for
2004 and is estimated to increase to 16.38% in 2007.

No
tC

Over the years Indage launched many brands under its wine group. The companys main
domestic brand portfolio includes Indage Vineyards and Chateau Indage. Indage Vineyards Ltd.,
was in the business of viticulture and production of wines while Chateau Indage (Champagne
Indage Ltd.) was involved in producing and selling wines in domestic market, engineering and
hotel business till 1996. During the period 20002008, Indages production capacity of wine increased
from 500,000 litres3,252,000 litres.
In 2007, Indage acquired UK wine agent, McKinley Vintners, and Australian alcohol company
Tandous wine making arm. During the year, Indage announced plans for 1,000 wine bars across the
country, and opened a wine resort and spa in Nasik, Maharashtra.30 In the financial year 20072008,
it had a production capacity of 10,809,100 litres.31 It flooded the market with excess wine forcing the
distributors to sell with buy-one-get-one-free deals,which ultimately resulted in high inventory leading
to disputes with the distributors as poor storage turned wine into vinegar. Indage relied heavily on
foreign currency loans for foreign acquisitions. One of the former employee revealed that around
40% of its current debt was in foreign currency.32

Do

Indage took full advantage of the boom in wine sales that coincided with 5 years of Indias
blazing economic growth until 2008. The sales grew by 46.57% over the previous year 2007 and
the other incomes had an abnormal growth of about 3.0265 times of the previous year. By 2008,
Indage was exporting to 69 countries and had 56,000 acres of vineyards under cultivation. It
received 28 awards for its wines in that year alone. In March 2009, in order to secure the supply
of wine of all types from different regions at all price points to become efficient and reliable global
player, it acquired an ill-fated Australian Loxton Winery (Loxton) in an all-cash transaction for
AUS $60 million (INR 225 crore). Companys goal was to combine the capacity of 8,000,000
28

Company HistoryIndage Vintners, op.cit.

29

History, op.cit.

30

Wine Maker Indage Vintners sees recovery from hangover, op.cit.

31

Indage Vintners Ltd, http://www.hdfcsec.com/Research/FResearch.aspx?Heading=FundamentalResearch&FP_Code=522059

&View=FRHistory.ascx

32

Wine maker Indage Vintners sees recovery from hangover, http://www.moneycontrol.com/news/business/wine-makerindage-vintners-sees-recoveryhangover_425360.html, November 17 th 2009

Indage Vintners Limited: Debt Hangover!

op
y

cases with 3,750,000 cases in South Australia and 3,000,000 cases in UK with 1,250,000 cases in
India. But, the November 2008 Mumbai terror attacks and recession resulted in heavy losses to
the wine industry due to which Indage was unable to pay Loxton and had to settle a painful lawsuit
of $ 6 million33. In the process Indage had also acquired some of the foreign companies like
Darlington Wines (UK) and Vinecrest (Australia).

No
tC

Continuous acquisitions in the international markets through foreign currency loans and expansion
into businesses such as Indian-made foreign liquor and hospitality over the past couple of years34
combined with the economic slowdown affected the financial position of the company with mounting
debt and shortage of working capital needs. Most of the companys debt amounting to INR 457.38
million was secured by hypothecation of movable assets, current assets both present and future and
gave a first charge to lead bankers and second charge to other consortium bankers on the fixed
assets of the company at its Narayangaon division.35 The total cost including interest and depreciation,
excluding taxes grew by 66.71% over previous year 2007. Depreciation and interest of the company
grew to INR 46.19 million and INR 139.99 million respectively. In September 2009, around 250
employees in the middle and senior level management had resigned as the company failed to pay
salaries since November 2008. One of the former executives commented that The company has a
financial liability of at least INR 450 crore to be paid off immediately, as on September 1st 2009.
The debt increased to 117.88% to INR 1,285.2 million in 2008 from INR 589.86 in 2007 (Exhibit III).

Exhibit III
Debt and Equity Mix from 20042008

Particulars
Shareholders Fund
Debt

(in INR million)

2004

2005

2006

2007

2008

285.53

313.53

894.33

1,839.24

2,928.83

248.81

511.05

459.84

589.86

1,285.2

6.67

6.67

10.32

10.32

14.58

Number of Equity Shares

Compiled by author from companys annual report

Do

In June 2009, Indage planned to give away 40.28% stake of the company for INR 90.6 crore to
four investors Anam Transport Pvt. Ltd., Sanjivani Horticulture Pvt. Ltd., Arsh Advisors and
Owners Ltd. and Asian Sirius Energy Ltd., in order to reduce debt, to fund existing operations and to
meet long-term working requirements. It also planned to raise a further INR 110 crore by selling its
shares to qualified Institutional buyers and INR 2 billion through rights issue. The huge debt and

33

Australian Vintage Ltd, http://www.australianvintage.com.au/LinkClick.aspx?fileticket=tqcH%2FkQ12tM%3D&

tabid=162&mid=648, September 10th 2009

34

Indage Vintners slumps as employees exit , http://www.capitalmarket.com/Cmedit/story2-0.asp?SNo=338595, September

1st 2009

35

Indage Vintners Ltd. annual report 2008, http://www.indagevintners.com/pdf/CIL-AR-07-08.pdf , page 108

Indage Vintners Limited: Debt Hangover!

op
y

interest payments forced the promoters of the company to pledge 97.9% of their 25.42% of companys
stake in August 2009.36 Indage share prices fell from INR 103.2 in December 2008 to INR 53.30 in
October 2009 and has not yet published its annual report for the FY 2009 (as of December 2009)
(Exhibit IV). The company is prone to earnings risk emanating from risk of project execution, funding
risk, sourcing risk and exchange risk in addition to its working capital crisis. It built up inventories due
to the fact that mature wines commanded a premium price in the market. But due to the recession
the company was not able to sell the entire stock as customers restrained themselves on spending
too much on mature wines and instead opted for cheaper wines.37

Exhibit IV
Sensex and Stock Prices of Indage Vintners Ltd.

Month & Year

Indage Vintner Ltd. Stock Price*

Sensex

November 2008

No
tC

(INR 000s)

98.25

9,092.72

103.20

9,647.31

88.00

9,424.24

53.35

8,891.61

47.80

9,708.50

57.70

11,403.25

90.65

14,625.25

77.10

14,493.84

67.40

15,670.31

74.55

15,666.64

69.00

17,126.84

53.30

15,896.28

December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009

Do

*Note The prices taken from the Bombay Stock Exchange (BSE) and are the monthly prices.
Compiled by the author from www.bseindia.com

36

Unnikrishnan C.H., and Kalesh Baiju, 4 firms to acquire 40.28% stake in Indage Vintners, http://www.livemint.com/2009/
06/23233502/4-firms-to-acquire-4028-stak.html, June 24th 2009

37

Shah Shilpa, Champagne Indage Ltd., http://www.moneycontrol.com/news_html_files/news_attachment/2008/ChampagneNov2008.pdf, November 6 th 2008, page 1

Indage Vintners Limited: Debt Hangover!

Do

No
tC

op
y

With the increase in financial risk, will the investors show any interest in the companys shares is
debatable as the share price of the company fell by 48.35% since December 2008. How will Indage
emerge from the financial crisis in the current economic situation especially now that the wine
industry is beginning to grow and is facing tough competition from new wine makers and importers?
Though the industry is expected to grow at an annual pace of 27%30%, will it be able to raise
finance to pay its debt is debatable. What could be the other possible sources of finance that company
may attempt to raise to emerge from the financial crisis given its shrinking share prices remains
unanswered.