Champagne Indage Ltd In High Spirits

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1 Champagne Indage Ltd In High Spirits BSE Code Bloomberg Code Face Value Rs10 Market Cap Rs262mn CMP Rs39 Share Holding Pattern Share Holding Pattern 20% 6% 60% 14% Promoters Institutional Investors Other Investors General Public Share Price Chart Company background Champagne Indage Ltd (CIL) is India s leading wine producing company with a 75% market share in the wine segment. CIL has been instrumental, to a large extent, in developing Indian wine industry. It produces white, red, sparkling and rosy wines of many varieties. Apart from domestic market, the company exports wine to USA, Japan, UK, Switzerland, Germany and other European countries. CIL has three wineries located in Narayangaon, Maharashtra with an aggregate capacity of 3.5mn liters of wine per annum. Performance highlights (Rs mn) Particulars FY02 FY03 FY04 CAGR (%) Net sales % yoy Other income (12.3) Operating profit % yoy Interest (14) (20) (18) 15.0 PBT APAT % yoy EPS DPS Source: Company Strong brand portfolio CIL s strength lies in its brands. It has a portfolio of 64 brands, which are priced in a way that they target different income groups. Ranging from wine coolers (Sinn) priced at Rs30 per bottle to premium segment priced over Rs500; the company offers wines for everyone and every occasion. Wine classification Brand name Average price range (Rs) Wine coolers Sinn 30 Entry level Hammer / Figuieira Popular Vin Ballet / Riviera Premium Chantilli / Reserves Estate Varietals Ivy Range Sparkling Marquise De Pompadour / Ivy Brut / Joie International brands Bottled in origin 600-1,000 October 09,

2 Revenues grow at a 11% CAGR CIL s sales revenue grew 10% yoy to Rs215mn from Rs196mn in FY03. Sales witnessed a CAGR of 11.1% between FY CIL has built a strong portfolio of wines and markets 32 labels in the domestic as well as international markets. It is the largest marketer of wine in the country with 75% market share. The western region accounts for a bulk of its domestic sales (51%) of 1mn litres pa. Zone wise distribution of domestic sales (volumes) 7% % % 6% 22% 48% 20% 51% 18% West South North East Others 18% West South North East Others Source: Company Rising share of exports CIL has been maintaining its focus on exports. Export revenues rose 72% yoy to Rs26.4mn in FY04. The share of exports in the total sales has increased from 9% in FY03 to 20% in FY04. CIL exports its wines to countries like USA, Japan, UK, Switzerland, Germany and also plans to venture into new markets like North America, Europe & South America % % 91% Export Domestic 80% Export Domestic Source: Company October 09,

3 Margin expansion aided by rising wine stocks Operating profits increased by 26.6% yoy to Rs56mn in FY04 from Rs44mn in the previous year. Operating margin expanded by 340bps to 25.9% in FY04 largely due to a sharp increase in closing stock. Raw material cost rose 280bps. Packaging costs also rose with the increase in export volumes, increasing by 240bps from 12% of sales in FY03 to 14.4% of sales in FY04. Operating profit & OPM (Rs mn) FY02 FY03 FY (%) Operating profit Margins Source: Company, India Infoline Research Improving profitability ratios The company s ROCE is witnessing an upward trend from the low base. Over the last two years, ROCE rose from 5.1% in FY02 to 10.1% in FY04. RONW has also increased from 4.4% in FY02 to 10.3% in the FY04. Debt restructuring drives interest reduction CIL s debt rose by Rs55mn in FY04. Secured loan funds increased sharply by 55% yoy to Rs249mn in FY04 from Rs194mn in the previous year while, unsecured loans increased to Rs162mn from Rs139mn in FY03. However, CIL pre-paid its loan of Rs50mn to the Central Bank of India and replaced it with Rs50mn borrowing from EXIM bank and Rs37mn from the Greater Bombay Co-op Bank during the year. As a result of this restructuring, its interest burden during FY04 declined to Rs18mn from Rs20mn in FY03. CIL proposes to further restructure its debt to bring down the interest burden in the current year. The company is planning to raise Rs220mn via issue of Optionally Convertible Debentures (OCDs) in mid-october to finance its foray into new markets and products. Stake in group company Indage Hotels transferred Investments portfolio for the year declined to Rs10.5mn from Rs14.3mn in the previous year. The company transferred its stake (Rs4.9mn) in Indage Hotels to another promoter owned company. October 09,

4 Working capital position worsens Net working capital of the company has increased by 17.8% yoy to Rs338mn from Rs287mn in the previous year. While inventory days declined marginally from 518 days in FY03 to 520 days in FY04, debtor days have increased sharply to 130 days from 98 days in the previous year. On the other hand, credit period given by suppliers has declined from 48 days in FY03 to 36 days in FY04. As a result, working capital absorbed Rs43mn of the Rs59mn of operating cash profit earned. Marginal rise in equity due to ESOP Total ESOPs granted during the last three years in the form of options stood at 297,600 equity shares at Rs12 per share as compared to the market price of Rs13.35 per share on the date of grant of option. In the current year, 99,200 equity shares and another 37,200 equity shares in the form of sweat equity were granted and subsequently allotted. Therefore, the equity share capital has increased in proportion to Rs67mn in FY04 from Rs65mn in FY03. Favorable regulatory changes to yield excise benefits The Indian Government has put emphasis on the development of the wine industry. The Maharashtra State Government has announced excise and sales tax reduction for new wineries in the state, after it classified wine as an agro-based product. CIL has expanded its production capacity from 1.8mn litres in FY03 to 2.2mn litres in FY04. This is being expanded further to 3.5mn litres. The new winery will enable it to enjoy tax breaks and will lead to improved margins. The excise benefits arising to CIL from its new plant in Maharashtra, is expected to be about Rs25mn. The regulatory structure in other states is also encouraging. For example, Uttar Pradesh Government has permitted sale of wines in all recognized grocery outlets. Thrust on making wine affordable and popular The company is looking at expanding the consumption of wines through various initiatives like marketing it in cartons and PET bottles, besides offering wine at different price-points. CIL is talking to packaging company Tetra Pak to provide it tetra packaging for its wine brands. CIL is also planning to break the price barrier and sell wine at less than Rs99 per litre. October 09,

5 Income statement Period to FY02 FY03 FY04 (Rs mn) (12) (12) (12) Gross sales State Excise + Sales tax (43) (33) (39) Net Sales Operating expenses (150) (151) (159) Operating profit Other income PBIDT Interest (14) (20) (18) Depreciation (6) (5) (5) Amortization Profit before tax (PBT) Tax 0 3 (3) Profit after tax (PAT) Extraordinary / prior period items 2 (2) (4) Adjusted profit after tax (APAT) Balance Sheet Period to FY02 FY03 FY04 (Rs mn) (12) (12) (12) Sources Share Capital Reserves Net Worth Loan Funds Def Tax liability Total Uses 34 Gross Block Accd Depreciation (28) (32) (37) Net Block Capital WIP Total Fixed Assets Investments Total Current Assets Total Current Liabilities (82) (74) (84) Net Working Capital Miscellaneous expenditure Def Tax assets Total October 09,

6 Cash flow statement Period to 03/02 03/03 03/04 (Rs mn) (12) (12) (12) Net profit before tax and extraordinary items Depreciation Interest expense Interest income (1) (0) (0) Dividend income 0 (0) 0 Operating profit before working capital changes Add: changes in working capital (Inc)/Dec in (Inc)/dec in sundry debtors (49) (3) (24) (Inc)/dec in inventories (277) (0) (29) (Inc)/dec in other current assets (35) 6 (0) Inc/(dec) in sundry creditors 42 (17) (5) Inc/(dec) in other current liabilities Net change in working capital (279) (5) (43) Cash from operating activities (251) Less: Income tax 0 3 (3) Inc/Dec in Def Tax Asset/liability Misc expenditure w/off (3) 0 (1) Cash flow before extraordinary item (254) Extraordinary inc/(exp) 2 (2) (4) Net cash from operating activities (252) 43 9 Cash flows from investing activities (Inc)/Dec in fixed assets (161) (3) (34) (Inc)/Dec in Investments (12) (2) 4 Interest received Dividends received Net cash from investing activities (172) (4) (30) Cash flows from financing activities Inc/(Dec) in debt 194 (0) 55 Inc/(Dec) in equity/premium Direct add/(red) to reserves 184 (15) 0 Interest expense (14) (20) (18) Dividends 0 (7) (9) (Inc)/dec in loans & advances Net cash used in financing activities 429 (41) 30 Net increase in cash and cash equivalents 4 (2) 8 Cash at start of the year Cash at end of the year October 09,

7 Ratios FY02 FY03 FY04 (12) (12) (12) Per share ratios EPS (Rs) Div per share Book value per share Valuation ratios P/E P/BV EV/sales EV/ PBIT EV/PBIDT Profitability ratios OPM (%) PAT (%) ROCE RONW Liquidity ratios Current ratio Debtors days Inventory days Creditors days Leverage ratios Debt / Total equity Component ratios Raw material Stock adjustment (19.1) (3.8) (12.8) Packaging cost Staff cost Other expenditure Payout ratios Dividend Payout Ratio Published in October India Infoline Ltd India Infoline Ltd. All rights reserved.regd. Off: 24, Nirlon Complex, Off W E Highway, Goregaon(E) Mumbai Tel.: +(91 22) Fax: This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intended as an offer or solicitation for the purchase and sale of any financial instrument. 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, associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, but do not represent that it is accurate or complete. 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. The recipients of this report should rely on their own investigations. IIL and/or its subsidiaries and/or directors, employees or associates may have interests or positions, financial or otherwise in the securities mentioned in this report. October 09,