Mumbai: The Chougules, promoters of India’s oldest winery Indage Vintners Ltd (IVL), are looking to spin off their wine business into a new company in which they will sell an equal stake to a Japanese wine and spirits company, according to two people familiar with the discussions between the two companies.
The two, who did not want to be identified because the deal is still in the making, declined to name the Japanese firm.
The new company will issue fresh shares to the Japanese partner to raise at least $120 million (Rs564 crore), one of the persons said.
The structure is contemplated in such a way that both companies will own equal stake, with the public also owning some shares, this person added.
Mint couldn’t immediately ascertain the reason for the restructuring and sale. “We will be unable to comment on this,” Madhu Joshi, senior manager (public relations and communication) at IVL, said in response to an email questionnaire.
The deal between IVL, which makes the Rivera brand of wines, and the Japanese firm could be finalized in around a month, the first person said.
Keynote Corporate Services Ltd, a Mumbai-based investment bank, is advising the Chougules.
After the restructuring, IVL will be left with its restaurant, hotels, construction and retail businesses. The Chougule family currently owns around 28% in the company, which was founded in 1982 by chairman Sham G. Chougule. Institutions own one-third of the company, the public 18% and others 38%.
IVL returned a net profit of Rs38.8 crore on revenue of Rs405.5 crore in the year to March 2008. On Monday, shares of IVL closed at Rs95.15 each, significantly down from their 52-week high of Rs584 touched last June on the Bombay Stock Exchange.
The Indian wine industry is dominated by three domestic wineries—Indage, Sula Vineyards and Grover Vineyards—that control 90% of the market. The rest of the market is split between three international ones—Moët Hennessey, E&J Gallo Winery and Howling Wolves Wine Group.
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, write Aakash Singh Rathore and Sameer Bagul, wine experts who run the website www.indiawine.com. Maharashtra, for instance, imposes a 200% tariff on imported wines, while most other states charge about 150%.
Alok Chandra, chief wine consultant and founder of Bangalore-based wine consulting firm Gryphon Brands Inc., said Maharashtra, Goa and Karnataka, states that see the consumption of the most wine, levy heavy taxes that have retarded the growth of the wine sector.
Sales have dropped 20% to 800,000 cases in the fiscal year ended March 2009 from 1 million cases the previous fiscal year, he added.
Joshi listed profitability and access to finance as the two main challenges in the wine business.