To offset the pricing pressure on its thinning margins in global markets, India’s biggest wine producer, Indage Vintners (formerly Champagne Indage), is implementing a three-pronged strategy to maintain profitability in 2009.
The restructuring exercise includes global consolidation of operations like R&D and production, and Enterprise Resource Planning for banking, cash flow, inventory and assets into one centralised operation, says managing director Ranjit Chougule.
“The recession has put pressure on our margins as consumers look for value and we have been spending more to give more value (read promotion offers),” says Chougule, adding: “People who earlier would purchase six bottles at $5 are now looking at purchasing eight bottles for the same price. India has wider margins and restructuring will give us cost savings of Rs 35 crore in the next financial year.”
For the quarter ending December 2008, the company recorded 68 per cent increase in sales, at Rs 148 crore, compared with Rs 88 crore in the corresponding period the previous year. Net profit for the quarter saw a dip of 88 per cent, at Rs 2 crore, against Rs 19 crore for the corresponding period in 2007.
However, the company’s stock has seen a decline of 55 per cent, from Rs 108.35 on January 1, 2009, to Rs 48.75 on the Bombay Stock Exchange today. As of March 2008, the company had a total debt of Rs 229. 8 crore and its net sales for the year were Rs 254.5 crore.
With these measures, "we expect to maintain our profitability at the same level as last quarter (September-December 2008)", said Chougule, who, is looking at further expanding the business and raising additional funds through a combination of debt and equity.
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Besides restructuring and giving consumers greater value, the third leg of the strategy involves renegotiating and rethinking its global expansion. "We are putting on hold or renegotiating our global asset acquisitions," said Chougule. According to industry reports, Indage Vintners had intended to purchase Loxton, an Aussie winery, for $60 million last year.
"The Loxton acquisition is not complete and we expect changes in the structure of this deal," says Rajesh Chalke, chief financial officer of Indage. Over the last two years, Chougule had expanded his operations globally, with the acquisition of Thachi Wines and VinCrest Winery in Australia, and Darlington Wines in the UK.
Giving consumers more value also involves expanding the portfolio to include a value-based brand. The company currently has two Indian wine brands: Chateau Indage, a “classic range of wines that draws upon history”, and Indage Vineyard, a “modern range of wines for the emerging new Indian.”