It's in full flow all of a sudden

WINE: More wineries, more players, more wines - bacchanalia is getting into non-stop grower mode.

As more and more Indians endear themselves to the extolled sophistications of wine, and spurred on by a sustained annual market growth rate of 30 per cent, domestic wine producers are on an expansion binge.

Sula Vineyards has almost trebled its production capacity this year from 1 million litres to 2.7 million. Market leader Champagne Indage is reportedly taking on an additional 4 million litres. And the low-key Grovers hopes to double its 1 million litre production over the next three years. And the activity isn't confined to Maharashtra alone, which is home to at least 40 active wine licensees.

Indage, reportedly, will commission new wineries in Himachal Pradesh, Pondicherry and Goa, and Sula has just signed an MoU with the Punjab government to set up a winery near the Kandi area with a 1,00,000-litre capacity, to be ready for its first crush by May 2007.

Undeterred by the entry barriers being set by their growth, however, are new entrants "" UB and Seagram India. The UB group has announced a winery in Baramati (Pune region), with an initial production capacity of 6,00,000 bottles. The product, as yet unchristened (Kingfisher again?) will operate in three price brackets and will be both crushed and bottled locally.

Vijay Rekhi, president, United Spirits, says, "The escalated excise duties on imported bulk wine make it uneconomical," overturning earlier speculation that the company would source bulk wine from its global acquisitions and only operate bottling operations locally.

Seagram India is primed to have its wines on retail shelves by the end of the year, although company officials are loath to commit to a date.

The future for struggling wine minors also perks up with the possibilities of acquisition. Sula recently announced its acquisition of Pimpane "" a 15-year-old Maharashtra winery for Rs 5.5 crore. (With additional capital infusion, Samant expects the plant to be running by January 2007.) Several smaller producers, he adds, are scouting for strategic partners in the city with marketing and distribution prowess.

"There isn't room for more than four or five right now, so we expect a lot of activity whereby wine majors either acquire existing wineries or source bulk wine from them," says Samant. Kapil Grover asserts that Grovers is interested in neither. "When organic growth isn't prohibitively expensive, why look outside," he says.

UB, though, believes that inorganic growth would make them stiff competitors from the start and are scouting for a sizeable local acquisition. But the biggies aren't biting yet, according to Rekhi. Diageo is also reportedly actively hunting for a presence in India's wine industry through strategic stake-holding.

Samant, rubbishing reports of being in talks with it, says that Sula's proposed investment of Rs 10 crore this year will be met through capital call with existing shareholders and bank finance.

"However if growth demands capital, we will keep our minds open to investors "" strategic or financial, including perhaps an IPO later," he adds. Grovers, is, however, set to divest a 35 per cent stake to an investor to provide the funding for expansion.

Interestingly, the expansion fever isn't extended in the same magnitude to planting vineyards. Sula will continue to maintain a 10:90 ratio of company owned versus contracted farming acreage going forward. "We need an additional 700-1,000 acres planted each year and land ownership involves too much investment."

"What will happen is segmentation," he adds, "where grapes for high quality wines will be skewed towards company owned wineries and for cheaper wines like Sula's Madeira, grape will be 100 per cent bought."

United Spirits will begin their maiden August 2007 crush with 100 per cent contracted grape, but have identified 300 acres of land for a vineyard to be developed after stabilising operations.

This is all just the beginning. With modern retailers selling wine in Karnataka and the Maharashtra government having given the go-ahead as well, the scenario is poised for some non-stop bacchanalia.