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Sula Stake Sale shows Industry has Bright Future

Posted: Friday, 02 May 2014 11:03

Global Perspective: Sula Stake Sale shows Industry has Bright Future

May 02: The recent news about Everstone Private Equity disinvesting its 30% stake in Sula to Anil Ambani’s Reliance and the Singapore-based Ravi Viswanathan’s Private Equity group Visvires for an unconfirmed amount of Rs.2 billion, with Ravi having already invested significant amount in Grover Zampa earlier, is a positive signal that Indian wine industry has a very bright future, the present bottlenecks and hiccups notwithstanding, writes Subhash Arora

Click For Large ViewAn important aspect of the deal is that Ravi Viswanathan who hopes to eventually take approximately half of the total share at around Rs. 100 Crores (currently the ratio is 19% Reliance and 11% Visvires) by June, invested significantly in Grover- Zampa merger a couple of years ago and has a good insight into the domestic wine industry. Interestingly, the same Reliance group had earlier invested in the now defunct Indage Vintners. It is not known whether Anil Ambani exited the market well in time or lost the total investment; the company shares had sky-rocketed from his purchase levels of around Rs. 290-300 a share to about Rs. 900 before nose-diving -in either case leaving Anil Ambani rich with experience of the domestic wine industry.

If that were not enough, there had been a scramble for this stake from several private investors through their corporate entities or the family businesses. Prominent amongst the prospectors were PremjiInvest and Analjit Singh's family offices- both billionaire-owned entities. Analjit Singh has in fact recently bought a substantial stake in a 5-star South African winery and is considered to be a serious player in the wine industry in future. Even L Capital, the India based venture capital company of LVMH was also very keen to get hold of this equity. LVMH imports Moet Chandon in India through its Indian arm- Moet Hennessey India which also introduced the Chandon sparkling wine last October. It has also substantial equity stakes in Diageo which recently bought out United Spirits which in turn owns Four Seasons Wines.

Sula’s Reaction- huge vote of confidence in Indian industry

At an exclusive, private lunch last week at Hotel Oberoi. Delhi where Rajeev and I discussed about the current state of affairs in the Indian wine market, the talks skirted around the issue of the current scenario about the imminent change of shareholding in Sula. ‘The news about the change of stakes has been in the news for some time now. Everstone plans to sell their stake because their investment time frame of 5 years is over and they need to exit. I would not like to share details about the negotiations but can only confirm that the talks are in the final stage and yes, the new investors have to be acceptable to us.’

Confirming the deal  a couple of days ago to delWine, Rajeev Samant, Founder CEO and the largest stakeholder with his family and friends, said, ‘I would say it is a huge vote of confidence in the Indian wine industry. Nasik has made big strides in quality and acceptance with the consumer over the past decade and surely the big story is just unfolding now. There was tremendous interest in picking up Everstone's stake in Sula from all corners of the globe and India, with several ultra high-net worth individuals in India being involved. For sure that is very gratifying to everyone here at Sula, who's worked so hard for our success over these past 15 years. It wasn't so easy to choose who would ultimately be the winner but now Reliance ADAG and Ravi Viswanathan's Visvires have emerged. The parties have a real shared vision that this is a sector and a company that have just really begun their journey. We believe that there are tons of opportunities and of course, some challenges ahead.’

Rajeev Samant and his family and friends will continue to hold the 45% share in the company. Similarly, the family owned Verlinvest  of Belgium will have the balance 25% shareholding. Rajeev also declined to comment on the valuations, as always.

Reaction of Grover Zampa

Since Ravi Viswanathan already owns a considerable stake in the nearest rival, Grover Zampa when Grover Vineyards was restructured a couple of years ago, I asked Kapil Grover about Ravi’s investment in Sula. In his inimitable style that implied he would rather not discuss, he said, ‘Subhash, I don't know what you know!’  

However, when delWine contacted the CEO, Sumedh Singh Mandla, he was considerably more forthright in addressing the subject. ‘I think Mr. Viswanathan has had a lot of experience and exposure to the Indian wine industry since his participation with us. He visits India often and also knows and supports our  growth plans and new ventures. But knowing that Indian market has huge potential, he has decided to increase his presence in the Indian market, which is fine by us and is a good sign for the Indian wine industry in general.’

The Global strategy of Ravi Viswanathan for Indian industry

My next step was to get in touch with Ravi with whom I had talked in Singapore at length at the time of his investing in Grover Zampa. He is presently in a small French village between Burgundy and Geneva. He was very candid and helpful when I was able to contact him. ‘The entity co- investing in Sula is Visvires Indian Wineries Pvt. Ltd.,  a Singaporean company run by Visvires capital, which is a fund manager created by me and other French former colleagues and friends from my investment banking days.’

These people are connoisseurs and  truly passionate about fine wines. Says Ravi, ‘some of us come from families involved in making grand cru wines or champagne for a few centuries so the subject matter is close to our hearts and passion.’

Ravi has been apparently watching the Indian wine industry closely for 15 years and says with confidence not hitherto  seen in India, ‘it has made tremendous progress in quality and consistency over the past 15 years and there is now a generation of talented local winemakers and viticulturists. As the vines age, yields decrease and the consumers get wealthier with higher purchasing power, quality will continue to improve. There is no reason for India not to be able to make grand cru or first growth equivalent wines in 5-10 years for most of the commercially planted varietals in the country,’ he says with pride.

He adds, ‘already at the price range where domestic wineries operate, they are second to none for the core varietals of the country-like Chenin Blanc, Sauvignon Blanc, Shiraz, and Cabernet Sauvignon. I even had a chance to taste very recently a spectacular Cabernet Franc entirely made in Karnataka.  So, we decided to invest in Sula and Grover- arguably the 2 best known wine brands in the country. We believe that India is ripe for a similar explosive growth in the wine business that China saw taking place in the 1990s.’

Explaining his strategy, he discloses perhaps for the first time in public, ‘Grover was our first investment and is now firmly on track to reclaim its historical role within the Indian wine industry after a few difficult years. The knowledge and experience we acquired was very helpful during the negotiations to acquire a stake in Sula.’ It is not surprising that Grover Zampa which sold about 60,000 cases of wine last year has closed the year 2013-14 with a total of about 115,000 cases ,if one includes 35,000 cases of ‘Port’ which were introduced last year.

Apparently Ravi has been watching Sula’s performance for a long time as well. He says ,’Sula has been the success story of our industry and is probably the only winery in India to have been consistently profitable. Team Sula has also been at the origin of many novelties in India like the wine tourism aspect or the dessert wines or the new varietals like Riesling. After extensive due diligence for 3 to 4 months, we are very happy to join Rajeev and his team in this continuing adventure.’

Grover and Sula are complementary

Isn’t there a conflict of interest, I wonder?  Dismissing my apprehension, he says, ‘we view Sula and Grover as complementary brands in different segments. Sula wines are generally slightly sweeter in taste, more ‘Indianised’ than Grover-Zampa's drier, more ‘Europeanised’ wines. Grover is probably the best for Bordeaux style red wine blends whereas Sula’s strength is in the single varietal wines. We hope that going forward both brands will be able to develop their own client base and to extend their product range whilst retaining their existing vibrant culture.’

All is not well

 So ‘all-eez-well’ with the Indian wine industry? Not really, asserts Viswanathan. ‘The wine industry generates value in India which is not being distributed fairly. Some segments of the value chain claim bulk of the added value like the trade and the States. Other segments like farmers or consumers receive very little added value with most wineries losing money. For the long term health of an industry which creates many valuable jobs especially in rural areas with poor soil, it is important that all stakeholders from farmers to consumers, from governments and wineries to shops and restaurants, should benefit fairly from our industry. It is particularly disappointing to see that policies and business practices make the product made from grapes grown by our farmers so costly as to be out of reach for most of them. India is probably the only country in the world where that happens,’ he laments.

Although the initial estimated equal split of Visvires with Reliance is different from the final one which will be known in all likelihood by around June, it is clear that the valuations of the otherwise good quality wineries currently feeling the financial strains, will be much higher provided they do their financial home work well.  With investors like Ravi Viswanathan and several others who missed the boat to invest in Sula waiting in the wings, happy hunting days are ahead for those willing to encourage strategic investments.

The Indian industry is suddenly on a Roll and has a bright future as a whole, the current tough situation and imminent squeezing out of a few owners notwithstanding.

Subhash Arora

       

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