Indian Wine Industry Overview

Strictly private and confidential

Overview of Indian wine industry November 2008

Strictly private and confidential

Contents

Section 1

Indian Wine Industry

1

2

Taittinger SA

2

Taittinger SA

Section 2

Section 1 Indian Wine Industry

1

Taittinger SA

Section 2

Indian Wine Competitive SWOT Outlook ANALYSIS Industry Landscape Forecast Sales STRENGTHS Keyof Players Wine (2007-2012) Industry overview

Samant Source: Euromonitor of market growth, the industry Soma enjoys18% protection from the state Source:though Euromonitor Wine, in low market as itsmall stands in cost

size as competitiveness compared to other when Indian wine companies need categories in the alcoholic compared with the global to focus on theindustry, quality ofhas the beverage benchmarks wine to compete indeal the current attracted a great of the market scenario. country’s attentionisin recent to The industry expected Further strategies Indian years. A CAGR offor around evolve further with intensifying wine companies would 30% overcompetition, the last ten years, and be more based on combining wine has attracted highof investments in wineries, alternative participation from localtheir bottling distribution facilities, channels, brand building, entrepreneurs, liquorand distribution,foreign promotions bottling of imported bulk wine companies and Such private equity advertising. investments and strategic alliances for firms. Thisinhas will result thecaused expansion selling wines. increased local interest in the phase in imported the lifecycle of the various growth drivers, industry, leaving the emerging Foreign wine companies industry structure and phase targeting the Indian wine strategic decisions shaping market, strategic alliances for the Indian wine industry import and distribution could be the suitable mode of entry

Favorable demographic conditions coupled1982 with rapid urbanization and The Alcohol drinks market isEstablished segmentedininto beers, ciders & FABs, improved customer attitude and lifestyle is increasing wine Still consumption $662 700and wines. The wine Industry is further divided into spirits light  Located in Narayangaon, Pune The government in India is protective towards the wine industry, as it is grape wine, Sparkling wine, Fortified wine & vermouth and Non-grape 600 % .2the $519 product, 2spread  32 labels in 2500 hectors 3to wine labour intensive, adds a lot of value primary agricultural : R 500 AG is currently valued at $23.5bn in 2007 Cmarket The Indian alcoholicsource drinks and is an attractive taxes and duties $398: 15 million liters  for Production capacity with a growth of 13.2% from 2003, wine representing 0.8% of this total 400 In India, the cost for setting up a wine plant is quiet low, between Rs.10– $299  Market share:at44% The Indian wine market currently stands 8.2mm liters in terms of 300 15mm ($0.2–$0.3mm) with a capacity of 100,000 liters $220 volume, with a CAGR of 30.4% from 2002 and is expected to grow to $164  Key Brands: Marquise de pompadour, Ivy, Joie, 200 liters Organized retailing of wine now been introduced in thesince state 2007 of 32.8mm by 2012. Thishas represents a growth of 32.1% Chantilli, Figueira, Riviera, Vino Sparkling, Vin The number ofWines wineries India from 30 in 2004 to around 62 100 Maharashtra. caninnow behas soldgrown in supermarkets and grocery in 2008with withathe state of Maharashtra accounting for almost 97% of total Ballet, Hammer stores license 0 wine production with 58 wineries out of the total 62 Good Climate for growing grapes 2007 2008wineinclude 2009 Sula vineyards, 2010 2011 2012 The country’s 3 main wineries Chateau Indage Five-star hotels, pubs and bar-cum-restaurants are the primary wine vineyards and Grover vineyards Still light grape wine Sparkling wine TheFortified selling three outlets players in the together country contribute as 63% ofaround the sales 90%are of through the market these with wine and vermouth  Established inNon 1997grape wi ne Indage Group 44%,has the allowed majority hotels share to in purchase the Indianimported wine market channels. The holding government The domestic brands comparison to the new more Located on the of Nashik goods duty free, up toare a limit of affordable 5 to10% ofinoutskirts their foreign exchange world wines from Australia and Chile earnings  Sales: Over 2 mm bottles in 2007-08 The key brands in the market include Chantilli, Riviera, Vino, Vin Ballet,

S ales Value ($ in millions)

1% Indage and F&B's Others Production and consumption Champagne 11% 29% 44% are expected to increase by Grover 25% to 30% over the next 5 Vineyards Spirits 9% Being in the early years. stages 88%

       

     

Ivy and Sula

OPPORTUNITIES  Market share: 18%

 Production Sub %Sector Total

of wine in India is Total characterized by small holdings which is a Value 2003 Total CAGR Company 2004 2005 2006 major constraint in economies of scale for processing Total Volume ($ mm) Volume (2007-2012) Volume Brand Sub Sector Value ($ (Liters mm)  In wine distribution, logistics isTotal the most difficult challenge in India,mm) mm) (Liters Sula Vineyards Samant Soma Wines sensitive Ltd 10.9 13.7 13.9 15.7 especially for temperature for storing 7.2 Still light grape wine 571.6128.7 products 30.5 like wine 34.7  Around 80% of wine consumption is Ltd confined to major like3.6 Mumbai 60.7 4.9 Still Red Wine 271.9 15.46.4cities10.4 35.011.8 Chantilli Champagne Indage (39%), DelhiWine (23%), Bangalore and Goa. The non15.1 urban areas 3.6 still Still White 299.7 34.5 68.0 account for Wine onlyChampagne 20% of the market Riviera Indage Ltd 12.3 13.3 _ _11.5 Still Rose _ _ _ 9.5  Quality wines are priced relatively 81.2 high Sparkling wine 21.110.4 Sparkling wine Grover Vineyards Ltd 31.212.4 1.1 0.5 Grover Vineyards 11.4 10.5  Land ceiling regulation imposed by61.5 the government0.3 restricts the 21.4 Champagne Champagne 23.3 0.1 companies to purchase agricultural land more–than0.8 10 –hectares, limits6.5 Vino Indage Ltd 7.9 4.9 Other wine 19.7 20.0 Other sparking sparkingChampagne wine 0.3 wine companies in expansion Fortified wine & vermouth 9.1 1.2 19.6 Fortified & vermouth 3.7 0.5 Vin Ballet winecosts Champagne Indage Ltd 5.1 5.9  Packaging 35% of4.0 the production cost which5.8 Port / Oporto account for another9.1 1.2 19.6 Port / Oporto 3.7 0.5 are approx. 40% higher than international benchmarks _ _2.1 Ivy Sherry Champagne Indage Ltd 2.0 _ _ 1.8 Sherry _ 1.6 Vermouth _ _ _ Vermouth _56.6 Others 48.9 39.1 _ _36.6 Non–grape wine _ _ _ _ Non–grape wine Total 661.9 32.8 32.2 Total 100.0 100.0 100.0 Total 163.6 8.2 100.0 THREATS

Commentary

Brand Share Recent oftoChampagne (2003-2006) Sales Brands: 2002 Dindori – 2007 Reserve Shiraz,2000 Sula Red India’s economy grewWine byanKey average of 6.6% annually between  Global warming is expected causeTrends problems for coastal wine grape Wine consumption in Indiato is expected to to triple thenext next three years. Lifestyles ingrowers, urban areas and some semi-urban pockets developing. By 2011, Zinfandel, Sula Cabernet Shiraz , Satori Merlot, and 2006 and is expected grow by 6% 7%within over the 10 years. and is expected make any sort ofare viticulture impossible  Increasing awareness andtoavailability of domestic brands has enabled Asia will account for 4.8% of world wine consumption. % Total Company 2003 2004 2005 2006 There is a large potential consumer segment could take to wine winewine salesindustry to growisatlow double-digit rates. Wine perceived to be more Madera Red, Sulathat Sauvignon Blanc, Sula  The capital intensive whichishas made easier for the  The Indian wine market is expected to reach $661.9mm in value and 32.8mm liters in terms of volume byhealthier 2012, posting a growth of 32.2% and 32.1% volume Brand sophisticated and than spirits drinking new players to enter the market. This is expected to increase competition Chenin Blanc, Madera White, Viognier, Dia respectively over 2007  Affordable wine introduced in small packages and increased distribution  There is an emergence of lounge and gourmet restaurants coupled between domestic andHennessy foreign players White, bars Sula Blush Zinfandel Moet &the 54.7 rates 56.0  The sales of wine through on-trade channels are expected to be marginally faster than of off-trade sales. volume are expected to55.7 beindriven by the 56.0 wine was the On-trade mainMoet reasons for sales the higher growth 2007 180 $164 with the new concept of wine bars  Wine substitutes like beer and spirits are expected negatively impact  Still light grape wine India recorded highest growth intoterms of value and establishment of exclusive wine shops while off-trade sales will be driven by non-specialist stores like supermarkets Chandon Ltd the  Wine tourism and wine tasting is becoming popular in the state of the wine market due to and better availability and affordability volume from $95.4mm 5.4mm liters 2006 to $128.7mm and are  Organic wine is unlikely to take a significant place in the market, given the total absence of organic wine till 2007. Moreover, no in major domestic vineyards (LMVH Moet Maharashtra, whichfarming contributes 97%high of total wine production in further India discourages its 7.2mm liters in 2007 respectively. Thisfaced represents almost 34.9% growth  demand The wine industry in India has always the threat of prohibition to $123 135 in organic involved and the wine  Established inprices 1988 of organic Hennessy in value and 33.4% in volume  Organized retailing of wine has now been introduced in the state drinking alcohol. Despite theDiageo increase in to awareness, still  With the entry of new players such as Seagram and United Spiritsofin 2007, and a number of other players such as said be keen tomany enterstates the market,  India’s importsimposed in 2006 amounted to $9.9mm as against $1.16mm Louis Vuitton)  Located Hills, Bangalore $93 Maharashtra can to now be soldininNandi supermarkets and grocery stores face thewine prohibition by the government competition isWines expected intensify of exports. This is positively impacted by the ruling of the WTO in favor of with90a license  Wine Production: 10United lakh cases  The unit prices wine are expected to increase in future to increase  Indian companies like Champagne Indage and Spirits through acquisition of foreign companies are trying setEU up against production indue countries like an appeal madeof by the USto and the facilities high customs duties $68 Dom Perignon Moet Hennessy 43.8 41.5 41.5 42.0  Australia, Indian government its policies, encouraging the growth of wine in input prices of raw materials and increasing overheads like Argentina,through France, Italy and South Africa, where domestic consumption is strong imposed by India on wines and spirits  Over 200 acres under plantation $51 (LMVH Moet India Ltd  Wine consumption in India is still in its infancy with manufacturers are industry Key policies include, transportation and storage costs $41  Support measures from the government in policy and infrastructure provision will be an incentive for more investments particularly from liquor players who have  Market share: 9% 45 focusing on providing wine at economical prices. Within Still Red wine, – License todistribution set up wine bars and permission of wine sale in beer bars established networks Hennessy Rs300-500 ($6-$11) is highly the most popular price band,dynamics in which almost  is Key Brands: Launits Réserve, Sauvignon Blanc, awareness among – Licensing for setting up wine  Currently theprocedure wine market expanding with newsimplified entrants and increasing consumers. The concentrated industry are set59% to Louis Vuitton) of the wines sold in India are priced – 100% exemption from excise duty for 10 years for the state of change with the entry of several spirits majors and foreign entities. More fragmentation is expected in the industry with several competitive groupings Cabernet Shiraz, Shiraz Rose, Viognier and 0  In India, the cost for setting up a wine plant is quite low, between Rs10– comprising many players entering the market Maharashtra 15mm ($0.2–$0.3mm). As a result many entrepreneurs, Indian and 2002 2003 Clairette 2004 2005 2006 2007 Others 1.5 2.8 2.5 2.0 – Foreign direct investment (FDI) with no approval from government /  The positioning of Indian wine as a high-quality product is a critical factor in making wine more popular in India. However, mass marketing could lead to a foreign, are entering the market situation whereas imported wines served in elite restaurants and homes have a RBI where the brand image of Indian wines is lowered to just an alcohol substitute,  Wine drinking is becoming more acceptable in restaurants. The on-trade Total have played the most important role 100.0 100.0 100.0 100.0 higher valueof perception channels in the increasing – Provision infrastructure facilities such as wine parks and wine awareness and sales of wine in India Source: Euromonitor, Rabobank research dated February 2008, press institutes  

Sales value ($ in millions)

Alcohol Key market players segmentation wine The Indian wine industry is industry market Wine Beers, Ciders currently on shares an upswing.

Brand Forecast Shares Sales of Still WEAKNESSES of Wine Light by Grape Sub-sector Wine (2003-2006) (2012) Sales of Wine by Sub – sector (2007)

Source: Euromonitor, press Source: research Source: Rabobank Euromonitor, press dated February 2008, press

Taittinger SA

2

Taittinger SA

Section 2

Taittinger SA Company overview    





Key management and board members

Headquarters: Reims, France Founded: 1734 Description: Founded by Jacques Fourneaux, the company produces and distributes champagne and wines in Europe and the US The company was acquired by Starwood Capital Group, a real estate investment company, for $3.2bn on January 3, 2006. Thereafter, on June 1, 2006, French bank Credit Agricole du Nord Est bought the Taittinger champagne house and associated vineyards for $849.6mm Taittinger group operates through 290 subsidiaries involved in hotels and restaurants, light industry and luxury and real estate activities. Hotels & Restaurants accounted for 71% of 2004 revenues; Luxury Goods 16%; Champagne & Wines 12% and Finance & Real Estate 1%. The company specializes in Bordeaux wines and its champagne is distributed in around 120 countries across the world Taittinger’s key brands include Vins De Bordeaux, Vins Du Monde, Niepoort Port, Defender Scotch Whisky, Glengoyne, Calvados, Brandies and Vodka Krakus & Kalinka

Name

Experience/Affiliation

Pierre Taittinger

Director General Executive

Domaine Carneros, Samazeuilh

Gérald Frère

Director

Groupe Bruxelles lambert SA, Chrome Corporation

Gerard Mestrallet

Director

Paris EUROPLACE, Suez SA, Compagnie de Suez

Investors: Caisse Régionale de Crédit Agricole du Nord Est

Competitors Company

Position

Financial Information ($mn)

Country

Sales (mm)

Assets (mm)

Moet & Chandon

France

$1,777

$2,316

Revenue

Boizel Chanoine

France

492

1,265

Growth%

Veuve Clicquot

France

446

902

Vranken-Pommery

France

393

1,419

Yantai Changyu

China

359

445

EBIT

Laurent-Perrier

France

353

960

Margin%

Champagne Vranken

France

300

628

Net Income

Schlumberger AG

Austria

285

174

Maison Burtin

France

221

565

2003

2004

LTM (June 2005)

$1,020.2

$1,108.4

$1,123.5

8.6%

10.2%

EBITDA

216.1

230.1

178.4

Margin%

21.2%

20.8%

15.9%

110.0

124.0

77.2

10.8%

11.2%

6.9%

31.6

51.4

36.4

Margin%

3.1%

4.6%

3.2%

EPS

$9.10

$14.81

$10.48

Source: Company website, Capital IQ, press

3