India’s largest alcoholic beverage manufacturer United Spirits Limited (USL), owned by London-headquartered Diageo Plc, has reported a profit of Rs 929.30 crore in the second quarter of the ongoing financial year 2016 on account of a one-time exceptional income.
In July this year, USL sold its 3.21 percent shareholding in the country’s largest beer manufacturer, United Breweries Ltd (UBL), for Rs 872 crore (net of brokerage). In the September quarter of the last fiscal, USL had posted a loss of Rs 27.83 crore.
The company’s revenue in the quarter under review was Rs 2,122.7 crore as against Rs 2,007.80 crore reported in the same period a year ago, registering a growth of 5.7 percent. The sales from Diageo’s brand portfolio in India contributed Rs 141 crore to USL’s total revenue.
The Bengaluru-headquartered USL also announced the appointment of Sanjeev Churiwala as its chief financial officer (CFO), effective from November 16, 2015. Churiwala joins USL from LafargeHolcim's Indian subsidiary, Ambuja Cements, where he held the position of CFO since early 2011. He replaces Vinod Rao, finance director, Asia Pacific, at Diageo, who has been serving as interim head of finance at USL.
The company’s share price ended at Rs 3,250.20 apiece on Monday, up 3.11 percent over the previous week’s closing price, even as the benchmark index, Sensex, ended the day down by 0.37 percent.
“The divestment of the UBL shares during the quarter has generated Rs 870 crore of free cash that has been used to retire debt and has reduced our net debt position to less than Rs 4,000 crore from over Rs 5,000 crore six months ago,” said Anand Kripalu, CEO and MD of USL.
Diageo-led USL has been busy pruning its debt. In the company’s latest annual report, Rao, the interim head of finance (from April 25, 2015), explained, “We reduced the number of subsidiaries from 73 initially to 22, thereby reducing costs and complexity, divested some overseas entities, pared debt from Rs 8,500 crore to Rs 4,700 crore, and lowered the average cost of debt by 127 basis points saving over Rs 60 crore on an annualised basis.”
He further said, “Our parent company Diageo’s banking relationships were leveraged to renegotiate lower fund costs with lenders; that strengthened our cash management systems which enhanced liquidity.”
USL produces and sells over 117 million cases of Scotch whiskey, Indian Made Foreign Liquior (IMFL) whiskey, brandy, rum, vodka, gin and wine. Between 2013 and 2014, Diageo Plc, the global leader in beverage alcohol, acquired a 54.8 percent shareholding in USL, making the latter a subsidiary of Diageo Plc.
The Indian alcoholic beverage industry has been witnessing sluggish off-take over the last two financial years as the industry is heavily dependent on discretionary spending by consumers. However, there is a paradigm shift in social mores which is expected to positively impact consumer spends going forward. In the company’s annual report, Kripalu cited, “Alcohol is an intrinsic part of celebrations; increasingly, the social barriers of enjoying alcohol within the family or at traditional celebrations are being discarded.”
But the Indian alcoholic beverage industry is highly regulated. In the July to September quarter, USL faced challenges in states such as Uttaranchal and Chhattisgarh in addition to a temporary pricing-related challenge in Karnataka with regards to its brand Haywards. “The highly regulated environment in respect of pricing remains a key challenge for the industry as a whole and needs to be remedied,” said Kripalu.
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