BackUnited Spirits posts 45% drop in net profit for December quarter
Provisions for loans and advances take a toll as company sees net profit decline to `41 crore from `74.73 crore a year ago
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Bengaluru: India’s largest liquor company United Spirits Ltd (USL) posted a 45% drop in net profit for the quarter ended 31 December on account of provisions for loans and advances.
The company controlled by Diageo Plc. said net profit fell to ₹ 41 crore in the quarter from ₹ 74.73 crore in the year-ago period. Net sales rose 22% from ₹ 2,650 crore from ₹ 2,177 crore in the same period.
Higher demand for its premium brands boosted sales. That was partly offset by one-time items, including provisions against loans and advances, to the tune of ₹ 42.1 crore.
The company’s strategy to focus on 15 high-margin power brands is helping boost sales, chief executive officer Anand Kripalu said. “...we continue to build confidence in our strategy behind our power brands and our prioritized geographical participation strategy. The Diageo brand portfolio integration is positively impacting both top-line and operating margins," Kripalu added.
In August, Diageo announced its efforts to renovate 15 key brands to boost sales. Direct sales of the Diageo brand portfolio (Smirnoff vodka, Johnnie Walker whisky and other Diageo brands) added ₹ 256 crore of net sales in the quarter.
Efforts by the county's largest spirits company to dispose of non-core assets to reduce debt on its books paid off during the quarter with the company’s cash flows rising.
Net debt fell by ₹ 1,432 crore in the nine months ended 31 December. The company sold its French winery Bouvet Ladubay in November. It also made a one-time gain from the sale of its stake in United Breweries Ltd (UB) during the September quarter.
“Our focus on reducing debt continues with a 27% reduction in our net debt in the nine-month period, driven by our non-core asset divestment strategy and the continued positive cash flow from operations," Kripalu said.
In January, it sold a majority stake in another subsidiary, United Spirits Nepal Pvt. Ltd.
Domestic sales were also boosted by the re-launch of United Spirits’ premium whisky brand Royal Challenge, which posted 58% volume growth in the past nine months. Renovation of McDowell’s No.1 is underway with early signs of positive consumer and trade response.
For the nine months ended 31 December, sales volumes remained flat. Temporary regulatory hurdles in markets such as Karnataka crimped volume growth, especially in the so-called popular segment of spirits. USL’s operations generated cash of ₹ 405 crore, net of working capital movement of ₹ 400 crore, which includes the incremental working capital associated with the Diageo brands’ integration into the company’s portfolio.
“Our capex investments are focused on upgrading our strategically important manufacturing units. Focus on rebasing the balance sheet via the divestment of surplus/non-core assets together with renegotiation of borrowings terms will continue to pare back the total interest cost for the company," Kripalu added.
The financial results come at a time when the management is striving to undo the impact of financial irregularities allegedly committed at the company formerly controlled by Vijay Mallya.
It recently got shareholder approval to refer the company to the Board for Industrial and Financial Reconstruction (BIFR) as part of a “regulatory requirement".
Under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), if the accumulated losses of a company, at the end of any fiscal year have resulted in erosion of 50% or more of its peak net worth during the preceding four fiscal years, the firm is required to report to BIFR.
Accumulated losses of the company as of 31 March touched 86% of its peak net worth during the four preceding fiscal years.
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