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Bengaluru/Mumbai: United Spirits Ltd (USL) expects to complete the integration of the local unit of its parent Diageo Plc within the next six months, after India’s largest liquor company won hard-fought approval last week from its minority shareholders to make, license and sell Diageo brands in the country.

USL, which distributes Diageo brands in India under a distribution agreement, will now also manufacture these labels at its distilleries, adding high-margin, premium brands including the Johnnie Walker and Vat 69 whisky and Smirnoff vodka brands to its portfolio.

Distilleries owned by Diageo India Pvt. Ltd, Diageo’s Indian unit, will be merged with USL-owned manufacturing units over time.

USL, owner of McDowell’s and Bagpiper whiskies, has estimated that Diageo brands will add roughly 700 crore to its annual sales. It currently earns 42 crore in commissions from distributing Diageo brands. The company reported sales of 8,665.4 crore for the year ended March 2014.

“We want to have one plan, one team, one strategy for India, and this integration will take us definitively in that direction," USL chief executive officer Anand Kripalu said in an interview.

“We are prepared to finish the integration by the middle of the year. We see this as an opportunity to infect United Spirits with Diageo’s culture. Diageo is great with brands and innovation and route to consumer—taking brands to the trade and brand placement. Diageo is also great at training and cultivating talent. We hope all of this will rub off on United Spirits..."

Diageo India is led by managing director Abanti Sankaranarayanan. A majority of Diageo India employees will be moved to the payrolls of USL after the integration. Diageo India sales executives had already moved to the Bengaluru-based company when Diageo and USL signed the distribution deal in October 2013.

“I can’t say for sure that everyone will be moved, but the intent is to move as many people as possible. We certainly want to retain key people. Most will be moved to United Spirits while some of the key talent may move on to Diageo global businesses," Kripalu said.

On Friday, minority shareholders of USL approved the manufacturing deal by a majority of 76.33%, just scraping past the 75% mark required for a related-party transaction. In late November, USL minority shareholders had rejected the proposal, following which the company was forced to disclose more financial details about the proposed transaction.

Diageo and the UB Group together own about 60% of USL’s stock and their votes do not count for a related-party deal.

“You have to see this in the context that we are one of the first companies in India to go to shareholders for related-party transactions. It is a big step toward transparency. Secondly, 60% of the company is owned by Diageo and UB, and both were in favour of the deal. Now, more than 76% of the other shareholders are also in favour, so that’s a substantially large part of shareholders overall who want this deal to happen," Kripalu said.

Bhavesh Gandhi, an analyst at domestic brokerage India Infoline Ltd, said USL would gain from the deal.

“With United Spirits expected to earn 700 crore in annual sales and Ebit (earning before interest and tax) of 70 crore in the first full year of operations versus the current 14-16 crore, we believe United Spirits stands to gain from the deal. Overall, we like the company’s robust distribution reach and focus on premium brands, though we would wait for earnings to catch up with elevated valuations before further stock buying," Gandhi said.

On Monday, USL shares ended at 3,044 on the BSE, up 6.4%, while the benchmark Sensex rose 0.46% to 27,585.27 points.

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