United Spirits, the flagship spirits company of the Bangalore-based UB Group, is going through one of its toughest phases, as the gearing which it is under, is taking a severe toll on the company. With heightened buzz of global spirits major Diageo in wide ranging discussions with United Spirits to pick up a stake, Ashok Capoor, President & MD, United Spirits tells Raghuvir Badrinath of Business Standard, that they are closing in a move to deleverage within the next two months.
United Spirits has been under severe stress during the past few quarters as the interest rates and increase in debt is proving to be unwieldy. The aspect of de-leveraging is being talked about for a while, but isn’t time this should done quickly now?
It is true that there is stress on the balance sheet and getting the working capital is also taking some time. Earlier, we used to get working capital limits easily, but now we are having to do the entire paper work before the approval comes through. However, it is not having an adverse impact on the operations as the volumes of our brands across the spectrum is growing steadily. During the last couple of quarters there was some adverse movements in the prices of commodities and also some regulatory issues in some key markets including in Uttar Pradesh and Tamil Nadu. However, all the issues are more or less under control and during this fiscal, we should be posting healthy numbers. We have atleast around four non-core assets in our balance sheet which is worth around Rs 1,300 crore which we can monetize at an appropriate time and price.
Time and again there are discussions about Diageo picking pick up stake in United Spirits or in your subsidiary Whyte & Mackay, which will help to a large extent in deleveraging the balance sheet... To what extent has those discussions progressed?
What I can tell you is that there are few options we are aggressively working on and within the next two months, we should be deleveraging to a large extent. We have already stated that there is an $225 million FCCB and then may be a Bond issue. Due to confidentiality of the discussions, I will not be able to disclose much at this point of time.
The highly leveraged acquisition of Whyte & Mackay seems to be main aspect in this whole picture… What is the outlook on that asset?
Whyte & Mackay is a very precious asset for us not only in terms of a global play but also in terms of securing high-value scotch for our range of products. Ever since we took the decision not to go in for bulk supply of this high-value scotch, we have made good headway in focusing on brands which is giving us good returns. In fact, during the past quarter there was a healthy growth in the operating margins. It is an important piece in our premiumisation strategy as we intend to go aggressively on that segment. While some of the brands are being populated in India, we intend to expand the presence of Whyte & Mackay brands in India at relevant places and with more vintage labels.
We have an option of reducing our stake in W&M while retaining control and we will take that decision as and when a situation warrants.
The premiumisation strategy is another which has United Spirits has been talking about for a while, but still there seems to be not much of a progress? What are the steps you are taking to derive more bang for the buck?
We straddle all flavours, segments and price points with brands which are leaders in their own right in the Indian market which is expected to be the largest Scotch market on the globe in the near future. We are present in 98 per cent of points of sale in this country which will stand us in good stead in an emerging Scotch scenario. It is this aspect in which Whyte & Mackay will play a key role as we intend to tap the high disposable income target segment. One of the main examples is that of our McDowell’s No 1 brand. In our pursuit to be the value leader, McDowell’s No.1 has led the charge and helped USL drive significant value growths. Prestige segment driven by McDowell’s No.1 Whisky sells at a price premium of 40 per cent over the Regular Whisky segment and at a per case level the profitability surplus of McDowell’s No.1 is in excess of 50 per cent as compared to the Regular Whisky segment.
During the past few quarters, you have been talking about tapping the emerging global markets? Isnt it an expensive proposition given the situation that you have to first focus on de-leveraging?
As part of our growth plan, even as the India engine is humming along quite nicely, we need to tap other markets so that we can build a growth platform for the future. Our emerging markets strategy does not require huge capital expenditure in terms of setting up distilleries and other infrastructure. We are getting in joint ventures with strong local players in Africa and some countries in the South-East Asian markets through whom we intend to open up those markets. We will be investing in brand building and marketing, which we can manage quite easily, given the growth we see.