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| United Spirits: Little to cheer about |
| Shobhana Subramanian / Mumbai Sep 16, 2009, 00:32 IST |
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Poor performance from Whyte and Mackay and adverse foreign exchange movements pulled down United Spirits’ consolidated numbers for 2008-09. The liquor firm reported a loss of Rs 410 crore.
The Street had priced in profits of at least Rs 200 crore; adjusting for exceptionals, the loss came in at just under Rs 28 crore. Whyte and Mackay’s Ebitda (earnings before interest, tax, depreciation and amortisation) is estimated to have fallen by about 22 per cent, probably due to lower demand for scotch in a weak economic environment and higher expenses on advertising and raw materials. With W&M now contributing about 40 per cent of the consolidated Ebitda, a weaker-than-expected performance is a cause for concern. Analysts were somewhat taken aback at the high interest bill of over Rs 700 crore as they had pencilled in a smaller number.
Given that a fair part of the company’s borrowings are denominated in the pound, which hasn’t appreciated vis-a-vis the rupee, the extent of the impact of the dollar’s appreciation was surprising. The consolidated profits were hit by non-cash expenses such as foreign exchange translational losses and actuarial losses on pensions; analysts point out the actuarial losses could recur.
However, United Spirits has been deleveraging the balance sheet; the consolidated debt at the end of June was lower at around Rs 6,800 crore after the company monetised treasury stock worth Rs 900 crore. Having repaid about $186 million (Rs 890 crore), it should save $15-16 million annually on interest.
Also, the stand-alone June 2009 quarter numbers were good even though the net profit may have fallen 8 per cent year-on-year, due to high interest costs. Revenues were up a smart 23 per cent at Rs 1,242 crore — a part of the gains coming from the merger of Shaw Wallace and other operations. What was remarkable was a strong volume growth of 17 per cent with key brands growing 16 per cent. This was on the back of a 20 per cent volume growth in 2008-09. Going ahead, high molasses prices are a concern. At the current price of Rs 888, the stock trades at close to 22 times estimated 2010-11 earnings.
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