Provisions crush United Spirits' earnings as FY14 loss balloons to Rs 4,489 crore

Provision of Rs 3,235 crore on sale of Whyte & Mackay biggest drag on earnings

United Spirits, which finally came out with its earnings after much delay, has posted a steep net loss of Rs 4,489 crore for FY14 as compared to a net loss of Rs 105 crore during FY13, mainly on provisions of as much as Rs 4,500 crore. 

 

The earnings for last year were announced after four Board Meetings during which the Audit Committee went into expansive details about how USL had given unsecured loans of as much as Rs 2,000 crore to UB Group companies and as well as to some of its business associates. 

 

The management, which was not able to explain these aspects to the newly-constituted Board during the earlier three meetings, finally declared the earnings today and said they were forced to make provisions of as much as Rs 4,500 crore on various fronts. 

 

The significant provision was of Rs 3,235 crore on the sale of USL's Scottish subsidiary - Whyte & Mackay, which Mallya had acquired with much passion during 2007 in a highly leveraged $1.2 billion deal. USL has said that the proceeds from the sale of W&M to a spirits player in Philippines for UK Pound 430 million was not sufficient to make good the loans taken by USL's UK arms to fund the deal and hence the parent has to support it further through this provisioning.

 

In addition to this, USL has been forced to spell out a series provisons for various loans to UB Group companies as Diageo implements sweeping changes in USL. 

 

Provision of close to Rs 350 crore has been made in lieu of the Rs 1,450 crore loan provided to UB Group holding company - UB Holdings. In addition to this, USL has been forced to provide close to Rs 600 crore, which are due to the company from various business associates and which are under dispute.  

 

USL shares lost close to 8% in morning trade on NSE and are trading at Rs 2,275 per share. 

 

On a purely operational basis too, USL has come out with a rather sedate performance. On a y-o-y comparison for fourth quarter of FY14, revenues increased by close to 3% while gross margins decreased by 45 bps. Core operating profit decreased by 46% to Rs 116 crore and the operating margins decreased by 553 bps. 

For Diageo, which is betting on India and plans to derive as much as 10% of its global sales from this key market, the earnings must have been a rude shock. 

 

Diageo, the global spirits major listed on the London Stock Exchange and NYSE, wooed the flamboyant Vijay Mallya for over 6 years and concluded a landmark transaction just recently by forking out as much as Rs 18,500 crore to acquire around 54% in Mallya's flagship United Spirits. 

 

Highlights

• Net loss zooms to Rs 4,489 crore during FY14 vs loss of Rs 105 crore in FY13

• USL has been forced to make provision of Rs 3,235 crore on sale of Whyte & Mackay as the proceeds were not enough to service intra-group loans

• As Diageo, which holds 54% in USL, makes sweeping changes in tightening the financial discipline, USL has been forced to provide an additional Rs 1,000 crore on loans provided to UB Group companies and business associates

• USL authorises its newly appointed Managing Director Anand Kripalu to take all active measures to recover the loans of as much as Rs 2,000 crore provided to UB Group and business associates

• One of the lenders to Kingfisher Airlines springs a surprise to USL Board that USL has furnished a guarantee for Rs 200 crore to the airline. The management denies any knowledge of this and are contesting this as well