United Spirits bucks trend after strong Q2 results

United Spirits rose 1.51% to Rs 2,430 at 10:06 IST on BSE after net profit surged 273% to Rs 94.30 crore on 7% growth in revenue to Rs 2038.70 crore in Q2 September 2013 over Q2 September 2012.

The result was announced after market hours on Friday, 8 November 2013.

Meanwhile, the BSE Sensex was down 107.56 points, or 0.52%, to 20,558.59.

On BSE, 74,000 shares were traded in the counter compared with average volume of 1.60 lakh shares in the past one quarter.

The stock hit a high of Rs 2,500 and a low of Rs 2,407 so far during the day. The stock hit a record high of Rs 2,815 on 18 July 2013. The stock hit a 52-week low of Rs 1,284.45 on 8 November 2012.

The stock had underperformed the market over the past one month till 8 November 2013, falling 1.54% compared with the Sensex's 3.42% rise. The scrip had also underperformed the market in past one quarter, rising 5.95% as against Sensex's 9.99% rise.

The large-cap company has an equity capital of Rs 145.33 crore. Face value per share is Rs 10.

United Spirits' (USL) profit before tax (PBT) jumped 267% to Rs 141.20 crore in Q2 September 2013 over Q2 September 2012.

USL sold 28.10 million cases in Q2 September 2013 as against 28.42 million cases in Q2 September 2012. USL's interest costs are down Rs 33.60 crore in Q2 September 2013 and Rs 39.70 crore in first half of fiscal year ending March 2014 (FY 2014) compared to their year ago periods as a consequence of the loan repayment of Rs 1857.40 crore effected from the proceeds of the issue of preferential capital and the sale of shares by USL's subsidiary companies to Diageo.

USL said that Extra Neutral Alcohol (ENA) prices continue to unfavorably impact the business. On average, the cost of this key ingredient has risen by Rs 20/case compared to Q2 September 2012 and first half of FY 2014. Given the huge volumes of the company this translates to approximately Rs 56 crore for Q2 September 2013 and approximately Rs 120 crore for first half of FY 2014. While a rise in cost of inputs is the stated reason for this increase, the truth lies elsewhere - an attempt by the sugar lobby to raise prices on the strength of an alternate high paying customer - the oil marketing companies (OMC) - for their willingness to pay higher prices to Indian Ethanol vendors is linked to the higher cost of imports, USL said. This is notwithstanding the fact the EBP is not beneficial to consumers in the long run, USL added.

USL said that its business in Tamil Nadu has been adversely affected by the skewed order placement by the parastatal buying agency in that state. Additionally, despite inflation and rising cost of inputs, the last price increase granted to manufacturers in Tamil Nadu was in December 2007, the company said.

USL's board of directors at a meeting held on Friday, 8 November 2013, inter alia, has approved an arrangement to be entered into by the company with Enrica Enterprises inter-alia for transfer of business pertaining to the company's distillery at Poonamallee to Enrica Enterprises through a Scheme of Arrangement (Scheme) as well as franchising of its brands in Tamil Nadu. The board has approved the relevant documents including the Scheme between USL and Enrica Enterprises and their respective shareholders which envisages transfer of business pertaining to Poonamallee distillery along with related assets and liabilities to Enrica Enterprises.

The Scheme provides for transfer of the undertaking, business, activities and operations pertaining to the Poonamallee distillery to Enrica Enterprises by way of slump sale on a going concern basis. In consideration, USL will receive lump sum cash consideration of Rs 125.07 crore in the manner specified in the Scheme. The Appointed Date for the Scheme is fixed as opening of business hours on 1 April 2013. Further, USL's Board has also approved the Franchise Agreement with the Enrica Enterprises pursuant to which the Enrica Enterprises will bottle the company's brands and in consideration for this bottling arrangement, USL will earn royalty income.

USL is the largest alcohol beverage company in India selling 123.70 million cases for the fiscal ending 31 March 31 2013.

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