USL investors blame management for net worth erosion

Blaming the new management for the company's net worth erosion, many shareholders of United Spirits Ltd (USL) on Friday questioned the resolution to declare it sick under the Sick Industrial Companies Act (SICA).

Though USL chairman Vijay Mallya and full-time directors did not attend the extra-ordinary general meeting (EGM), a secret ballot was conducted to seek shareholders' approval on the controversial resolution for referring it to the state-run Board for Industrial and Financial Reconstruction (BIFR).

"Result of the secret ballot will be notified to the stock exchanges by January 25 through a regulatory filing," non-executive independent director D. Sivanandan, who chaired the EGM, told reporters later, as media was not allowed to witness the noisy proceedings.

The city-based company informed the BSE on December 29 about the EGM to seek investors' approval for declaring itself sick due to erosion of its net worth during the last four fiscal years, as decided by its board on December 22.

Net worth of a company is the value of its assets excluding liabilities, including its debt portion.

USL is the Indian subsidiary of the London-based British liquor major Diageo plc after it acquired majority stake (54.7 percent) from Mallya's controlled United Breweries Holdings Ltd and public stock in the open market.

As the net worth declined to Rs.846 crore for fiscal 2014-15 owing to a whopping Rs.5,045 crore accumulated losses, the board had decided to report the erosion to BIFR as required under section 23 of the SICA, 1985.A

According to company sources, about 130 shareholders were present at the meeting to cast their votes in physical ballot, as electronic voting was held on Thursday. Results of electronic and ballot voting will be published by Monday.

"The new board under Diageo has failed to manage our company and turned it 'sick'. Those responsible for this should be held responsible for net worth erosion,a one of the shareholders said at the meeting.

Other investors wanted the new management to chalk out a rescue strategy to recover the losses and restore the net worth, which has seen 86 percent erosion.

Responding to a volley of queries by agitated shareholders, chief financial officer Sanjeev Churiwala denied that the company was sick and claimed the net work had increased to Rs.1,667 crore from Rs.845 crore last fiscal, after factoring profits for first half (April-September) of this fiscal 2015-16.

"The resolution is a statutory requirement we are fulfilling by reporting net worth erosion to BIFR," Churiwala asserted.

The CFO also assured the shareholders that the company had taken steps to recover losses and about Rs.30 crore had been recovered till recently.

"There is no reason for shareholders to worry about the company's health," Churiwala added.

The company's blue chip scrip of Rs.10 face value closed at Rs.2,760 per share at the close of trading on the BSE, up 3.04 percent over Thursday price./Eom/480 words.