 "Costlier inputs hit United Spirits profit")
United Spirits, India's largest spirits company in which global alcohol beverages major Diageo has a 25.02% stake, has reported a 19% drop in its net profit to Rs 118 crore for the first quarter of Fy14 as compared to the corresponding previous year.
Net sales for the quarter went up 6.5% to Rs 2,207 crore. The operating profit for the quarter witnessed a decline of 16.5% to Rs 293 crore.
Net sales for the quarter went up 6.5% to Rs 2,207 crore. The operating profit for the quarter witnessed a decline of 16.5% to Rs 293 crore.
The reconstituted board of directors, after Diageo took control of USL at the Board level, met for the first time here on Wednesday and approved the results.
The company, in which Vijay Mallya is the chairman, has said that the results have been impacted by a sharp increase in the costs of its primary raw material - Extra Neutral Alcohol (ENA) - over the comparative period of the previous fiscal.
The increase of nearly Rs 20 per case translates to an adverse impact of over Rs 61 crore in the cost of goods, which flows down to the operating profit line, the company said.
"The evident cartelisation by vendors when quoting for the ethanol supply tenders of the Oil Marketing Companies is a pointer to further increases in the price of this key ingredient," the company said.
The increase of nearly Rs 20 per case translates to an adverse impact of over Rs 61 crore in the cost of goods, which flows down to the operating profit line, the company said.
"The evident cartelisation by vendors when quoting for the ethanol supply tenders of the Oil Marketing Companies is a pointer to further increases in the price of this key ingredient," the company said.
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In addition to this crippling factor, USL said that it continues to be affected in Tamil Nadu.
"Tamil Nadu continues to be a dampener on USL business with the ordering mechanism deliberately skewed to favour brands from select local vendors at the cost of brands of USL. From a situation three years ago where one of every three bottles sold in Tamil Nadu was from the USL stable, the USL share is now down to one out of every six bottles sold," USL management explained. The company's bottomline was further affected by higher expenditure on IPL 6 that took place during the first quarter which led to a 150 basis points increase in advertising and sales promotion expenditure.
"USL revenue was marginally below our estimate primarily due to 0.2% YoY volume growth (versus 6% expected) due to 5.2% YoY volume decline in non-premium brands and there was a 56bps YoY gross margin contraction to 41.1% due to inflation in ENA and 364bps YoY EBITDA margin dip," said Abneesh Roy, a senior analyst with Edelweiss Securities.
Interest costs for the quarter are down around 4% representing the benefit of repayment of Rs 1,600 crore of loans at the end of May 2013 from the proceeds of the issue of preference capital to Diageo and further reduction in interest costs is likely during the rest of the fiscal.
During the quarter, the strategic brands of the company grew 20% and added 1.34 million cases. These brands now represent over 26% of the overall volumes of USL compared to 22% for the comparable quarter and 23% for fiscal 2013. Strategic brands of the company continue to perform well. The No.1 McDowell's whisky family has registered a healthy growth of close to 25%.
USL stock gained marginally by 0.3% and closed at Rs 2391.55 a share on NSE on Thursday.