Quietly away from the financial stress UB Group companies are going through, United Spirits, its flagship company, has debuted a popular whisky brand, Royal Challenge, in one of the toughest consumer markets of the globe, America.
“Royal Challenge was recently introduced in New York at select modern format retail stores. A UB Group resource is working on this initiative and supermarket chains such as Bayway World of Liquor, Buy Rite, Shop Rite and Liquor Locker are stocking the brand,” a senior management official told Business Standard. United Spirits is testing the market with a few thousand cases. “We will next look at San Francisco, where there is a sizeable Indian population,” the official added.
United Spirits sold 127 million cases (a case is nine litres) last year and has a 53 per cent share in the Indian Made Foreign Liquor market. It is looking to touch the 200-million case mark within three years. A fifth of its Rs 7,000-crore top line comes from abroad. Royal Challenge is among the top selling whiskies in India, with sales of 1.2 mn cases per annum and a market share of 33 per cent in its category. Ablend of imported scotch and Indian malts, it has been in existence for 24-years, Prior to debuting in America, it had formed an ‘emerging markets’ dvision as part of a strategy to dot more global locations.
It appears the company would evaluate a handful of joint ventures in Africa. The plan is to go into Africa, Russia and, with more emphasis, West Asia and Southeast Asia.
On the financial front, it is taking steps to reduce gearing. A coming $225-mn foreign currency convertible bond offering would reduce the interest outflow on debt of Rs 7,500 crore, with a gearing of 1.7 times. The company’s interest cost accounted for 43.3 per cent of its Ebitda (earnings before interest, taxes, depreciation and amortisation) and 47.5 per cent of its Ebit in 2010-11.
Sharan Lillaney, an analyst with Angel Broking, wrote in his latest report that if the company managed to raise $225 mn, about $150 mn would be used to reduce debt and lower interest cost and cash outflow. “Assuming an annual 10 per cent interest cost, the company could easily save around $15mn or Rs 75 crore annually in interest cost. Interest cost at the end of FY2011 stood at Rs 498 crore, which we believe will increase to Rs 650 crore by the end of FY12. If the company reduces debt by $150 mn, it could annually reduce its interest cost by 11-12 per cent,” Lillaney wrote.