Icra upgrades credit rating on USL's loan facilities

Credit rating agency Icra has said Diageo-controlled USL's Rs 2,900 crore loan facilities now carries low credit risk with a positive outlook, following "the completion of its transition from its earlier promoters".
"Icra has revised the long-term rating outstanding on the Rs 2,900 crore loan facilities of United Spirits Ltd (USL) to AA from A+. The outlook on the long term rating is positive," USL said in a BSE filing.
The rating agency further said it also "reaffirmed the short term rating outstanding on the Rs 2,400 crore fund based facilities and the Rs 400 crore non-fund based facilities of USL at A one plus".

Besides, Icra also has reaffirmed the rating outstanding of A one plus on the Rs 1,000 crore commercial paper programme of the company.
Explaining the rationale of the rating, Icra said: "USL has completed its transition from its earlier promoters - including termination of certain historical contracts with erstwhile group companies and the completion of additional inquiry during July 2016 thereby removing uncertainties pertaining to any potential/contingent liability of the same."
As USL has terminated all such contracts and hence no further liabilities are expected to accrue, it added.

"However, Icra would continue to monitor the developments in relation to the ongoing inquiries against USL by various regulatory bodies for its impact on the company," it said.

Moreover, the rating continue to factor strong financial flexibility, strengthening corporate governance and compliance practise framework of USL after takeover by Diageo from which it now benefits in business synergies, best global practices and capital management measures.
"The rating also draw strength from USL's established position as the largest spirits player in the domestic market, its wide distribution network, the company's strong product portfolio across segments, flavour and price points underlining the future growth prospects and favourable demand outlook supporting the company's long term revenue growth," the company said.
USL's operating margins for the first half of FY 2016-17 has dipped to 9.9 per cent from 13.3 per cent impacted by certain one-offs.

"However, Icra notes that the company's cost saving and efficiency improvement initiatives, its premiumisation drive and shift to franchisee model in some states are expected to support sustainable expansion in margins going forward," it added.