)
United Spirits, India's largest spirits company controlled by global major Diageo plc, on Friday once again failed to announce its earnings for the fiscal year ended March 2014. The Board meeting, held after two earlier postponements, failed to clarify some of the key concerns raised by its own audit committee.
The audit committee is led by Arunkumar Ramanlal Gandhi, a highly respected professional in the corporate world.
The core issue is USL's inability to explain loans of about Rs 1,400 crore to UB Holdings, UB Group's principal holding company, at a time when Vijay Mallya was heading the company.
Industry sources said the money was likely used to prop up Kingfisher Airlines, a group company which subsequently defaulted on payments and has been grounded since 2012. With the airline being in no position to repay that sum - it is estimated to have outstanding debt of about Rs 12,000 crore - UB Holdings is struggling with repayment options.
The decision to comb through USL's balance sheet comes after Diageo acquired management control from Mallya. The global liquor major immediately moved to clean up USL's balance sheet and implement global governance standards at the company to meet NYSE and London Stock Exchange norms, where Diageo is listed.
In a regulatory disclosure, USL said that the Audit Committee of the Board at their meeting has sought certain clarifications and information on the draft financial results and related issues. It added that in the absence of such details, it could not complete a management review of the draft annual financial statements for the year ended March 31, 2014.
"In light of the above, and as the furnishing of clarifications and information sought by the Audit Committee would require some time, the Board at their meeting held on August 01, 2014 decided to adjourn the Board Meeting to a later date for consideration and approval of draft financial results for the year ended March 31, 2014. As soon as a fresh date for reconvening the Board Meeting is finalised, for the above purpose, the company shall promptly intimate the same," USL said in its statement.
USL had earlier announced that it was awaiting certain information from promoter and UB Group's holding company, UB Holdings, to determine the treatment of a loan of Rs 1,350 crore in the company's accounts. USL had also said it was making certain enquiries on nearly Rs 600 crore of loans provided to certain trade debtors.
Industry analysts tracking USL said there were risks of possibly high write-offs or impairment after USL became a Diageo subsidiary. This includes a likely write-down of inventories, the Indian Premier League asset and a longer-than-expected period for working capital improvement.
"We believe a large proportion of loans and advances - approximately 20% sales, or 80 days of working capital - are likely stuck as non-core advances and realisation could take five years or even longer," Deutsche Bank wrote in a recent report. The bank's analysts said there might be an "unexpected and unexplained" increase in working capital as part of the 'clean-up' process of USL's profit & loss accounts. On account of these and various other operational risks, Deutsche Bank has cut USL's earnings per share (EPS) estimates for 2014-15 by 27% and for 2015-16 by 25%. This is to factor in a reduction in its assumptions for earnings before interest, tax, depreciation and amortisation (Ebitda) margin from 13.1% to 10.7% for 2014-15 and from 14.1% to 11.8% for 2015-16.
These risks compound the pain at USL weeks after the company said it would be forced to provide as much as Rs 4,200 crore for another loan given to its London unit. USL had to provide for this sum because sale of its Scottish subsidiary, Whyte & Mackay, would not be enough to meet the sum lent to acquire the unit in 2007. As a result, USL had said, its net worth would be reduced by as much as Rs 3,500 crore.
