United Spirits Limited (USL), India's largest spirits maker, on Friday announced 74% drop in net profit at Rs 39 crore for the second quarter ended September 2012 compared to Rs 148 crore reported in the corresponding quarter last year.
Its total income for the quarter was up 20% to Rs 2,237 crore as against Rs 1,866 crore in the year ago period. The operating profit for the period was also down 21% to Rs 250 crore as compared to Rs 316 crore in the same period last year.
During the quarter the company sold 28.4 million cases recording 1% drop over the same period last year when it sold 28.7 million cases.
Profit before tax is additionally impacted by a foreign exchange swing of Rs 73.4 crore (comparable quarter of previous year had an exchange gain of Rs 39.4 crore as against a loss of Rs 34 crore in the current quarter). This is on account of shift in rupee dollar / pound parity on loans to overseas subsidiary companies. However, on a consolidated basis, this impact has been negated, the company said in a statement.
Excess bulk spirit stocks were sold for Rs 314.7 crore. Were this one-time sale eliminated from the sales value, NSR growth would be 6% for the quarter. What is heartening, however, is the growth in what the industry refers to as Prestige and above brands or the premium segments which grew sharply for USL by 14% and stood at just under 7.4 million cases - an increase of 0.91 million cases over the comparable quarter of the previous fiscal.
The key markets of Tamil Nadu and West Bengal continued to dampen USL's performance during the quarter. Despite USL products in Tamil Nadu flying off the shelves whenever they are available, an artificially imposed constraint on USL volumes against the tide of consumer demand for the company's brands in that state, saw USL output being restricted to about 70% of its capacity.
The West Bengal market is slowly coming to terms with the sharp increase in duties and taxes imposed by the State government at the end of Q2 of the previous fiscal which saw volumes dropping by as much as 50% in the immediately following quarter and by 20% each in Q4 of FY12 and Ql of FY13. In the quarter just ended, volumes of both USL and the industry are down 3%.
Spirit costs during the quarter were up approximately Rs. 2.25 per case from the average of FY12 and about Rs 6.25 per case up from Q-2 of the previous fiscal, an adverse impact of Rs 17 crore for the quarter alone.
Despite the adverse impact of the above, EBIDTA margin is up approximately 150 basis points over the average of FY12 (computed without the one-time income referred to earlier). This increase is a manifestation of the premiumisation efforts of the company reflected in the 14% growth in the Prestige & above segment and the price increases taken at varying points during- FY12 and during the current fiscal. Revenue enhancement measures continue to be a combination of increase in billing prices, the introduction of higher priced alternate brands and cuts in trade spends.
Leading brands of the -Company - McDowell's No 1 & Royal Challenge registered healthy growths of 16% & 23% for the half year. While the Black Dog Scotch Whisky range grew by 19%. Other brands in the Prestige & above Segment also registered healthy growth vis-a-vis the previous fiscal as a result of which the upper end of thc USL product portfolio grew 14% during the quarter and 16% during the half year.
Interest costs are up to Rs 170 crore as against Rs 144.17 crore in the corresponding quarter as a consequence of increased borrowings for working capital coupled with rate increases by lenders as directed by RBI from time to time. Ad hoc borrowings, at higher interest rates, to fund the growth in business also accounted for this rise.
