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United Spirits, India's largest liquor manufacturer, on Friday made a fresh pitch to shareholders of the commercial benefits from distribution, manufacturing and sale agreements with Diageo subsidiaries.
At an extraordinary general meeting (EGM), the company sought shareholders' approval for the special resolution they had defeated through a postal ballot in November 2014. Against the required 75 per cent, United Spirits managed to secure 70.3 per cent votes in that ballot.
If approved now, the resolution will allow United Spirits to complete the integration of its sales channels with Diageo's global brands.
"Our earlier proposal was defeated because we had not explained the benefits that would accrue to the company if the distribution agreement was entered into with Diageo's subsidiaries. So, we have come back to you (shareholders) with the explanation on the deal," P A Murali, executive director and chief financial officer of United Spirits, told the shareholders.
He said United Spirits would stand to earn annual turnover of around Rs 700 crore and profit of Rs 70 crore through licensing and distribution agreements with Diageo North America and Diageo Scotland.
United Spirits now earns only six per cent sales promotion commission, which translates into Rs 42 crore, and a net profit of Rs 14-16 crore. The comparable net sales revenue reported by Diageo India in its audited financial statements for the year ended March 2014 was Rs 683.24 crore.
United Spirits intends to manufacture and sell bottled-in-India (bulk) products of Diageo Brands BV, Diageo North America and Diageo Scotland. It also intends to enter into agreements to distribute bottled-in origin-products manufactured by the Diageo companies.
The company will manufacture and distribute VAT 69, Haig Gold Label and Black & White, Smirnoff and Captain Morgan. It will import and distribute Johnnie Walker and related variants.
Some shareholders raised questions on the 10 per cent profit mentioned and suggested the management look for higher margins. Murali replied United Spirits' profit would increase manifold from the present Rs 14-16 crore to around Rs 70 crore in the first year of operations.
The result of physical voting along with e-voting between January 3 and 5 will be announced within the next 48 hours. Anand Kripalu, managing director and chief executive officer of United Spirits, and V S Venkataraman, company secretary, were present at the EGM.
"During the postal ballot in November, the resolution was defeated by a whisker. This time, it will sail through. The last time it was clubbed with related-party transactions. Now, the company has provided detailed information to shareholders on the financial benefits. They must have made a separate presentation to some of the leading shareholders as well," said Shriram Subramanian, founder and managing director of InGovern Research Services.
