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United Spirits Ltd (USL) on Thursday reported its net profit for the quarter ended December 2013 fell 19.4 per cent to Rs 65 crore compared with the year-ago period, as the company saw overall volumes decline four per cent.
Net revenue for the quarter increased about five per cent to Rs 2,278 crore.
Net revenue for the quarter increased about five per cent to Rs 2,278 crore.
USL, in which global spirits major Diageo has 28 per cent stake, said it saw growth fall to 12 per cent in the prestige-and-above segment.
The USL management said for many quarters, there was heightened focus on driving value, and this had seen overall volumes fall.
“For the quarter, ‘prestige-and-above’ volumes, at 8.9 million cases of an overall volume of 31.4 million cases, represents a salience of the upper end at 28 per cent of the total — a manifestation of the increasing focus on moving the company’s customers up the value chain,” USL added.
In addition to weakening volumes, USL was also hit with a forex loss of Rs 19 crore during the quarter.
The USL management said for many quarters, there was heightened focus on driving value, and this had seen overall volumes fall.
“For the quarter, ‘prestige-and-above’ volumes, at 8.9 million cases of an overall volume of 31.4 million cases, represents a salience of the upper end at 28 per cent of the total — a manifestation of the increasing focus on moving the company’s customers up the value chain,” USL added.
In addition to weakening volumes, USL was also hit with a forex loss of Rs 19 crore during the quarter.
Ever since Diageo took management control over Vijay Mallya's flagship spirits business effective July 4, 2013, the global spirits major has been driving focus on compliance and premiumisation, which has a reflection on the volume of the mass brands.
"Delays in the start of the crushing season, as a result of a hardening of the individual positions of the sugar mills and the government / sugar farmer, has led to a situation of no softening of prices of extra neutral alcohol (ENA), the company's key ingredient," USL noted, adding that while some of this was anticipated, particularly in the light of the forthcoming elections, the Ethanol Blending Program seeking a mandatory 5 per cent blending of ethanol with motor spirit has compounded the situation. As a consequence of this, the prices of ENA have risen this quarter by Rs 16/case.
"In a scenario where nearly 3/4th of the industry sales are to a parastatal agencies who are averse to give price increases, even when perfectly justifiable, fearing adverse public criticism, USL has to look at multiple options of price increases, market spend decreases and cost savings to offset this increase in the prices of its major raw material," Ashok Capoor, MD, USL noted in a statement.
As a result of these factors the operating profit dropped by 21 per cent to Rs 203 crore while PBT dropped by 24 per cent to Rs 96 crore.
The interest costs, which was bane for the company during most of the last few years, softened to Rs 150 crore as a result of the repayments of borrowings from the proceeds of the preferential issue of equity shares to Diageo.
