Set for a strong backward integration of raw materials
United Spirits, the flagship spirits company of the UB Group, is understood to be readying a process to deleverage its balance sheet which is leveraged around 1.7 times under a debt of close to Rs 7,000 crore.
According to senior officials of the UB Group, one of the first options will be to encash on the 8.5 million treasury stock which is in the company and they may be looking at raising around Rs 1,000 crore which will be used for paring the debt. This step, as and when it happens, will be the fourth major step which United Spirits, world’s largest spirits player by volume, will be taking.
United Spirits, post its $1.2 billion acquisition of Scotland’s Whyte & Mackay (W&M) during late 2007, has been working on reducing its leverage and during the past two years raised a total of Rs 2,715 crore by way of part sale of treasury stock and then through a QIP during second of 2009. USL, then during July 2011, then went on to refinance around £370 million of debt it had raised to finance the acquisition of W&M.
Speaking to Business Standard, Vijay Mallya, CMD, United Spirits, did confirm that “the issue of treasury stock is on top of his mind but he is waiting an opportune time to press the button”. “While the debt is an issue, we have strong operating profit numbers to adequately meet the interest payouts. With the recent refinancing of the debt, we are on comfortable level and we will not to rush to offload the treasury stock,” Mallya added.
According to other senior officials of UB Group, the company will certainly ben-efit if they offload the trea-sury stock to pare the debt “the interest outflow will consequently come down, the resultant surplus which can be channelled for strengt-hening operations and tak-ing on a stronger global play.” USL has achieved volume sales of just under 114 million cases during FY11, thus becoming the largest distilled spirit marketer in the world in volume terms. The company, which posted a topline of close to Rs 6,500 crore for FY11, now aims to cross the 200 million cases mark in the next five years.
Mallya further added that he will be keen to look at many other global brands which will fit in as part of their offerings in the Indian and other emerging markets. Referring to his recent statement that he may be look at partnering other global majors including Diageo and Pernod Ricard to acquire globally-renowned scotch whisky brand — Teacher’s, he said: “It is a good fit in our portfolio. However, it is too early to comment that we will be buying the brand when the brand is not yet up for sale.” According to various global reports, Fortune Brands, the global spirits player which owns Beam Global Spirits & Wines of which Teacher’s is one of the brands, may be up for sale soon.
Even as steps are being taken to strengthen its balancesheet and its global portfolio of products, United Spirits is parallely working aggressively to have a tight control over the raw material supply. It is feverishly working on ways to have as much as 50 per cent control over ENA (extra-neutral alcohol), one of the basic key ingredients in distilling spirits.
“It is a volatile situation. We recently acquired three distilleries which are multi-substrate units and are capable of producing ENA through both molasses and as well as by grain. Prior to these moves, nearly 90 per cent of our ENA requirements were from third party vendors and with these moves we have reduced our dependence to around 65 per cent. Eventually we want to depend on third party vendors for around 50 per cent of our requirements,” a senior official of UB Group added. In addition to these three acquisition, UB Group officials added that they will start work on a greenfield unit shortly which will cost them around Rs 150 crore. USL has already spent around Rs 350 crore to acquire the three distilleries.
United Spirits also announced on Wednesday that it will invest around Rs 350 crore for a glass manufacturing plant at Vijayawada, Andhra Pradesh which will manufacture around 6,000 tonnes of glass a day.
