The Hindu Business Line : United Spirits plummets 23% after weak Q3 nos

Bangalore, Jan. 22 The stock price of United Spirits was down nearly 23 per cent to Rs 567.95 on Thursday on the back of the company posting a lower net profit by about 65 per cent to Rs 30.59 crore during the third quarter of 2008-09.

“The stock price went down because of the results. But we believe it is just an aberration,” UB Group’s President and Chief Financial Officer, Mr A.K. Ravi Nedungadi, told Business Line.

He pointed out that the price of raw material, molasses, had increased to Rs 7,500 a tonne from Rs 2,200 a tonne in a couple of months.

A combination of international and local factors, such as higher fuel prices, lower cane availability and restricted movement of spirit by the sugar-surplus States have all impacted the cost of the primary raw material, extra neutral alcohol (ENA).

This impacted the company, which had to absorb additional costs quarter-on-quarter of Rs 145 crore (Rs 212 crore for the nine-month period ending December, 2008).

The total income of United Spirits, which is the country’s largest liquor company, rose 15.21 per cent to Rs 1,035.28 crore as volumes grew 20 per cent.

The 20 per cent translated into an additional 4 million cases of which 3.6 million cases were at the upper end of the portfolio.

United Spirits also said while reporting the quarterly results that the company absorbed an additional cost of Rs 25 crore on glass containers alone as fuel prices impacted the glass producers. Apart from spirits, raw material and packaging material cost the company another Rs 100 crore for the nine-month period ending December, 2008 pushing the total impact of the cost to Rs 312 crore.

Merrill downgrade

Meanwhile, Bank of America- Merrill Lynch has downgraded United Spirits’ stock to neutral from buy earlier on higher costs.

It said in its report released on Thursday that the third quarter was a shocker with input costs hitting margins more than expected and profit declining 65 per cent.

The report said that it acknowledges earnings prospects will improve as input costs have begun to fall. “However, we believe there is limited upside to valuation given high gearing and a good part of promoter ownership pledged out for loans for group companies including aviation.”

The report said despite rising spot molasses priced (up 98 per cent y-on-y in December quarter), it expected the blended cost increase to be much more muted.

United Spirits buys a combination of molasses, rectified spirits and ENA, partly on contract and partly on price.

The gap between this blended cost and spot was very wide in the second quarter. But in the third quarter, the gap has narrowed sharply and hence the negative earnings’ surprise, the report said.

More Stories on : Stocks | Breweries | Financial Performance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
RCom buys back FCCBs worth Rs 48 cr

‘RPower investment in liquid schemes’ market value important’

United Spirits plummets 23% after weak Q3 nos

L&T stock hits 52-week low

United Spirits sheds open interest

Pledge for transparency

SEBI directive to DSQ promoter

Tata Steel (Rs 179.20): Sell

Day Trading Guide

Damodaran questions quarterly result practice