Companies

USL to make management changes; focus on lean portfolio

K Giriprakash Bengaluru | Updated on July 29, 2019 Published on July 29, 2019

diageo

Diageo has set out a plan of action to restructure its Indian subsidiary, United Spirits ushering in changes at the management and distribution levels and revamping brand promotion strategy.

Some of the other measures that the company plans to take include, focusing on a lean portfolio, engaging with the government, improving work culture and driving gender diversity. Company sources, however, said there will be no changes at the top management level. The sources also said that the company has posted profits for the previous quarter and hence the restructuring exercise is to effect changes to make the operations more stable.

For the first quarter this fiscal, United Spirits posted a net profit of Rs 197 crore, an increase of 147 per cent compared with the same quarter last year. Its net sales grew 10 per cent to Rs 2,218 crore for the same period.

Emkay Global in a note to its investors said United Spirits’ strong EBITDA (an increase of 95 per cent to Rs 395 crore) during the first quarter was largely driven by one-time bulk Scotch sales and a steep fall in ad spends and other overheads. “Revenue growth continued to be soft, with comparable sales growth of 6 per cent which was 4 per cent below their estimates. Given slower P & A growth, we believe that ad spends will need to be stepped up to boost growth going ahead,” the note said.

But in its message to shareholders, United Spirits said it is on track to deliver on its medium-term goal of delivering double-digit topline growth and achieves mid to high teens EBITDA margins led by better pricing and cost optimisation. It said its franchisee model in the popular segment with successful implementation in 13 states has been well received. This move will ensure the stability of margins in the segment, reduce working capital requirements and enable the management to focus on higher-margin products. Its franchise model consists of a fixed fee arrangement in specific states which will aid margin expansion with low working capital needs. It plans to implement the same model for its popular segment brands as well.

The liquor major has also been able to reduce its net debt through a mix of using profits, proceeds from the sale of non-core assets and reduction in working capital to repay its loans amounting to Rs 676 crore. This reduction in debt together with the renegotiation of borrowing rates and a mix of debt reduced the total interest cost by Rs 48 crore during the financial year. As of March 31, its total debt amounts to Rs 2,589 crore.

Meanwhile, the company has strengthened its entire portfolio through rationalisation and renovating its brands. Its Prestige and above brands represent about 66 per cent of net sales. However, Emkay Global said while the decline in overhead costs is positive, its cost savings have been inconsistent in the previous quarters. High input cost pressure with ENA prices going up by 5 per cent - 10 per cent quarter on quarter is likely to restrict margin expansion in the near term.

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Published on July 29, 2019
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