18 November 2014
UNITED SPIRITS FY14
Our analysis of United Spirits’ (UNSP) latest annual report leads us
to believe that debt and corresponding finance cost will decline due
to reduction of working capital, sale of non-core assets, and net
proceeds from the sale of W&M group. As at the end of FY14, UNSP
has investments in or loans and advances to subsidiaries/promoter
group companies of INR38.1b, some of which are negative net
worth companies. UNSP has also made a provision of INR42.2b in
its consolidated financial statements, led by goodwill impairment of
INR32.4b. Any shortfall in proceeds from the sale of W&M group
may further impair the goodwill on consolidation (FY14: INR29b).
of annual report analysis
Monetization of non-core
assets and sale proceeds of
W&M Group to pare debt
conversion cycle to come
down with sale of W&M
Net exposure to subsidiaries/promoter
group companies stood at INR38.1b in FY14
Equity Shares (m)
52-Week Range (INR)
M.Cap. (INR b)/(USD b)
1,6,12 Rel. Perf. (%)
Monetization of non-core assets:
UNSP is likely to monetize its
non-core assets held as treasury shares, investment in United
Breweries and investment property to augment cash to pare its
debt over the medium term. Our estimates suggest INR20b (at
current prices) to be augmented through this process.
Cash conversion cycle to shorten:
UNSP’s consolidated cash
conversion cycle was 134 days in FY14 (FY13: 120 days). The
higher working capital was due to subsidiaries’ cash conversion
cycle of 438 days v/s the standalone entity’s 87 days in FY14. With
completion of the sale of the W&M group (largest subsidiary) in
3QFY15, the cash conversion cycle is likely to shorten.
Lower loans and advances and other assets might also aid
reduction in working capital requirement:
Working capital was
higher for FY14 due to payment of trademarks and license fees of
INR2.8b (to UBHL), and higher loans and advances. With the new
management, this is likely to come down.
Net exposure to subsidiaries/promoter group companies at
Net investments in subsidiaries stood at INR8.1b in
FY14 (FY13: INR14b). Further, loans and advances to subsidiaries /
group companies were INR30b in FY14 (FY13: INR54.6b). Most of
these are to loss-making subsidiaries.
One-time forex gain:
MTM forex gains on loans to USL Holdings
were INR9.4b in FY14 (FY13: INR4.7b), which are recognized in
reserves in the standalone financial statements. Sale of the W&M
group will result in these forex differences of INR9.4b being
recognized in P&L (one-time gain). However, this will not have any
impact on the cash flows of the company.
Attendance at board meetings:
UNSP had 11 directors as at the
end of FY14. Except for Mr Paul Steven Walsh and Mr Vikram
Singh Mehta, all directors have attended at least 50% of the
maximum board meetings they could have attended in FY14.
Financial summary (INR b)
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
E: MOSL Estimates (Analyst estimates)
Shareholding pattern (%)
Note: FII Includes depository receipts
BSR & Co. LLP
will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe
wide canvas - from accounting and auditing issues to
operating performance to management insights to governance matters - will help readers paint a clearer picture of the stock's investment worthiness.
(Ashish.Gupta@MotilalOswal.com); +91 22 3982 5544
(Piyush.Chaplot@MotilalOswal.com); +91 22 3312 4975
Investors are advised to refer through disclosures made at the end of the Research Report.