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).
A
NNUAL
R
EPORT
T
HREADBARE
the
ART
of annual report analysis

Monetization of non-core
assets and sale proceeds of
W&M Group to pare debt
Consolidated
cash
conversion cycle to come
down with sale of W&M
Group
Net exposure to subsidiaries/promoter
group companies stood at INR38.1b in FY14
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
52-Week Range (INR)
M.Cap. (INR b)/(USD b)
1,6,12 Rel. Perf. (%)
UNSP IN
2,722
1,453.3
2,941/2,226
400.9/6.5
18/-15/-51
2016E
96.3
11.8
6.6
45.4
130.2
275.0
16.5
17.5
-
60.8
10.0
33.4
0.0
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
INR38.1b:
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)
Y/E Mar
2014
2015E
Sales
99.1
82.8
EBITDA
8.7
8.4
Adj. PAT
-1.3
2.9
Adj. EPS (INR)
-9.0
19.7
EPS Gr. (%)
21.3
-
BV/Sh.(INR)
208.7
229.7
RoE (%)
-4.3
8.6
RoCE (%)
12.8
13.1
Payout (%)
NA
-
Valuations
P/E (x)
NA
140.0
P/BV (x)
13.2
12.0
EV/EBITDA (x)
50.4
47.4
Div. Yield (%)
0.1
0.0
E: MOSL Estimates (Analyst estimates)
Shareholding pattern (%)
As on
Promoter
DII
FII
Others
Sep-14
58.9
3.9
24.2
13.1
Jun-14
33.0
0.1
11.5
55.4
Sep-13
36.2
5.0
42.7
16.1
Note: FII Includes depository receipts
Auditor’s name
BSR & Co. LLP
ART
will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe
ART's
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
(Ashish.Gupta@MotilalOswal.com); +91 22 3982 5544
Piyush Chaplot
(Piyush.Chaplot@MotilalOswal.com); +91 22 3312 4975
Investors are advised to refer through disclosures made at the end of the Research Report.

ART|
United Spirits FY14
ART #1
ACCOUNTING/AUDITING AND KEY FINANCIAL INSIGHTS
Sale of non-core assets to fetch additional ~INR20b to pare debt
Investment in United
Breweries, USL Benefit
Trust and sale of
Investment property likely
to be sold off in the
medium term
UNSP is likely to monetize its non-core assets held as treasury shares,
investment in United Breweries, and investment property to augment the
necessary cash to pare its debt over the medium term. Our estimates suggest
INR20b (at current prices) to be augmented through this process.
UNSP has 3.46m treasury shares in USL Benefit Trust at a carrying value of
INR1.2b as at the end of FY14. The market value of such shares is ~INR9b.
However, these are pledged in favor of Unit Trust Investment Advisory Services
(security trustee of PNB and IDBI Bank). UNSP has prepaid the credit facility of
INR6.2b; though PNB has issued a ‘no-objection letter’, IDBI has not released
the pledge on the shares. The matter is currently subjudice.
Further, the company has non-current investments of INR1,132m as at the end
of FY14 (FY13: INR934m), mainly comprising of:
Investment property (at cost) of INR957m in FY14 (FY13: INR790m).
Investment property represents the castle and residential premises owned
by the group in Scotland and Hong Kong, respectively.
The carrying value of 8.5m shares of United Breweries was INR150m as at
the end of FY14 (FY13: INR150m). The market value of such shares is
~INR6b.
Exhibit 1: Non-core assets to accrue significant cash flows over medium term (INR m)
Particulars
FY13
FY14 Market value*
Investment property
790
957
5,000
United Breweries
150
150
6,000
Beneficial interest in USL Benefit Trust
1,197
1,197
9,000
Total
2,137
2,304
20,000
Note: * - Market value of shares is approximated on the date of report, Investment property market
value is based on media reports;
Source: Company Annual Report, MOSL
Working capital to decline with sale of W&M group and new management
Consolidated cash
conversion cycle of 134
days with standalone entity
at 87 days and subsidiaries
at 438 days
UNSP’s consolidated cash conversion cycle (CCC) in FY14 was 134 days (FY13:
120).
The higher CCC was aided by higher days at the subsidiary level. In FY14, CCC
was 438 days at the subsidiary level v/s 87 days at the standalone level (FY13:
standalone – 65, subsidiary – 437).
With the sale of W&M group (largest subsidiary) in 3QFY15, CCC is likely to
shorten at the consolidated level.
Accordingly, UNSP is likely to see reduction in working capital requirement in
2HFY15 and FY16.
Apart from CCC, working capital requirement is likely to come down since loans
and advances and other assets were higher in FY14 due to trademarks and
license fees of INR2.8b (paid to UBHL for next six years) and amount of INR0.4b
deposited with statutory authorities. These will not accrue in FY15.
18 November 2014
2

ART|
United Spirits FY14
Exhibit 2: Cash conversion cycle for UNSP aided by higher days in W&M Group (days)
Sale of W&M Group will
bring down the
consolidated cash
conversion cycle
Particulars
Standalone
Inventory days
Receivable days
Payable days
Subsidiaries (derived)
Inventory days
Receivable days
Payable days
Consolidated
Inventory days
Receivable days
Payable days
FY12
FY13
FY14
57
65
87
106
101
103
54
66
75
103
102
91
572
437
438
719
569
630
124
116
104
271
248
296
120
120
134
175
166
172
67
76
80
122
122
118
Source: Company Annual Report, MOSL
Exhibit 3: Higher working capital requirement pulls down operating cash flows in FY14 (INR b)
Particulars
EBITDA (Operations)
Add/Less: Non-cash adjustments
Less: Direct taxes paid
Operating profit before w/cap changes
Inventories
Trade receivables
Loans and advances and other current assets
Current liabilities and provisions
Cash generated from operations
Less: Financial cost
Cash flow from operations post interest
Less: Capital expenditure
Less: Investment in subsidiaries
Cash flows after capex and investments
Standalone
FY13
FY14
11.1
-1.6
0.1
10.0
-1.6
-1.6
9.6
6.8
1.3
-2.1
-4.9
-2.0
1.3
-4.9
3.4
-1.7
10.7
-3.8
-6.5
-5.9
4.1
-9.7
-1.3
-1.4
0.7
-0.4
3.5
-11.5
Subsidiaries (derived)
Consolidated
FY13
FY14
FY13
FY14
-0.2
0.2
10.9
-1.4
3.2
11.7
3.0
1.7
-1.9
-1.7
-0.3
-0.1
2.6
1.8
12.2
8.6
1.1
-2.1
2.4
-4.2
-1.5
0.1
-6.4
-1.9
5.9
-3.1
7.2
-7.9
0.9
1.6
4.3
-0.1
9.0
-1.7
19.7
-5.5
-3.3
-3.7
-9.9
-9.5
5.7
-5.4
9.8
-15.1
-0.9
-0.9
-2.2
-2.3
-0.7
-
-
-0.4
4.1
-6.3
7.6
-17.7
Source: Company Annual Report, MOSL
Higher finance cost in FY14 due to one-offs; W&M sales proceeds to further
lower finance cost by 47%
Sale proceeds of W&M
Group to pare debt by
INR37b and finance cost by
~47%
UNSP’s reported finance cost increased from INR9.8b in FY13 to INR13.2b in
FY14. This was primarily on account of one-offs arising due to:
Interest on income tax pertaining to earlier years – INR1.6b
Unamortized debt issue costs of INR2.1b (net) charged to P&L due to
retirement of long-term debt (from INR46.8b in FY13 to INR10b in FY14).
Adjusted finance cost remained flat at INR9.6b in FY14 (FY13: INR9.8b).
Further, unamortized debt issue expense of INR2.2b in FY13, which was being
amortized over the period of loan, was expensed and balance of merely
INR0.1b stood in FY14.
Also, UNSP’s net debt stands at INR72.1b. This should subsequently reduce, as
W&M proceeds get utilized for debt repayment (as per earlier announcement
to stock exchanges, UNSP intends to use INR37b of proceeds for debt
repayment).
This will result in finance cost being lower by INR4.5b (~47% of the adjusted
finance cost).
18 November 2014
3

ART|
United Spirits FY14
Exhibit 4: Reported finance cost in FY14 higher due to one-offs (INR b)
Particulars
FY11
FY12
FY13
FY14
Interest expense (A)
5.5
8.1
9.4
10.5
Debt issue costs (B)
0.1
0.6
0.4
2.7
Finance cost (Reported)
5.6
8.8
9.8
13.2
Add/(Less): Adjustments
- Interest on income tax pertaining to earlier years (C)
1.6
- Unamortized debt issue cost charged to P&L during FY14 (D)
2.1
Adjusted interest expense (A-C)
5.5
8.1
9.4
9.0
Adjusted debt issue costs (B-D)
0.1
0.6
0.4
0.6
Finance cost (Adjusted)
5.6
8.8
9.8
9.6
Source: Company Annual Report, MOSL
Reduction in working
capital requirement and
sale of non-core assets will
further aid in lower finance
cost
Exhibit 5: Almost entire amount of unamortized debt issue
expenses charged to P&L during FY14 (INR b)
Particulars
Current
Non-current
Total
FY11
0.0
0.4
0.4
FY12
0.0
2.6
2.6
FY13
0.4
1.8
2.2
FY14
0.1
-
0.1
Exhibit 6: Average borrowing cost (adjusted) flat at 12%
Finance cost (adjusted) (INR b)
Average borrowing cost (%)
11.8%
11.6%
11.6%
Source: Company Annual Report, MOSL
9.1%
5.6
FY11
8.8
FY12
9.8
FY13
9.6
FY14
Source: Company Annual Report, MOSL
Exhibit 7: Finance cost can go down by ~47% from FY14 levels on receipt of W&M proceeds
Particulars
Gross debt as on March 31, 2014
Less: W&M proceeds utilized to pay-off debt (provisional)
Gross adjusted debt
Less: Cash and current investments
Net adjusted debt
Average borrowing cost @ 11% (avg of 4 years) (A)
Adjusted finance cost in FY14 (B)
Possible savings (B-A)
INR b
83.1
-37.0
46.1
-8.3
37.8
5.1
9.6
4.5
Source: Company Annual Report, MOSL
Net investment in subsidiaries/group companies of INR38.1b; management
believes the amount is recoverable
No provision was created
on loans outstanding to
UBHL of INR9.95b in FY14.
Interest income of ~INR1b
on these loans is not
recognized
UNSP increased its investments and loans and advances in
subsidiaries/promoter group companies (gross) from INR69.3b in FY13 to
INR84.6b in FY14. The increase was primarily on account of loans and advances
of USL Holdings and United Breweries (Holding) increasing from INR45.7b in
FY13 to INR61.3b in FY14. Of the above, many of the investments are in loss-
making subsidiaries.
During FY14, UNSP had written-off investments/loans and advances of
INR46.5b, resulting in net exposure to subsidiaries/group companies of
INR38.1b in FY14 (FY13: INR69.3b); 1x FY14 net worth (FY13: 1.1x). The
provisions are due to:
Amount of INR36.1b on loans given to USL Holdings, since the
management believes that the net proceeds of W&M divestment will be
4
18 November 2014

ART|
United Spirits FY14
insufficient to pay off the intra-group loan. Further, the company has
additionally provided INR1.05b in 1HFY15 on these loans.
Entire investment made in its subsidiaries – Palmer Investments (INR6.9b)
and Montrose International (INR133.9m).
As regards the loan of INR14.2b given to UBHL, UNSP has provided INR3.3b
towards outstanding principal amount as at March 2014 and has not
recognized the interest income of INR963.1m. The balance amount for
which no provision was created stood at INR9.95b as at the end of FY14.
The management believes that no further provision is warranted on the above
investments and loans and advances as at the end of FY14 and that the above
balances are recoverable.
FY13
14.8
54.6
69.3
FY14
15.1
69.5
84.6
Exhibit 8: Net investment in subsidiaries lower due to provisions (INR b)
Particulars
Investment in subsidiaries/group companies
Loans and advances to subsidiaries/group companies
Sub-total
Less: Provision for invt/loans and advances
Total
0.0
-46.5
69.3
38.1
Source: Company Annual Report, MOSL
FY13
FY14
41.3
47.9
4.4
13.4
1.1
2.6
1.8
2.1
2.2
1.2
0.5
0.8
0.6
0.7
0.3
0.4
0.2
0.3
0.1
0.1
0.0
0.0
2.0
0.0
54.6
69.5
Source: Company Annual Report, MOSL
FY13
FY14
6.9
6.9
3.3
3.3
1.7
1.7
1.2
1.3
0.4
0.7
0.3
0.3
0.3
0.3
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.0
0.0
0.0
0.0
14.8
15.1
Source: Company Annual Report, MOSL
Exhibit 9: Increase in loans and advances primarily to UBHL and USL Holdings (INR b)
Particulars
USL Holdings Limited
United Breweries (Holdings) Limited
Sovereign Distilleries Limited
Asian Opportunities & Investments Limited
Royal Challengers Sports Private Limited
Pioneer Distilleries Limited
Tern Distilleries Private Limited
McDowell & Co (Scotland) Limited
Four Season Wines Limited
Liquidity Inc.
United Spirits (Shanghai )Trading Company Limited
SW Finance Co. Limited
Total
Exhibit 10: Investments remain flat in FY14 (INR b)
Particulars
Palmer Investment Group Limited
SW Finance Co. Limited
Royal Challengers Sports Private Limited
Pioneer Distilleries Limited
Four Season Wines Limited
Sovereign Distilleries Limited
Asian Opportunities & Investments Limited
Tern Distilleries Private Limited
Montrose International S.A
McDowell & Co (Scotland) Limited
Liquidity Inc.
United Spirits Nepal Limited
United Spirits (Shanghai )Trading Company Limited
USL Holdings Limited
Total
18 November 2014
5

ART|
United Spirits FY14
Exhibit 11: Provision of INR46.5b during FY14 (INR b)
Particulars
Loan to USL Holding
Loan to United Breweries (Holding)
Investment in Palmer Investment Group Ltd
Investment in Montrose International SA
Total provisions/w-offs
FY14
FY15 YTD
36.1
1.1
3.3
-
6.9
-
0.1
-
46.5
1.1
Source: Company Annual Report, MOSL
Consolidated goodwill impairment of INR32b in FY14
UNSP’s wholly-owned subsidiary, United Spirits (Great Britain) Limited entered
into a share sale and purchase agreement with Emperador UK Limited and
Emperador Inc in relation to the sale of the entire stake of W&M group for an
EV of GBP430m.
W&M group represented significant geographical area of operations,
accounting for nearly 16% of the group income.
The proceeds received from W&M sale will not be sufficient to repay the entire
intra-group loan by UNSP to USL Holdings. Also, UNSP provided for investments
in Palmer Investment Group and Montrose International. This resulted in
goodwill impairment of INR32.4b in FY14 in the consolidated financial
statements.
In case of any adjustment to the W&M proceeds, the goodwill on consolidation
balance of INR29b in FY14 might further be impaired.
Exhibit 12: W&M group represents 16% of the overall group’s revenues (INR b)
Particulars
Income
Revenue from operations
Other income
Expenditure
Cost of materials consumed
Employee benefits expenses
Finance cost
Depreciation and amortization
Other expenses
Profit before tax
FY13
FY14
18.5
18.5
18.1
18.0
0.4
0.5
16.2
16.6
7.3
6.6
2.8
2.4
0.0
-0.2
0.6
0.7
5.5
7.1
2.3
1.9
Source: Company Annual Report, MOSL
Exhibit 13: Carrying value of assets and liabilities of the discontinuing operations (INR b)
Particulars
Total assets (excluding goodwill)
Total liabilities
FY14
FY13
Continuing Discontinuing Continuing Discontinuing
operations operations operations operations
91.5
21.3
92.0
27.6
111.5
5.3
110.3
7.9
-20.1
16.0
-18.4
19.7
Source: Company Annual Report, MOSL
Net assets
18 November 2014
6

ART|
United Spirits FY14
Investment continues in negative net worth subsidiaries
UNSP has increased its
cumulative exposure to
SDL, TDL and PDL (negative
net worth companies) from
INR3.9b in FY13 to INR5.9b
in FY14
Sovereign Distilleries (SDL), Tern Distilleries (TDL) and Pioneer Distilleries (PDL)
have made a reference to the Board for Industrial and Financial Reconstruction
(BIFR), in view of the erosion of their entire net worth.
During FY14, UNSP cumulatively increased investments (including loans and
advances) from INR3.9b in FY13 to INR5.9b in FY14 in these companies.
However, TDL, SDL and PDL continue to make losses. Cumulatively, these
companies incurred a loss of INR972m in FY14 (FY13: INR771m). Further, as
stated in the table below, all companies have a negative net worth.
It is proposed to amalgamate TDL with the company. The management believes
that the intrinsic value of the assets is sufficient to recover the
investments/loans and advances from these subsidiaries, and hence, no
provision has been made.
FY13
FY14
1.7
2.0
1.2
1.3
0.5
0.8
0.7
0.9
0.1
0.1
0.6
0.7
1.4
3.0
0.3
0.3
1.1
2.6
3.9
5.9
Source: Company Annual Report, MOSL
Net worth
FY13
FY14
-1,368 -1,951
-306
-581
-59
-234
Turnover
PAT
FY13
FY14
FY13
FY14
136
259
-448
-584
1,036
1,289
-279
-213
114
117
-44
-176
1,286
1,665
-771
-972
Source: Company Annual Report, MOSL
Exhibit 14: Investments continue in PDL, TDL and SDL despite net worth erosion (INR b)
Particulars
Pioneer Distilleries Limited
- Investment
- Loans and advances
Tern Distilleries Private Limited
- Investment
- Loans and advances
Sovereign Distilleries Limited
- Investment
- Loans and advances
Total
Management believes that
intrinsic value of these
assets is sufficient to
recover the investments /
loans and advances
Exhibit 15: Subsidiaries continue to incur losses on negative net worth (INR m)
Particulars
Sovereign Distilleries Ltd
Pioneer Distilleries Ltd
Tern Distilleries Pvt Ltd
Total
One-time gains of INR9.4b likely to be recognized on W&M group sale; no
cash flow impact
Foreign currency translation reserve stood at INR9.4b as at the end of FY14
(FY13: INR4.7b) in the standalone financial statements. This is on account of
MTM exchange gains on loans of INR45.1b to USL Holdings (wholly-owned
subsidiary) in FY14 (FY13: INR40.4b) for the acquisition of W&M group, which
are considered as a permanent investment in the subsidiary.
As per the Indian regulations, at the time of disposal of net investment, the
cumulative amount of above such exchange differences deferred should be
recognized as income or expense through the P&L.
In our view, since the loan given to USL Holdings was for the acquisition of
W&M group, with the sale of W&M group to Emperador UK, these exchange
differences would be transferred to the P&L A/c.
18 November 2014
7

ART|
United Spirits FY14
Accordingly, one-time forex gains of INR9.4b (subject to exchange rate
fluctuations) would be recognized in the standalone P&L A/c. However, this will
not have any cash flow impact.
Exhibit 16: FCTR of INR9.4b in FY14; to be transferred to P&L account on sale of W&M group (INR m)
Particulars
Loans granted to USL Holdings
Strategic investment in USL Holdings
YoY difference
Foreign currency translation reserve (FCTR)
YoY difference
FY08
6,191
3,987
-107
FY09
7,435
3,630
-357
-464
-357
FY10
39,558
33,435
29,805
-2,247
-1,783
FY11
36,858
33,411
-24
-2,271
-24
FY12
FY13
FY14
39,817
41,341
47,929
38,110
40,417
45,061
4,699
2,307
4,644
2,428
4,735
9,379
4,699
2,307
4,644
Source: Company Annual Report, MOSL
Debtors/dues of INR6.5b from third-party manufacturers provided
UNSP has provided INR6.5b on account of trade receivables/third-party
manufacturers/project-related parties advanced in earlier years.
These parties had accepted the amounts due to UNSP earlier, but have
subsequently reneged on their commitment and are proposing to repay the
dues only after receiving their own payments from other UB group entities.
These entities have claimed that they have advanced this sum to certain
“alleged UB group entities” and thus, the dues owed by them to UNSP will be
repaid only after receipt of their dues from such entities (possibility of erstwhile
UNSP management re-routing the sum to other group entities via debtors).
The management has proposed to conduct a detailed inquiry into these claims.
Transactions with erstwhile promoter group influenced entities
UNSP’s transactions with
erstwhile promoter group
influenced entities from July
‘13 to March ’14 stood at
INR1.5b (4.4% of other
expenses)
From July ’13 to March ‘14, the company has entered into certain transactions
with erstwhile promoter group entities.
Some of these transactions are pertaining to non-core businesses of F1 racing
and IPL cricket related contracts.
UNSP has called for an EGM on 28 November 2014 of the shareholders to
approve transactions with each of these entities. In the EGM, a special
resolution of the minority shareholders will be required for the transactions to
be approved.
Exhibit 17: Transactions with erstwhile promoter group influenced entities from July ‘13 to
March ‘14
Name of party
United Racing and Bloodstock Breeders
United Mohun Bagan Football Team Pvt Ltd
Watson
Vittal Mallya Scientific Research Foundation
UB Air Pvt Ltd
PE Data Centre Resources Pvt Ltd
Total
% of other expenses
Nature of transactions
Advertisement and sales promotion
Advertisement and sales promotion
Advertisement and sales promotion
Contribution for scientific research
Aircraft charges
Property call money received
INR m
63.2
67.4
879.2
18.8
210.4
281.4
1,520.4
4.4
Source: Company Annual Report, MOSL
Special resolution of
minority shareholders is
required at EGM on Nov 28
for the transactions to be
validated
18 November 2014
8

ART|
United Spirits FY14
Exhibit 18: Outstanding balances of erstwhile promoter group influenced entities in FY14
Name of party
UB Air Pvt Ltd
Watson
PE Data Centre Resources Pvt Ltd
United Racing and Bloodstock Breeders
United Mohun Bagan Football Team Pvt Ltd
Vittal Mallya Scientific Research Foundation
Total
% of net worth
Nature of transactions
Deposits outstanding
Amount due from/(to)-fully provided
Advance for racing season14-15
Property call money received
Amount due from/(to)
Amount due from/(to)
Amount due from/(to)
INR m
50.0
144.3
478.8
281.4
-6.1
-6.5
-2.1
939.8
3.1
Source: Company Annual Report, MOSL
Other financial highlights
During FY14, UNSP recognized capital reserve of INR4.8b on account of sale of
the company’s shares by the subsidiaries.
UNSP booked forex gain of INR5.6b in FY14 v/s exchange loss of INR2.3b in
FY13.
Commitment for advertising contracts, sales promotion and trademark fees
jumped to INR8.4b in FY14 (FY13: INR1.4b). This was primarily due to trademark
fees to UBHL of INR2.8b and endorsement, advertisement fees for cricketers in
IPL and FORCE INDIA.
Exhibit 19: Contingent liabilities lower mainly due to income tax demands (INR m)
Particulars
Disputed claims against the Company not acknowledged as debts
(i) Income tax demand (including interest) under appeal
(ii) Other miscellaneous claims
(iii) Sales tax demands under appeal in various states
(iv) Service tax demands under appeal
(v) State excise demands for excess wastages and distillation losses
(vi) Central Excise demands under appeal
Guarantees given by the Company’s bankers for which counter
guarantees have been given by the Company
Bills receivables discounted
Co-accepted bills of Tie-up units
Claims from suppliers not acknowledged as debts
Total
FY13
2,588
232
792
831
314
33
315
FY14
2,400
744
549
475
222
7
259
897
426
510
350
98
111
6,610
5,544
Source: Company Annual Report, MOSL
18 November 2014
9

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United Spirits FY14
Subsidiaries’ performance snapshot
Exhibit 20: IPL subsidiary incurs major losses in FY14; PDL and SDL others that incurred losses (INR m)
Particulars
Whyte and Mackay Group
Bouvet Ladubay S.A.S
Pioneer Distilleries
Royal Challengers Sports Pvt
Ltd
United Spirits Nepal Pvt Ltd
SW Finance Co (Formerly
known as Shaw Wallace
Breweries)
Sovereign Distilleries
Chapin Landias S.A.S
USL Holdings (UK)
Four Seasons Wines
Tern Distilleries Pvt Ltd
Montrose International S.A.
Palmer Investment Group
UB Sports Management
Overseas
Asian Opportunities and
Investments
Shaw Wallace Overseas
McDowell (Scotland)
United Spirits Shanghai
(Trading) Co. P Ltd
USL Holdings Limited
United Spirits(Great Britain)
Limited
United Spirits (UK) Limited
Liquidity Inc
Capital
3,780
750
134
0
5
1,526
584
7
0
663
40
27
814
0
271
29
129
43
27
0
0
0
Reserves
6,951
391
-440
1,378
48
4,039
-1,952
3
-18,884
-391
-99
5
-287
13
-582
-12
-186
-50
230
-4,647
-19
-229
FY13
Turnover
22,766
1,355
1,036
814
761
410
136
254
286
263
114
33
0
0
0
0
0
0
0
0
0
0
PBT
2,422
116
-273
-116
71
92
-448
0
-5,006
-72
-44
-4
-372
0
-59
1
-57
-1
-573
249
0
-18
PAT
2,320
76
-279
-79
50
57
-448
0
-5,006
-72
-44
-4
-372
0
-59
1
-57
-1
-573
196
0
-18
FY14
Capital Reserves Turnover
6,206 13,151
21,307
889
582
1,659
134
-715
1,289
0
5
1,526
584
8
0
663
40
30
899
0
300
36
157
43
30
0
0
0
388
25
769
-2,536
4
-48,010
-500
-274
4
-911
15
-924
-16
-202
-51
-49,161
-25,225
-24,740
-271
915
762
654
259
250
201
187
117
36
0
0
0
0
0
0
0
0
0
0
PBT
1,894
176
-213
-1,054
35
-1,216
PAT
1,876
119
-213
-990
25
-3,270
-584
-584
0
0
-25,123 -25,123
-109
-109
-176
-176
-2
-2
757
-594
170
-281
1
23
-1
1
-281
1
23
-1
-48,971 -48,971
-19,595 -19,592
-24,717 -24,717
-20
-20
Source: Company Annual Report, MOSL
18 November 2014
10

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United Spirits FY14
ART #2
MANAGEMENT SPEAK/KEY PLANS
India one of the largest markets for alcoholic spirits; McDowell’s sets a new
pace
India is the second largest
market for alcoholic spirits,
accounting for ~13% of
global volumes for CY13
India is the second largest market for alcoholic spirits, accounting for ~13% of
global volumes for CY13 (Source: Euromonitor).
Six of the top 25 brands in volume terms belong to UNSP.
In retail value terms,
McDowells’s No 1
is the world’s second-largest alcoholic
spirits brand. Sales of
McDowell’s No 1 Celebration Rum
grew 7% in FY14 to
19m cases, making it the world’s largest dark rum brand.
Indian demographic window grants opportunities for Alcobev industry
India continues to be an exciting market for the Alcobev industry, with large
number of young Indians coming under legal drinking age over the next few
years. These would become a large and enviable base of potential consumers.
Also, the change in traditional thinking and dismantling of social barriers to
consumption of alcoholic products augur well for UNSP.
Exclusion from GST a negative for Alcobev industry
If the Alcobev industry is
excluded from levy of GST
on its finished produce, it
will end up with cost
pressures owing to
increased cost of inputs,
which will be subject to 20%
GST compared to ~12%
excise duty and 2% CST
Goods and Services Tax (GST) is touted as the panacea for resolving the
situation created by the host of taxes levied by central and state governments.
States fear a loss of autonomy in taxing these products and an erosion of
revenue base under the GST’s standardized rate model.
UNSP has been at the forefront of discussions with the central government in
the areas of service tax and GST, and has made out a strong case for the
inclusion of alcoholic beverages in these legislations.
If the Alcobev industry is excluded from levy of GST on its finished produce, it
will end up with cost pressures owing to increased cost of inputs, which will be
subject to 20% GST compared to ~12% excise duty and 2% CST.
Key developments during the year
UNSP has decided to hive
off the distillery unit at
Poonamallee, Chennai to
Enrica. Enrica would
continue to produce and
sell UNSP’s brands in the
Tamil Nadu market on
payment of a franchise fee
to UNSP.
Sale of W&M group to Emperador UK:
The sale of W&M group to Emperador
UK was approved by UNSP for an enterprise value of GBP408m (actual proceeds
of the sale could fluctuate depending on adjustments to be made pursuant to
the share sale and purchase agreement). The net proceeds of the sale will be
utilized by UNSP to repay facilities and also the associated costs of the sale.
Tern Distilleries Private Limited (Tern)
had made a reference to the Board for
Industrial and Financial Reconstruction (BIFR) in view of the erosion of its entire
net worth. BIFR has declared Tern as a sick industrial company and
will be
amalgamated with UNSP.
Sovereign Distilleries
Limited (SDL) and
Pioneer Distilleries
Limited (PDL) have
made reference to the BIFR
in view of the erosion of entire net worth. The BIFR
will be conducting a Special Investigative Audit (SIA) as per the legislative
provisions.
UNSP has decided to
hive off the distillery unit at Poonamallee, Chennai
to
Enrica Enterprises Private Limited. UNSP has an agreement with Enrica
Enterprises whereby Enrica would continue to produce and sell UNSP’s brands
in the Tamil Nadu market on payment of a franchise fee to UNSP.
11
18 November 2014

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United Spirits FY14
Four agreements between UNSP and Diageo entities
UNSP has given detailed contours of its proposed arrangement to manufacture,
import and distribute Diageo brands in India. Following are the key highlights:
1.
License to manufacture and sell Bottled in India (BII bulk) brands of Diageo
Brands BV (VAT
69, Haig Gold Label,
and
Black & White):
Under this, UNSP will
purchase and import bulk spirit from Diageo Brands BV at mutually agreed
prices.
2.
License to manufacture and sell Bottled in India (manufactured in India)
brands of Diageo North America Inc and Diageo Scotland Limited (Smirnoff
and related variants, Captain Morgan Rum):
Under this, UNSP will
manufacture these brands by procuring raw materials from entities other than
the brand owners. It will pay royalty to Diageo on a quarterly basis. Royalty will
consist of two components – (i) a fixed component, which will be fixed at the
commencement of the agreement, and (ii) a variable component, which will be
set at the start of each year. The amount of royalty will be calculated as a
percentage of the net sales for a particular year and will be mutually agreed
between UNSP and the brand owners from time to time.
3.
Agreement to distribute Bottled in Origin (BIO) products in India:
Under this,
UNSP will exclusively import and distribute Diageo brands (Johnnie
Walker and
related variants, J&B, Ciroc, Baileys, Lagavulin,
and
Talisker).
UNSP will purchase
these products from Diageo entities at mutually agreed prices and will
undertake, at its own expense, all marketing/promotion activities necessary to
distribute these brands.
4.
Cost sharing agreement with Diageo India:
This pertains to proportionate
sharing by UNSP and Diageo India (DIPL) of the expenses incurred by DIPL
during the transition period for advertising, marketing and promotion activities
for Diageo-owned brands.
The first three agreements are for an indefinite period while timelines for the cost
sharing agreement will differ from state to state and will extend from January 2015
to July 2015 or later.
18 November 2014
12

ART|
United Spirits FY14
ART #3
GOVERNANCE MATTERS
Most directors regular in attending board meetings
The company is regularly calling board meetings as per the prescribed laws.
During FY14, the company held nine board meetings.
Most of the directors attended 50% (at least five meetings for FY14) of the
board meetings.
However, Mr Paul Steven Walsh, Mr SR Gupte, Mr Vikram Singh Mehta and Mr
Sreedhara Menon have attended less than 50% of the maximum board
meetings they could have attended in FY14.
Mr Sreedhara Menon had an average 50% attendance in FY12 also.
Exhibit 21: Most directors are regular in attending board meetings
Category of
Directorship
Max
meetings
director
could have
attended in
FY14
9
9
9
9
6
7
7
7
9
9
5
5
2
3
3
3
3
9
Name
FY11
FY12
FY13
FY14
Dr. Vijay Mallya
Mr. Ashok Capoor *
Mr. Gilbert Ghostine
Mr. G.N. Bajpai
Mr. Arunkumar Ramanlal Gandhi #
Mr. Sudhakar Rao #
Mr. D. Sivanandhan #
Ms. Renu Sud Karnad ** #
Mr. Ravi Rajagopal
Mr. P.A. Murali
Mr. Paul Steven Walsh ##
Mr. Vikram Singh Mehta ##
Mr. S.R. Gupte ***
Mr. M.R. Doraiswamy Iyengar ***
Mr. B.M. Labroo ***
Mr. Sreedhara Menon ***
Mr. Sudhindar Krishan Khanna ***
Mr. V.K. Rekhi
Total board meetings held
NEC
MD
NE
NEI
NEI
NEI
NEI
NEI
NE
ED
NE
NEI
NEVC
NEI
NEI
NEI
NEI
MD
6
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
9
9
9
5
6
7
9
6
5
N.A.
1
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
6
6
6
3
3
1
6
8
8
N.A.
8
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
8
6
8
6
6
N.A.
8
7
8
5
8
6
4
6
4
5
6
1
2
1
3
3
1
3
N.A.
9
Note: * Ceased to be Managing Director and Director with effect from May 01, 2014;
** Ceased to be Director with effect from February 25, 2014 due to resignation;
***Ceased to be Director with effect from July 04, 2013 due to resignation;
# Appointed as Additional director on July 4, 2013 and as Director at the AGM on September 24, 2013;
## Appointed as Additional director on August 19, 2013 and as Director at AGM on September 24, 2013;
NEC-Non-Executive Chairman, MD-Managing Director, NE-Non-Executive Director, NEI-Independent Non-Executive Director, ED-Executive Director, NEVC-Non-
Executive Vice Chairman;
We have calculated the maximum number of meetings for FY14 assuming that the incoming director has attended the meeting in which he was appointed;
Source: Company Annual Report, MOSL
18 November 2014
13

ART|
United Spirits FY14
Increase in managerial remuneration of directors
UNSP’s managerial remuneration to its key managerial personnel has gone up
from INR47m in FY13 to INR114m in FY14.
This is primarily due to increase in remuneration paid to Mr Ashok Capoor,
Managing Director (up to 30 April 2014). His remuneration increased 42.2%
from INR47m in FY13 to INR66m in FY14.
The remuneration of Mr PA Murali, Executive Director and CFO, has been
revised in FY15. His basic salary and allowances have increased from INR39m in
FY14 to INR52m in FY15 (increase of 39%).
Mr Anand Kripalu has been appointed as Managing Director from August 2014
and is entitled to a basic salary and allowance of INR59m from FY15.
Other than basic salary and allowances, the directors are also entitled to
variable performance-linked payment.
18 November 2014
14

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United Spirits FY14
NOTES
18 November 2014
15

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ART|
United Spirits FY14
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UNITED SPIRITS
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