United Spirits (UNITDSPR) Q4 04/05 earnings summary

Executive summary

• FY05 brought major consolidation moves, including the June 14, 2005 completion of the Shaw Wallace acquisition; the combined spirits business ranked second among the world’s largest spirits companies.

• The strategy centers on integrating spirits operations to capture manufacturing, distribution, purchasing and marketing synergies; integration work is being led by merchant bankers and advisers.

Financial highlights

• Standalone operating revenue was Rs 17,204 million, up 10% YoY; volume rose 1% as first-line brands grew ~15% and unprofitable low-end lines were discontinued.

• Standalone PAT was Rs 267.265 million vs Rs 213.465 million; EPS was Rs 5.17 vs Rs 4.13.

• Standalone PBIDT was Rs 905.7 million vs Rs 829.4 million; interest cost declined Rs 9.8 million despite higher year-end borrowings.

• Consolidated operating income was Rs 12,438.441 million vs Rs 11,723.768 million; consolidated net profit was Rs 124.182 million vs Rs 247.476 million, with EPS of Rs 2.40 vs Rs 4.78.

• Excluding neither one-time nor exceptional items, standalone PAT growth was reported at 25% despite Rs 329.5 million of extraordinary provisions for Kerala turnover tax and toll-manufacturer dues.

Outlook and guidance

• Integration synergies and a unified management approach are expected to improve profitability and finished-product retention; a consultant was engaged to identify synergy opportunities.

• Deleveraging is targeted within two years through capital raising and divestment of surplus assets and brands.

• First-quarter results, with McDowell and Shaw Wallace operating in tandem, were described as outstanding; no figures were cited.

• Raw-material price softening was expected from Q3, conditional on increased sugarcane acreage and better yields following widespread rains.

• Price increases were being pursued in government and non-government markets to offset operating-cost inflation, though government-administered pricing limits flexibility.