Welcome to Sana Securities! Login | Subscribe Now.

United Spirits Equity Research

HomeCompanyUnited Spirits Equity Research

Date of Research – 21 January 2016

Price – Rs. 2678.80

About the Company

United Spirits Limited (“USL” or the “Company”) is the flagship company for the spirits business of the UB Group in India. Incorporated in the year 1999 as McDowell Sprits Ltd, USL is engaged in the business of manufacture, purchase and sale of beverage alcohol (spirits and wines), including through tie-up units/ brand franchises.

USL has a global footprint and is the largest spirits company in the world by volume, selling 123.7 million cases of liquor for the financial year ending 31 March 2012, with exports to over 37 countries. It has a sizeable presence in India with distilleries and sales offices all across the country, and a committed team of over 7,500 people. USL has an impressive bouquet of products across whiskey, brandy, rum, gin, vodka and wine; and is one of the only two companies in the world with a dozen brands among the top 100 spirits brands worldwide. Its brand portfolio includes Dalmore, Jura, Whyte and Mackay, Black Dog, Signature, Romanov, Antiquity, Royal Challenge, White Mischief, Blue Riband, Vladivar, Bouvet Ladubay and Four Seasons.

Besides Whyte & Mackay and Bouvet Ladubay being 100% subsidiaries of USL, the company has 22 millionaire brands (i.e. brands selling more than a million cases a year) in its portfolio and enjoys a strong 59% market share for its first line brands in India. United Spirits’ brands have won the most prestigious awards for flavors, ranging from Mondial to International Wine and Spirit Competition (IWSC) to International Taste & Quality Institute (ITQI); more than 165 awards & certificates.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 10,748.68 10,615.41 9,334.99 9,379.29  25,756.80
Expenses 9,378.13 10,752.96 8,730.51 8,406.66  24,753.00  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,370.55 (137.55) 604.48 972.63  1,003.80  
Depreciation 178.40 202.61 222.87 157.73  188.60
Finance Costs 984.91 1,322.57 687.34 455.81  375.10
Other income (123.42) 685.92 (490.40) 29.17  90.70  
Exceptional items 10.83 3,235.73 839.16 (790.90)  368.10  
PBT 72.99 (4,212.54) (1,635.29) 1,179.16  162.70  
Tax 178.05 276.23 52.04 210.22  69.70  
PAT (before Minority Interest and share of Associates) (105.06) (4,488.77) (1,687.33) 968.94  93.00  
Profit/ (loss) attributable to Minority Interest (3.83) 0.31 0.38 1.19  (7.10) 
Share of profit / (loss) of Associates –  – 
Consolidated Profit / (Loss) for the year (101.23) (4,489.08) (1,687.71) 967.75  100.10

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 12.75 (1.30) 6.48 10.37  3.90
Net Profit Margin Ratio (0.98) (42.29) (18.08) 10.33  0.36 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Share Capital 125.87 125.87 145.33 145.33 145.33 
Reserves & Surplus 4,535.90 4,661.43 2,886.94 514.19 1,642.60 
Net worth (shareholders funds) 4,661.77 4,787.30 3,032.27 659.52 1,787.92 
Minority Interest 14.61 11.06 0.75 0.81 1.71 
Long term borrowings 5,396.02 4,677.79 996.67 1,117.32 734.35 
Current liabilities 5,591.51 6,476.36 10,425.92 5,922.87 5,911.12
Other long term liabilities and provisions 192.63 432.37 402.00 188.09 125.08 
Total Liabilities 15,856.54 16,384.88 14,857.61 7,888.61 8,560.19 


Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Fixed Assets 2,821.22 2,795.74 2,908.12 1,973.10 2,059.46 
Current assets 6,072.50 5,933.05 6,986.59 4,863.24 5,505.83 
Long term advances and other noncurrent assets 1,519.35 2,176.44 1,851.08 810.97 680.86 
Deferred Tax Assets 59.19 58.93 96.69 87.79 123.47 
Investments 216.88 216.17 113.20 91.48 78.12 
Goodwill on consolidation (net) 4,432.01 5,167.40 5,204.55 2,901.93 112.45 
Total assets 15,856.54 16,384.88 14,857.61 7,888.61 8,560.19 

Efficiency Analysis

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
ROCE 10.53 14.46 (3.41) 34.00 38.54
ROE / RONW 4.03 (2.11) (148.04) (255.90) 54.19 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 10,748.68 10,615.41 9,334.99 9,379.29  25,756.80
Growth (%) 17.01 % (1.24 %) (12.06 %) 0.47 %  174.61 % 
PAT (Rs. Cr.) (105.06) (4,488.77) (1,687.33) 968.94  93.00  
Growth (%) (156.12 %) 157.42 %  (90.40 %) 
Earnings Per Share – Basic (Rs. ) (8.04) (316.86) (116.11) 66.59  7.06
Earning Per Share – Diluted (Rs. ) (8.04) (316.86) (116.11) 66.59  7.06
Price to Earnings 37.54  342.35

Dividend History

The Company has not declared dividends over the last 3 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. USL’s average current ratio over the last 5 financial years has been 1.08 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

USL’s average long term debt to equity ratio over the last 5 financial years has been 1.1 times which indicates that the Company operates with a high level of debt which could adversely affect USL’s results of operations if the company is unable grow or maintain its operating income. In particular, USL has added more long term debt on its books in the FY 2012.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

USL’s average interest coverage ratio over the last 5 financial years has been 1.65 times which indicates that the Company has been generating just a little more than it needs to service its debt obligations, which leaves only a small return for its shareholders.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, United Spirits reported a promoter holding of 58.48 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 28.25 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.


Leave a Comment