United Spirits may sell some cheaper brands: Diageo

Diageo also says that improvement in sales and margins at United Spirits will take much longer than what analysts expect  

First Published: Tue, Nov 19 2013. 11 36 PM IST

 

lvan Menezes, CEO, Diageo Plc. Photo: Soumik Kar/The India Today Group/Getty Images 

 

Bangalore: The improvement in sales and margins at United Spirits Ltd (USL) will take much longer than what most analysts expect and the debt-laden distiller may sell or shut down some cheaper brands that are not profitable, the company’s controlling shareholder Diageo Plc said.

Diageo’s India-born chief executive Ivan Menezes told analysts in London on Monday that earnings estimates of Indian brokerages for USL “are way ahead of reality”, according to a report by Espírito Santo Securities Research analyst Nitin Mathur, who was present at the analyst meeting.

The admission by Menezes is significant because analysts have hailed the deal as a game-changer for USL and investors have pushed up the company’s stock, betting that Diageo will boost USL’s slim profit margins by pushing sales of higher-priced brands such as Antiquity and Royal Challenge whiskey, increasing prices and reducing its debt of Rs.7,167 crore.

Diageo completed its purchase of a 25.02% stake in United Spirits in July after the companies announced the deal in November last year. As of Tuesday, the United Spirits stock has soared more than four-fold to Rs.2,478.45 from Rs.600 in March 2012 when speculation about the deal began.

However, Menezes pointed to the slowdown in India where growth in liquor sales has dropped to its lowest in a decade because of rising product prices and slowing economic expansion. 

 

NITESH KUMAR

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