In early January, United Spirits Ltd (USL), India’s largest liquor company, will approach shareholders for the second time with a series of proposed contracts that is seen as the final leg of its integration with the new owner, Diageo Plc. These proposals, which will give USL exclusive licensing and distribution rights to the British spirits maker’s brands, had been defeated by the minority shareholders in a postal ballot held in October, much to the management’s surprise.
This time around, the company is hoping that minority shareholders will approve these contracts at an extraordinary general meeting (EGM) on January 9, having provided them additional information on the monetary and commercial benefits that are expected to accrue from the proposal.
“Our ambition is to transform the reputation of United Spirits and of the alcohol industry,” said Anand Kripalu, managing director and CEO of USL, in an email interaction last week.
On November 28, the company’s minority shareholders also voted against nine material related party transactions between USL and entities of Mallya’s UB Group. “The consequences of non-approval by shareholders to these legally binding contracts are extremely unclear. We will be approaching regulators to seek clarification on the way forward with respect to the contracts that did not receive shareholder approval,” said Kripalu.
USL reported a loss of R27.83 crore for the quarter ended September 2014—its third consecutive loss-making quarter— because of additional provisions although its net sales had grown 8.14% over the year-ago period to R2,156.54 crore.
Kripalu, who took charge of USL in May, said the company has a clear strategy to build its key brands through increased investment, innovation and renovation. “This strategy will not only leverage the premiumisation trend but will also improve our margins significantly. On the other hand, through our brands in the popular segment we will leverage scale to help us become more cost effective and still be competitive in key geographies where we have a sizeable and profitable business in that segment,” he said.
Between them, Diageo and USL have a large portfolio of brands across Scotch whiskies like Johnnie Walker, Vat 69 and Black Dog, vodkas such as Ciroc, Smirnoff and White Mischief and Indian Made Foreign Liquor (IMFL) whiskies like McDowells No.1, Signature, Royal Challenge and Bagpiper. Currently, USL is a sales agent of Diageo’s local arm, called Diageo India, which holds the licences to manufacture and distribute the company’s brands. The company says the transfer of these exclusive licenses to USL will likely add R700 crore in revenue to USL in the first full year as against R42 crore it will earn under the existing sales promotion services agreement with Diageo’s Indian arm.