United Spirits Plans To Lower Debt By Selling Non-Core Assets

India's largest spiritmaker is looking to resolve some legacy issues and sell non-core assets to recover losses and reduce net debt.

The company is aiming for aggressive market share gains and growth in all categories with cost cuts and optimising finance costs through improved performance, said MK Sharma, chairman of United Spirits Ltd., at the 19th annual general meeting.

The Diageo-owned firm had a debt of Rs 3,064 crore as of March 2018, according to Bloomberg. The exchange notification and the annual report, however, doesn't disclose any details of the assets the company is willing to dispose.

United Spirits' net profit in the quarter ended June fell short of analysts' estimates due to a one-off impact on sales from a change in operating model and a Supreme Court ban on selling liquor on Indian highways.

The management, however, said challenges like the highway ban, the goods and services tax and uncertainties related to state disruptions are behind them.

The spiritmaker has been focussing on premiumisation and cost cuts as it looks to improve margins. It also plans to hike prices of its products. The company in its annual report said it also expects to achieve a double-digit growth in its top line.

Sharma said the growth opportunity in the Indian spirits market remains attractive due to the fast-growing economy and population. The company's manufacturing facilities spread across the country will enable faster turnaround of products and reduce exposure to risks related to changes in state policy, he said.

Inflation in extra neutral alcohol and packaging costs are key headwinds for the near-term margin expansion, which in turn pose a risk for an increase in return on capital employed, according to Avi Mehta, analyst at IIFL.

United Spirits is down 34 percent so far this year, compared with a 2 percent gain in the S&P BSE Sensex.

Of the 21 analysts covering the stock, United Spirits has equal number of ‘Buy', ‘Hold' and ‘Sell' ratings, according to Bloomberg data. Edelweiss and B&K are the most bullish with a target of over Rs 700, while Macquarie and IIFL have price targets of less than Rs 500. The Bloomberg consensus shows a return of 25 percent on the stock.