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n United Spirits’ (USL) operating cash flow during FY10 remained under pressure due to increased working capital requirement. Non-cash adjustment in respect of unrealised forex loss however supported the strained operating cash flows.
n Debtors jumped 50.9%, from INR 8.9 bn in FY09 to INR 13.4 bn in FY10, and were at 21.1% of sales (FY09: 16.2%).
n Cash flow states that, during FY10, the company incurred unrealized foreign exchange losses of INR 5.7 bn; however, net forex losses charged to the P&L stood at INR 3.1 bn.
n Un-realised forex loss of INR 5.7 bn adjusted in the cash flow comprises of INR 2.9 bn on account of amortisation of forex losses incurred on debt (of which INR 1.9 bn is for debt repaid during the year), and INR 2.5 bn and INR 0.3 bn of account of movement in goodwill and fixed assets, respectively.
n During FY10, USL, through its subsidiary, sold 10.3 mn treasury shares for INR 8.9 bn. The same has been shown as exceptional and non-recurring items under cash from operations.
n USL also raised INR 16.2 bn by issuing 17.7 mn equity shares via QIP.
n During Q4FY10, ~INR 14.5 bn domestic debt was raised in the standalone entity, which along with funds raised above, were utilised to extend interest free loans of INR 32.1 bn to its wholly owned subsidiary, USL Holdings, UK (USLH), to repay the W&M acquisition debt.
n Consequently, the company’s D/E dipped from 4.2x in FY09 to 1.5x in FY10.
n Interest free loan extended to USLH are likely to be converted into equity share of the subsidiary in the near future.
Other financial highlights
n USL’s sales increased 16.4%, from INR 54.7 bn in FY09 to INR 63.6 bn in FY10. EBIDTA margin rose from 14.1% in FY09 to 16.2%, primarily on account of lower actuarial loss on pension fund. Ex-pension, EBIDTA loss was flat at 17.1% (FY09: 17.3%).
n During the year, W&M has provided INR 0.6 bn (FY09: INR 1.7 bn) on account of actuarial loss on pension fund. Present value of the obligation and fair value of plan assets as at FY10 end stood at INR 8.2 bn and INR 7.3 bn, respectively. Further details in respect of assumptions and investment book break up for defined pension fund are not available.
n USL has also reported derivative loss of INR 1.4 bn in FY10 (FY09 INR 1.4 bn), which, in our view, is primarily on account of interest rate swaps. MTM charge of the same is included in interest expenses.
n Goodwill stands at INR 42.4 bn, at ~118% of net worth. Treasury shares included in net worth stand at INR 1.2 bn (3.3% of net worth).
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