USL to divest non-core biz to pare debt

But has no plans to trim portfolio, says IDFC note

Diageo-controlled United Spirits, which had sold its stake in United Breweries recently, is planning to sell more non core assets to reduce debt.

“The management will endeavor to sell all non-core assets to reduce debt and improve its credit rating so that it can negotiate better cost of debt from banks. Currently, USL has started working with all of Diageo’s relationship banks, which has helped it to repay some of the high cost debt and replace it with debt at a more normalised cost,” IDFC said in a note after the management’s conference call with analysts.

According to IDFC, the company has already cut cost of debt by around 100 basis points in the last six months. USL had, in early July, exited United Breweries by selling a 3.2 per cent stake via block deal for Rs 872 crore. The shares were sold to Heineken International BV.

The management also indicated that it will focus only on 10 per cent of its total brands and has no plans to prune its portfolio. USL and Diageo India currently operate around 150 spirit brands in India.

“The management has decided to choose 10 per cent of its portfolio, or around 15 brands, as focus brands which will receive a disproportionate amount of above the line spends. For the remaining part of the portfolio, the management is not looking to cut any brands and would provide below the line spends support from time to time,” IDFC said.

Royal Challenge has already been renovated in the last nine months; McDowells No 1 will be renovated next, which would include new packaging and stronger communication. Over a period of time, the company will renovate all its focus brands and will also look to launch 1 or 2 new brands, IDFC added.

Healthy pruning

USL has already cut the cost of debt by around 100 basis points
USL had exited UB by selling a 3.2% stake for Rs 872 crore.
USL and Diageo India operate around 150 spirit brands in India