INDIA: United Spirits sees 19% slide in Q1 profits

The group's major shareholder is now Diageo, which has control of the company

United Spirits has blamed a “sharp” rise in raw material costs after reporting a double-digit drop in first-quarter net profits.

In its first financial reporting since Diageo became the group's major shareholder, the company said that in the three months to the end of June this year net profits fell by 19% to INR2.1bn (US$19.3m). Sales in the period, however, rose by 6.5% to INR22bn ($361.8m), while operating profits fell by 16% to INR2.9bn ($48m). 

Volumes in the quarter were flat on a year-on-year basis at 31.3m cases.  

It comes after a drop in full-year profits, reported in May. 

The spirits group, which has a board that now includes two Diageo executives, pointed to a a “sharp increase in the costs of primary raw material” for the drop in Q1 earnings. The company also flagged “higher” spending on cricket's Indian Premier League through advertising and sales promotions in the quarter. 

United Spirits' Scotch whisky volumes grew 8.8% in Q1 to 8.21m cases, while its premium brands, aside from whisky saw sales up 44.2% to 0.2m cases. 

“Strategic brands of the company continue to perform well,” the group said in a statement. 

But the company warned it faces problems in the state of Tamil Nadu. “Tamil Nadu continues to be a dampener on (the) USL business with the ordering mechanism deliberately skewed to favour brands from select local vendors at the cost of the popular brands of USL,” it said. 

“From a situation three years ago where one of every three bottles sold in Tamil Nadu was from the USL stable, the USL share is now down to one out of every six bottles sold.” 

Diageo reported its full-year numbers earlier this week.