Lack of spirit to score in United Spirits

Crisis-ridden United Spirits (USL) informed the stock exchanges on Tuesday that it has called for an Extra-ordinary meeting (EGM) on January 22. The reason for EGM is to seek shareholders' nod for declaring itself as a "sick company" owing to the eroding of its net worth more than 50 per cent of its profits over the last four consecutive years. The company will declare itself sick under "sick industrial companies act (SICA) 1985". USL is British liquor major Diageo's Indian arm.

USL is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines). The Company operates in two geographic segments, which includes India and Outside India.

In accordance with section 23 of SICA, if the company's accumulated losses at the end of the current financial year have resulted in net worth eroding by more than 50 per cent or more of its peak net worth during the preceding four financial years the company shall report to the Board for Industrial and Financial Reconstruction (BIFR).

On the financial front USL's operating revenue decreased by 12 per cent to Rs 9335 crores in FY15 from Rs 10615 crores in FY14. The company faced a loss of Rs 1688 crores in FY15. The two main reasons for the losses are diminution in the value of long-term investments in subsidiaries and loans and advances to subsidiaries of Rs 716 crores due to low capacity utilisation, negative margins, or strategic shift in business and provision on advances to United Breweries of Rs 995 crores.

Other reasons include diminution in the value of investments and advances in overseas subsidiaries, loss on sale of shares in subsidiaries, profit on sale of manufacturing unit provision for doubtful debts, advances and deposits and provision for sales and other taxes. The total debt of the company stands at Rs 4771 crores. The debt burden of the company stands at 60.53 per cent of total assets.

The share price of the company is trading at Rs 2918. A decrease of 2.16 per cent from the previous close. Liquor baron Vijay Mallya holds a mere 4.07 per cent of the blue chip's equity stake after the London-based Diageo bought a majority stake (54.7 per cent) in 2012 and took control of it.