Sucheta Dalal :UB Group losing its ‘spirit’ amid stronger competition
Sucheta Dalal

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UB Group losing its ‘spirit’ amid stronger competition  

October 29, 2009


The Vijay Mallya-promoted UB Group is not exactly flying high these days, if the latest quarterly results are anything to go by. Performance was mixed at the two leading arms of the UB group—United Breweries and United Spirits. Maker of popular whisky brand McDowell’s No.1, United Spirits posted a sharp 26% decline in September quarter net profit, due mostly to high operating costs and interest payments. Net profit plunged to Rs69.60 crore from Rs93.90 crore a year earlier. Operating profits grew marginally by 1%. Although sales volume increased 10% to 22.9 million cases, it was far below the 15% volume growth reported by the company in previous quarters. Raw material prices increased 26% while employee costs soared 66% due to special incentives. Interest costs almost doubled to Rs75.10 crore. The company, in a statement, said that the second quarter of the fiscal year is traditionally the slowest for the industry.
India’s largest beer maker United Breweries doubled its net profit to Rs11.71 crore from Rs5.16 crore during the same period last year, but operating profits rose only 4% over the same period. The company’s results were also helped by a strong contribution from the ‘other income’ component, which saw a 42% jump. The owner of Kingfisher brand of beer, United Breweries has been facing stiff competition from strong brands like Fosters, Heineken, Budweiser and Tuborg, which are perceived to offer better quality of beer.
Dr Mallya’s blatant exuberance in investing huge amounts in unprofitable ventures is also likely to hurt UB group’s performance. His investments in fancy projects like IPL franchise Bangalore Royal Challengers and Formula1 team Force India have provoked a lot of scepticism. Although the IPL outfit managed to achieve breakeven in its first year of operations despite languishing at the bottom of the points table, it is uncertain how they would be able to sustain profitability, given the high marketing and advertising spends. Meanwhile, Force India continues to incur losses, both on and off the track.
–Sanket Dhanorkar [email protected]

-- Sucheta Dalal