Won't shy away from exiting non-profitable ventures: Diageo

World's largest spirit maker Diageo Plc, which owns majority stake in United Spirits, has questioned Indian brokerage community's bullishness on the Indian liquor company. Diageo has made eight acquisitions in emerging markets over the past three years, spending about 3 billion pounds

Also read: United Spirits Q2 net soars 2.4 times to Rs 94.27cr

The management has said that scale is something that the company enjoys in a lot of emerging markets (EMs) but not in India. It is because of the regulatory pressures and the regulatory nature of the business that they do not enjoy it (scale) as an advantage here. The company further added that EMs are definitely starting to slow down and India is not immune to it and competition is huge risk for them at this point in time.

One of the most important takeaway from the meet is the indication that Diageo will not shy away from exiting any kind of mass brands which are not making them any money. United Spirits had exited its direct operations from the Tamil Nadu market because they were facing huge volume pressures there.

There are also murmurs that the company is not making any money in the Uttar Pradesh market. While the management said the possibility of a spill over at this point of time is less, but it cannot be completely ruled out.

The management further added that the sell side assumptions on the EBITDA margin expansion, at least in the next two years, are also very aggressive. Several brands of the company like McDowell require huge brand investments which the company will focus on. Therefore, the kind of EBITDA margin expansion that brokers are talking about is not likely to come by.

Another key takeaway from the meet was the complete refusal of the company being in talks with anyone as far as the Whyte & Mackay sale is concerned.