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Last Updated : Sep 04, 2014 10:15 AM IST | Source: CNBC-TV18

Expect significant downgrade on United Spirits: CIMB

Given the lack of clarity in terms of core earnings, CIMB Equities has a reduced rating on USL after having a negative rating on the stock since 8 months.

United Spirits has posted a huge loss of Rs 4,489 crore in the year ended March 2014 on consolidated basis, increased by 44.4 times compared to a loss of Rs 101.2 crore in previous year, dented by exceptional loss of Rs 3,236 crore related to provision.

However, Varun Lohchab of CIMB Equities feels USL’s figures for the April-June quarter were more or less on expected lines.

In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, he says the company has taken three hits. The Whyte & Mackay proceeds have been lower than expected, doubtful advances of Rs 600 crore and to top it all, USL has only taken provision for the first installment on UBHL loan making room for further provisions in the future.


Given the lack of clarity in terms of core earnings, CIMB Equities has a reduced rating on USL after having a negative rating on the stock since 8 months.

Below is the verbatim transcript of the interview:

Q: Were the USL loss numbers bigger than you thought? Did you expect an EBITDA loss in the first place?

A: No, if you see EBITDA loss also that is including some prior period adjustments and exceptional items. So, if you look at say Q4 numbers adjusted for all exceptionals, EBITDA margins are around 4.7-4.8 percent that are substantially lower than last year around 500 basis points lower but it is not EBITDA loss on the core operations.

Q: What about the net loss itself, are all the entries as you anticipated or do you think the markets will need to bring the stock down further because of bad news being more than expected?

A: Entries are more or less on expected lines but there are three main kind of hits that they have taken. One is, the difference in terms of Whyte & Mackay (W&M) sale proceeds being lower than what was the value on balance sheet. So, there is around Rs 3500 crore impact because of Whyte & Mackay write off.

Then there is Rs 600 crore provision that they have made on certain doubtful advances. If you read the details it seems there are some investigations which are still going on regarding those amounts and that would come as a slight negative surprise I would say though there was some news of that thing floating in the media earlier as well. That is a negative surprise.

In terms of UBHL loan, which they had given of around Rs 1300 crore odd, out there they have still only taken provision for the first instalment which was due till now which is around Rs 300 crore odd. So, they have not taken a full hit on the UBHL loan and they believe they will be able to recover that over a period of time.

If you look at the tenure of that UBHL loan that is much longer, that is around 8 years. So, I think that is a sort of negative surprise which might come to investors.

So, net-net more or less on expected lines the broad sort of hit which they had to take on exceptional items. However slightly I would say on the negative side compared to what the expectations were.

Q: Can we expect more write offs to be taken in the next quarter as well on this UBHL loan and also on the other doubtful advances?

A: On the doubtful advances part, there may not be further provisions but on UBHL loan there could be. Management has said that they will continue to reassess it over the upcoming quarters and if need arises they might take further provisions out there.

First Published on Sep 4, 2014 09:36 am