UNITED SPIRITES, Bangalore>

Financial Statement Analysis

SONU ITTOOP, BATCH B and roll No:
30>
 UNITED SPIRITES 4Ps
• Product in the Marketing Mix of United Spirits :
• The company specializes in producing everything within
the alcoholic drinks line. Within their product lines are
found:
• Indian Whisky
• Scotch whisky
• Rum
• Brandy
• Wine
• Vodka & Gin
 UNITED SPIRITES 4Ps
• Price in the Marketing Mix of United Spirits :
• The company understands that the highest percentage of alcohol drinkers
would prefer to go for the cheapest alcohol possible within a specific
segment. For such a reason, most of the products released by the
company are lowly priced when compared with others of the same
quality.
•
• It is no wonder the case that McDowell brands are very common in the
third world countries and in the middle income earning segment. In a
nutshell, the pricing strategy is based on the value and production &
distribution costs. Their prices also have to be comparative with the
alcoholic beverages already on the market.
 UNITED SPIRITES 4Ps

• Place in the Marketing Mix of United Spirits :

• The company has been able to open distilleries in almost all corners and
“armpits” of India and beyond. Serving over 37 countries on all the
continents, United Spirits does not only target the worldwide market but it
has been able to penetrate this global arena. All the different classes of
people have products that ogre well with their ethnic groups, starting
from the low-income earners all the way to the high-income earners.
 UNITED SPIRITES 4Ps
• Promotion in the Marketing Mix of United Spirits
• One of the marketing methods that the company has been using is mergers
between already established companies thus coming up with a formidable
force that is felt in the entire market. United Spirits Limited itself came up as a
result of the merger of Shaw Wallace, Baramati Grape Industries, McDowell &
Co LTD, Triumph Distillers & Vintners LTD, Herbertsons LTD and four other
companies. The company went ahead to acquire Bouvet Ladubay distillers in
the same year. The company also ensures that it produces quality liquor at a
fair price for the market.

• The company uses some of the top renowned brands to that are highly
promoted to give the company’s growth and portfolio. Some of the top brands
being highly marketed include the Royal Challenge, together with McDowell’s
No. 1. Fundamental renovations and innovations are done to such brands,
with others being rebranded to appeal to the market the more.
 Global Market scenario
• Global Alcoholic Beverages Market was valued at $1,344 billion in 2015,
and is expected to reach $1,594 billion by 2022, registering a CAGR of
2.1% from 2016 to 2022
• The global alcoholic beverages market is driven by the increase in global
young-adult demographic, coupled with high disposable income and
consumer demand for premium/super premium product
• Consumption of alcoholic beverages in North America is expected to
increase due to the growth in young‐adult population, and change in trend
to elevated consumption of high-quality alcoholic beverages.
• Emerging markets such as China and India, are expected to witness the
highest increase in demand for alcoholic beverages during the forecast
period in Asia-Pacific. This can be primarily attributed to the substantial
growth in disposable income in this region
 Indian Market Scenario
• India’s alcohol industry is the third largest in the world with a
value of $35 billion.
• The industry is divided into three categories:
• Indian Manufactured Foreign Liquor (IMFL), beer, and
homemade liquor.
• According to India’s Agriculture & Food Export Authority, the
country exported $343 million of alcoholic beverages to
nations including the U.A.E., Ghana, Angola, Nigeria, and
Singapore in 2014.
• According to our research, the alcoholic beverages market in
India is expected to grow at a CAGR of around 7.72% over a 10
year period to reach a value of INR 5.3 trillion in FY 2026.
 Comparative Analysis
• Comparative Balance Sheet:
• The current assets have increases in every year and cash has increased in every year. The current liabilities
have been increased in every year. This further confirms that That Company has raised long term finances
even for the current assets resulting into an improvement in the liquidity position of the company.
• Decrease in reserves and surplus shows the company used its reserves for paying dividends. It shows that
the working capital is not comfortable and the company is not in a good position. The fixed asset has
increased in proportion to the increase in capital fund and long term liabilities. Long term borrowings are
reduced in every year. It shows the company repaying its debts correctly and they maintaining a good
approach toward its external creditors’ company.
• The overall financial position of the company is satisfactory.
• Comparative Income Statement:
• The revenue from operation have shown an increase of 8.42% in 2017 whereas the gross profit percentage
have increased by 3.84% in 2017 and the net profit after tax increased by 39.38% over the previous years.
The disproportionate decrease in G/P ratio is mainly because of the contribution of operating expense to it.
The operating expenses have increased only by 10.89%. In every year the company paying a higher amount
of tax top the government. The tax rates will change in every year. There in an increase in net profits after
tax in the last years.
• It may be concluded that there is a sufficient progress in the company and overall profitability of the
company is good.
 Common size analysis
• Common Size Balance Sheet:
• The company is suffering from inadequacy of working capital. The percentage of current
liabilities is more than the percentage of current assets.
• The percentages of reserves and surplus substantially increased in the past years. The
company have followed a policy of financing fixed assets from long term funds.
• The analysis of various figures shows that company have satisfactory long term and short
term financial position.
• Common Size Income Statement:
• The sales and gross profit has increased in every year as compared to previous year.
• Operating expenses have remained the same in every year but non-operating expenses are
increasing in every year. A slight decrease in non-operating expenses in the latter year could
not help to improve profits.
• The overall profitability has decreased in 2016 and 2015 and the reason is rise in cost and tax
policies of the government. The company should take steps to control its cost of sales
otherwise the company will be in trouble.
 Trend analysis
• The sales will continuously increase in all the years up to 2017.
• The figures of stock have also increased from 2014 to 2018. The increase in stocks
is more in 2013 and 2004 as compared to earlier years.
• Profit before tax and after tax substantially increased in the last year. In 2016 and
2015 the company faced a huge loss.
 Cash flow analysis

• Cash flow statement

– Cash flow from operations
– 2017:946.30 cr, 2016:673.30 cr, 2015:315.50 cr
– Cash flow from investment
– 2017:155 cr, 2016 -88.90cr , 2015:705.40 cr
– Cash flow from financing activities
– 2017:-1033.30 cr, 2016 -545.30 cr,2015: -1109.30
cr
 Ratio Analysis
A current ratio of 2:1 is considered to be acceptable. The higher the current ratio is the more capable
the company is to pay its obligation. When the current ratio is below, then the company may have
problems in paying its bill on time. Current ratio gives an idea about companies operating efficiency.
From the graph it is clear that the current ratio is highest in the year 2013-14 and lowest in 2015-16.
From 2012-13 it was increasing but in the year 2014-15 it has reduced to .96 it is not a acceptable
A quick ratio higher than 1:1 indicates that the business can meet its current financial obligations with
the available quick funds on hand. A quick ratio lower than 1:1 may indicate that the company relies too
much on inventory or other assets to pay its short term liabilities. From the table it is clear that the quick
ratio is decreasing year by year. The liquid ratio is highest in the year 2015-16. Usually a high quick ratio
represents that the firm is liquid and has the ability to meet its current liabilities. Here the company’s
last 3 quick ratio is satisfactory. So this indicates that the company had sufficient liquid assets for paying
the current obligation
Inventory turnover ratio is a ratio showing how many times a company has sold and replaced
inventory during a period. Low turnover implies weak sales and, excess inventory. A high ratio implies
either strong sales or large discount. USL has high inventory turnover ratio. So it has high sales.
The DEBTORS turnover ratio is an accounting measures used to quantify a firm’s effectiveness in
extending credit and in collecting debts on that credit. High receivable turnover ratio implies a variety of
things about a company. It may suggest that a company operates on a cash bases, the company has a
conservative policy regarding its extension of credit. USL has very low receivables turnover ratio.
Asset turnover ratio measures the value of a company’s sales or revenues generating relative to the value of its assets. The
higher the asset turnover ratio, the better the company is performing. From the graph it is clear that in 2017-18 the company had
the highest asset turnover ratio. But it has been declining over the last 4 years.
Profitability Ratios:
Operating profit ratio
Operating profit ratio expresses the relationship between operating profit and the sales. It is better to have lower ratio because
higher ratio shows a small margin of operating profit for the payment of dividends and the creation of reserves. The company has
lower margin in 2013-14 and higher in 2012-13.
Gross Profit Ratio:
In USL ltd the gross profit ratio was lower at the year 2013-14. Later in 2017-18 company achieved the highest ratio of 9.8. But in
2015 it decreased and reached to the level of 4.67. Low gross profit margin indicates that the company is unable to control the
production cost.
Net Profit Ratio:
In USL the net profit margin was growing considerably. From 2013-14 to 2014-15 it shows a negative net profit margin. And in
2016-17 ans 2017-18 the shareholders were able to get higher return of all these years.
Return on Capital Employed:
The return of capital employed increased in last 3 years comparatively. But in 2014 it shows a negative value. It shows the
company faced a huge problem in its financial position in that year.
Return on Net Worth:
The return on asset is comparatively low in 2013-14 and 2014-2015, which shows underutilization of assets i.e. 845.21. The
lowest ratio was at the year 2014-15 which is -100.74
• Return on Net Worth:
• The return on asset is comparatively low in 2013-14 and 2014-2015, which shows underutilization of
assets i.e. 845.21. The lowest ratio was at the year 2014-15 which is -100.74
• Debt Equity Ratio:
• The optimal debt to equity ratio varies widely by industry, but the general consensus is that it should not
be above 2. A low debt to equity ratio means company is less depending on the debt finance. A company
with higher ratio than its industry average, therefore, may have difficulty in securing additional funding
from either source. So USL they are less depending on the borrowed funds. The highest debt equity ratio
was on 2015-16. But in last year it has less than 2.
• Interest Coverage Ratio:
• The interest coverage ratio is a debt ratio used to determine how easily a company can pay interest on its
outstanding debt. The lower the company’s interest coverage ratio is, the more its debt expenses burden
the company. If a company’s ratio is below 1, it will likely need to spend some of its cash reserves in order
to meet the difference or borrow more, which will be difficult for reasons stated above. Otherwise, even if
earnings are low for a single month the company risks falling in to bankruptcy. In USL, last years the
interest coverage ratio greater than 1, so the company’s risk for default is too low and it have the ability
pay its outstanding interest. But in 2014 and 2015 it is less
 Valuation
• Market Value of united spirits Traded on BSE
exchange as on 11th September Rs.586.10.
• Book Value of united spirits is Rs.33.80.
• Price to Book Value of united spirites is Rs.
17.34
• Earnings per Share are Rs.38.08
• Market cap :30610.0
• Price to Earnings is 186.31
• Price to book value : 16.31
• Price to sales revenue : 3.7
• Weight to debt : 0.1133
• Weight to equity : 0.8867
• WACC of united spirits : 0.1771
• Price to cash flow from operations: 42.59
• Enterprise value :3559804
• Cost of Equity (CAPM Model): -4.555
 Recommendations and suggestions

• United Spirits Limited, also known as USL is the second largest alcoholic beverages company
by volume in the world.
• It is a part of Diageo and its headquarters is located in Bangalore. The market capitalisation of
united Spirits is approximately Rs.48,100 crore, United Spirits experienced a 9% decline in
profit for Q3 FY18 to Rs.135 crore.
• This was saidto be the repercussions of marketing expenses. The profit in Q2 FY18 stood at
Rs.153 crore. The net sales of the company too took a hit as it declined by 2% in Q3 of FY18.
However, the company witnessed a 1% year on year increase in revenue.
• The revenue of Q3 FY18 stood at approximately Rs.7,100 crore. When compared to Q2, the
net sales of United Spirits increased to roughly Rs.2200 crore. In Q2 of FY18, the net sales
stood at Rs.1951 crore
• United Spirits stock trends in 2018. The stock price of USL stood at around Rs.3,690 in the
beginning of January 2018.
• The stock price then peaked to Rs.3,739 in a few days, after which it went downhill for the
month. At the end of January 2018, the stock price amounted to, roughly, Rs.3,280.
• The beginning of February was a bit of a low for the company as it hit almost Rs.3,000 in only
a few days into the month. This proved to be the lowest price the stock had hit that month.
By the end of February, the stock price picked up and amounted to Rs.3,277 on 28th
February.
 Why should invest in United Spirits?
• USL is the largest alcohol company in India and the
second largest in the world
• The performance of the company has been steady for
the last few years, therefore, it is very unlikely that is
will perform badly in the coming years
• Alcohol as an industry in general has a high demand all
year round, minimising any unforeseen losses
• The company has experienced good growth in the past
few years and is expected to do so in the coming years
as well
 References
• https://economictimes.indiatimes.com/
• https://www.moneycontrol.com/stocks/comp
any_info/
• https://www.diageoindia.com/
• Annual reports