The United Spirits have suffered huge beating of late and the shareholders of United Spirits have nothing to say cheers about. During recent times when the FMCG stocks are experiencing rise in their prices United Spirits seems to be the only FMCG stock which is towards decline. The reason this Vijay Mallya owned company has suffered beating from investors is its high debt and increased debt refinancing costs apart from high level of pledged shares.
Recently United Spirits touched a 52-week low of Rs. 741.60 on NSE on Monday. It recovered little bit but still ended down about 3% at 755.50. Since the month of April the stock has gone down about 24% and during this period the CNX FMCG has seen a rise of 6%, whereas the Nifty has seen a fall of 17%.
One of the reasons why United spirits is experiencing a fall is its high debt of Rs. 6,786.53 crore as of June 30. Large part of the debt was towards the loan for Scotch whisky maker Whyte & Mackay, which it acquired in 2007 and working capital loans. Some of the other reasons which have taken the fizz out of United Spirits are the price of ENA, which is one of the basic ingredients of the company. The ENA price was Rs. 146.73 in the first quarter as compared to the price of 142.83 a year ago. The Glass and packaging costs were also high in the first quarter. These increases dragged down the gross margins to 41% in April-June from 46% a year ago. Whyte & Mackay’s EBITDA margin was also sharply down to 11% from 20.97% due to higher marketing expenses.
Bell The Bull says the ENA and the Glass prices are expected to rise and the stock could see a further fall if its debt structure does not improve