United Spirits Ltd., the Indian liquor maker controlled by Diageo Plc, is seeking shareholders’ approval to report its plunging net worth to regulators amid a battle to oust former owner and Chairman Vijay Mallya.
The maker of McDowell’s No. 1 whiskey and Romanov vodka has called a special shareholder meeting on Jan. 22, it said in a stock exchange filing. An approval will allow the company’s board to inform regulators about its financial condition under the Sick Industrial Companies Act, after years of accumulated losses eroded its net worth.
“The company is in a situation where it is not able to meet all its requirement from the business,” Lancelot D’Cunha, chief executive officer at Crest Wealth Management Pvt., said by phone in Mumbai. Once debt is revamped investors should buy the stock “as they are in a good business segment,” he said.
The regulation identifies "sick" and "potentially sick" companies due to factors such as mismanagement, and allows authorities to step in and take measures to revive or liquidate them. Getting the business right in India, home to the world’s largest number of whiskey drinkers, is crucial for Diageo.
United Spirits, which Diageo bought in April 2014, has not made an annual profit since the financial year ended March, 2012, and has been trying to oust Mallya, citing financial irregularities. United Spirits in April sought Mallya’s resignation after concluding an internal inquiry into loans and deposits made by the company over a three-year period. Mallya refused to step down and denies any wrongdoing.
The Indian company’s shares fell as much 3.1 percent to their lowest level in three weeks. They were trading 2.1 percent down at 2,920.15 rupees as of 2:28 p.m. in Mumbai, while the broader S&P BSE Sensex fell 0.2 percent.
Long-Term Prospects
The Bengaluru-based liquor maker’s losses, arising mostly out of investments and provisions, does not reflect upon the long-term prospects of the company, United Spirits said. Steps including reorganization of the board has allowed the company to gain a diverse and global product portfolio since it was bought by Diageo, the London-based producer of Johnnie Walker Scotch, the Indian company said Tuesday.
United Spirits’ net worth has slumped to 8.5 billion rupees ($128 million) in the year ending March 31, 2015, from 58.5 billion rupees two years earlier. Its accumulated losses have risen to 50.4 billion rupees for the same period, the company said.
Diageo has been going through a rough patch in other countries too, with the Securities and Exchange Commission looking into its distribution practices in the U.S., while China sales have been hurt by the country’s anti-extravagance campaign.
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