UB Group losing its ‘spirit’ amid stronger competition
United Breweries, the Vijay Mallya-promoted group is not exactly flying high these days, if the latest quarterly results are anything to go by. Performance was mixed at the two leading arms of the UB group—United Breweries and United Spirits. Maker of popular whisky brand McDowell’s No.1, United Spirits posted a sharp 26% decline in September quarter net profit, due mostly to high operating costs and interest payments. Net profit plunged to Rs69.60 crore from Rs93.90 crore a year earlier.

Operating profits grew marginally by 1%. Although sales volume increased 10% to 22.9 million cases, it was far below the 15% volume growth reported by the company in previous quarters. Raw material prices increased 26% while employee costs soared 66% due to special incentives. Interest costs almost doubled to Rs75.10 crore. The company, in a statement, said that the second quarter of the fiscal year is traditionally the slowest for the industry.
 
India’s largest beer maker United Breweries doubled its net profit to Rs11.71 crore from Rs5.16 crore during the same period last year, but operating profits rose only 4% over the same period. The company’s results were also helped by a strong contribution from the ‘other income’ component, which saw a 42% jump. The owner of Kingfisher brand of beer, United Breweries has been facing stiff competition from strong brands like Fosters, Heineken, Budweiser and Tuborg, which are perceived to offer better quality of beer.
 
Dr Mallya’s blatant exuberance in investing huge amounts in unprofitable ventures is also likely to hurt UB group’s performance. His investments in fancy projects like IPL franchise Bangalore Royal Challengers and Formula1 team Force India have provoked a lot of scepticism. Although the IPL outfit managed to achieve breakeven in its first year of operations despite languishing at the bottom of the points table, it is uncertain how they would be able to sustain profitability, given the high marketing and advertising spends. Meanwhile, Force India continues to incur losses, both on and off the track.
–Sanket Dhanorkar [email protected]

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ITC bleeding in trying to de-emphasise its image of a cigarette company
ITC Ltd, formerly Indian Tobacco Co Ltd, is known as a cigarette maker. However, over the past decade, the company has been trying to de-emphasise its image and present itself as a diversified conglomerate.

In this process it has merged the hotels business (ITC Hotels) and the paper business (ITC Bhadrachalam) with itself. This may have made sense but ITC’s foray into a variety of fast moving consumer goods (FMCG) products—from garments to matchboxes— has so far proved to be a disaster. During the last two years, it has lost about Rs10 billion on account of its FMCG and other ventures. Its cigarettes business, however, continues to support such adventures.

During the third quarter to end-December, ITC’s FMCG segment, excluding cigarettes, lost almost Rs1.30 billion. On the lower side, in the current quarter, the same is about Rs8.50 billion. Earlier, in June, ITC’s chairman YC Deveshwar declared that during 2008-2009 the company had invested close to Rs4.90 billion in its FMCG business, excluding cigarettes. He, however, did not want to reveal the investment figures for 2009-2010.

The Kolkata-based company forayed into the FMCG business nine years back with its lifestyle retail stores, Wills Lifestyle. Its FMCG business includes products like branded packaged foods (staples, biscuits, confectionery, snack foods and ready-to-eat foods), garments, educational and other stationery products, matchboxes, agarbattis and personal care products. 

ITC's effort to portrait itself as a diversified company is proving to be expensive. There is no let-up of the bleeding in sight, either. Losses also stem from its strategy of moving into highly competitive and money-losing businesses like garments and foods to start with rather than personal products.
- Pallabika Ganguly [email protected]

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IOL Netcom’s ex-employees continue to remain unpaid

Internet Protocol TV and Internet services provider IOL Netcom has still not paid dues to its employees. At the same time the company’s advertisings are appearing in many English dailies. Several employees who left the company due to non-receipt of overdue salaries are apparently still being left in the lurch.

Moneylife had earlier carried an article highlighting the non-payment of salaries and dues of many IOL employees. There still are many complaints against the Mumbai-based company pouring in to Moneylife. One employee in a particular complaint points out while their salaries remain unpaid from late 2008, the company has even failed to deposit the employees’ tax deducted at source (TDS) collection with the Income-Tax department. The complainant claims that the company neither issued any TDS certificates nor any salary slips for many employees.

Apparently, when some employees approached a political party, the Maharashtra Navnirman Sena (MNS), they were promptly given their dues. But other employees are not even being entertained by IOL. Recently, the company had posted huge advertisements in a couple of English dailies that are very particular on payments. This means IOL does have cash but does not want to use it for paying dues of its current and former employees.
 –Sanket Dhanorkar [email protected]
 

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