United Spirits earns a very poor return on capital employed and growth is in low single digits. The Sepetmber quarter was terrible, too. Diageo will have to do a lot of work before shareholders can benefit
While India will become one of the largest markets by sales for Diageo after the US, following the deal to buy a majority stake in United Spirits, and will attract more focus from senior management, it is doubtful whether shareholders will gain much in the absence of revenue and earnings momentum. Even as Diageo announced the deal, the September quarter results were highly disappointing.
Of course, most of the cash raised will be used to pay down the debt and that will lead to significant reduction in interest costs. But this is the only positive for shareholders from this deal.
Marketing spend will be stepped up to improving the portfolio mix, said Diageo, in a conference call. It will also look closely at other parts of the business including supply chain, sourcing and outsourced manufacturing with a view to improving efficiency and improving profitability. Revenues of United Spirits have stagnated at around Rs2000 crore a quarter for the past two years while operating profit has fluctuated between Rs300 crore.
Vaidya said the blog post is his opinion and because Jethmalani has combined two things demanding Gadkari's resignation and making Narendra Modi as PM, he thinks the needle of suspicion points towards Gujarat
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