Value of Diageo’s ‘prestige’ brands up 29%

Amid the continuing speculation about the future of former chairman VJ Mallya, Diageo continues to improve the business model at United Spirits, India’s largest spirits group.

One of the key tactics is to move USL from low margin products and to add value in the drive to move the market upwards, echoing Diageo’s global premiumisation strategy. And there is evidence that it is working.

In the final quarter of its financial year USL’s net sales increased by 13% to 22.8 billion rupees (£235m) while volumes fell by 4% to 23.3m cases.

The largest fall in volume was among “popular” brands, while those brands categorised as “prestige” or above put on an extra 9% in volume, generating a 29% rise in net sales value.

Much of the increase at the upper end of the spectrum in the quarter was due to the 400,000 cases of Diageo’s international brands sold through USL’s distribution network.

Improving margins will play a significant part in reducing USL’s debt, which stands at about £400m. Only a couple of days ago, USL’s chief financial officer, Sanjeev Churiwala, said that the Indian company is effectively looking to halve its debt over the next two years.

Some of that could be achieved through various measures that include sale of shares and properties earlier owned by Mallya. He said USL would consider divesting 13 properties once owned by Mallya and selling USL shares currently under litigation with IDBI Bank. He estimated that the property sales could realise up to £70m.

Sources in India suggest, however, that Mallya, has pre-emptive rights to buy the properties as part of the $75m deal he struck with Diageo in February to step down from USL. Others, however, say that Mallya was given a time limit of the end of March to do so.

Mallya, who is in Britain, faces arrest in India over allegations of defaulting on bank loans.