ub group presentation - june 2011
TRANSCRIPT
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³UB Group Overview´
June 2011
Presentation By Mr. Ravi Nedungadi,President & Group CFO
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UB Group
United Spirits Ltd.
No. 1 Spirits Company in India
Largest spirits company in the world and in India with a market share of 59% in first line brands
Key brands are Dalmore, Jura, Whyte & Mackay, Black Dog, Antiquity,Signature, Royal Challenge, McDowell's No.1, Celebration Rum,Romanov and White Mischief
Undisputed leader of the Indian beer industry with 56% market share
Key brands are Kingfisher Blue, Kingfisher Strong, Kingfisher Premium,Kingfisher Ultra, Kingfisher Draught, London Pilsner, UB Premium Ice,Kalyani Black Label Premium and Kalyani Black Label
United Breweries Ltd.
No. 1 Beer Company in India
Largest carrier in India with 20% market share in May 2011
µBest Airline in India and Central Asia¶, µBest Economy Class Seats¶ andµStaff Service Excellence Award for airlines in India and Central Asia¶ inWorld Airline Awards (May, 2010)
India's only 5 Star airline, rated by Skytrax and 6th airline in the world for
3rd consecutive year (May, 2010)
Kingfisher Airlines Ltd.
India¶s Leading Airline
Diversified presence across businesses including equity investment inMangalore Chemicals & Fertilizers Ltd. and UB Engineering Ltd.,investment in Vittal Mallya Scientific Research Foundation and
franchisee for IPL team ³Royal Challengers´
Diversified Business
Interests
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923 1,266
1,617
0
1000
2000
2009 2010 2011
United Spirits: Overview
Business Overview
Largest spirits company in India ±21 µMillionaire¶ brands(those that sell more than 1 MM cases p.a.) with a marketshare of 59% in first line brands
USL sold 112 MM cases during FY 2011 to become thelargest spirits marketer in the world. Growing at robust doubledigit rates
Several of USL¶s brands occupy leading market positions inIndia and globally
í McDowell No. 1 Platinum Whisky ended fiscal 2011 as a³Millionaire ³ brand in the first year of its launch
í McDowell No. 1 family is the largest spirits brand in theworld with sales of over 40.8 MM cases in FY 2011 across3 flavors (Whisky, Brandy and Rum)
í McDowell¶s No. 1 Brandy continues to be the largestselling brandy in the world
í McDowell¶s No. 1 Celebration Rum is the 3rd largest rumwith sales over 14.5 MM cases in FY 2011
Bagpiper Whisky is world¶s largest selling whisky brand with
sales of over 16 MM cases during FY 2011
Financial Snapshot ± Q4 ( INR Crs)
Revenue
160 196 233
0
200
400
2009 2010 2011
EBITDA
56 57
78
0
50
100
2009 2010 2011
PAT
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Macro Consumer Forces, and Trends (1/2)
Population Evolution
Rapid Induction of new young consumer in various alco-bev
categories.
They are seeking complexity in addition to variety
Rise in mixed gender social drinking groups
Urbanization
Possible increase in consumption levels with changing lifestyle
With rising affluence and exposure to luxury lifestyles, consumers
will seeking out premium products and brand experiences even in
these cities.
Premium spirits represent the democratization of Luxury
Experiences
Greater Disposable
Incomes
Up trading : Pattern of up gradation in buying habits across
segments
Fastest growing segments-:
Premium Vodka 26-30%, Premium Whisky 21% ,
Super premium Whisky 22% , Premium Scotch 27%.
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Macro Consumer Forces, and Trends (2/2)
Strong brand
consciousness
Need to make brands aspirational & knowledgeable to attract new entrants
Brand positioning & platforms
Contemporary positioning required - Wider options available for platforms Sharper differentiation based on consumer need spaces
Consumer needs and preferences are evolving and changing rapidly
The beverages available in 1980-90 have expanded into new segments
and choices that are available today.
Rising Affluence will cause new consumption categories that go muchbeyond traditional needs and desires resulting in the emergence of new
categories consumption.
Luxury orientedconsumption habits
Upper class on fast track
Rich & consuming classes of population grew by 100% & 16%
respectively in 5 yrs
Top of the consumption pyramid is exploding- Very rich class growing
fastest at 45%
Over 140,000 HH to have income> 1 crore in 2010 - 7 times from
2001
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Furthermore the relatively higher growths of the Premium segments is
expected to lead to increased premiumization in the market Consumers are trading-up to premium products due to rapidly changing demographics
In the past, super-premium and Scotch segments had not achieved a critical mass because of lack of
distribution and infrastructural support in India
Latent demand for super-premium brands can be captured through comprehensive distribution of these
brands in India
(Source: India Industry data, USL estimates )
Indian Alcobev Market Profile by Value
2005-06
Indian AlcobevMarket Profile by Value
2011-12
Scotch &
Premium
(14%)
Prestige
(19%)
Medium &
Cheap
(14%)
Regular (53%)
Scotch &
Premium
(22%)
Prestige
(25%)
Medium &
Cheap
(8%)
Regular (45%)
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Key Flavor-wise Performance
8
Growth %
Q4 FY 11
Growth %
FY 11
Scotch Whisky 21% 37%Brandy 20% 21%
Rum 11% 11%
Whisky 11% 10%
White Spirits 7% 8%
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United Spirits: Q4 Update
9
Volume
Volume growth at 12%
Volumes at 28.76 Mio cases Q4 FY 11 comparedto 25.65 Mio cases in Q4 FY10
Sales
Revenue growth at 28 %.
Sales value grew at Rs. 1,617.3 Crs. in Q4 FY11 Vs. Rs. 1,266.3 Crs. in Q4 FY10, anincrease of 28%
Adjusted for the impact of the Balaji merger ,Effective Revenue growth USL would be 19%on a volume growth of 12% , reflecting thecontinuing success of the premiumisation focusof the company
EBITDA of Rs. 233.2 Crs. represents a 19%increase over the comparable period of the previousfiscal
The incorporation of the large turnover of BalajiDistilleries at Rs. 112Crs in this quarter ( Nil in the
comparable period) has impacted the reportedEBITDA margin by 100 bps points
Despite cost increases, the EBITDA margin to netsales has been maintained at the FY10 rate of 16%
Profitability
Cost trends
Spirits Costs during the quarter were down1.5% over the corresponding quarter ,
however they were up 5% over Q3 FY 2011 These cost are expected to come down
going forward
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USL : FY 2011 Financials
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( In INR Crs.) FY 2011 FY 2010 Growth
Net Sales / Income 6,422.8 4,979.5 29%
COGS 3,596.4 2,753.0
Gross Margin 2,826.4 2,226.5
Staff Cost 356.6 290.4
Advert. & Sales Promotion 665. 3 473.5
Other Overheads 766.8 638.0
EBITDA 1,037.7 824.5 26%
Exch. Diff Gain /( Loss) / Other Income (20.2) (2.6)
Interest 403.1 309.6
Depriciation 45.1 38.6
PBT before exceptional item 569.4 473.7
Exceptional items 36.8 70.0
PBT 606.2 543.7 12%
Tax 203.1 167.7
PAT 403.1 376.0 7%
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USL ± Debt Position (Consolidated)
Rs. Crs
( In INR Crs.) Mar-11 Mar-10
Secured Loans
Capex Loans 527 107
Term Loans 1,545 1,790
Working Capital 907 785
Sub- Total 2,979 2,681Unsecured Loans 1,061 636
Sub -Total 4,040 3,317
W & M Acquisition Loan - W/o recourse 2,300 2,189
Total Debt 6,340 5,506
Total Gross debt ( consolidated) 6,340 5,506
Cash & Bank Balance 637 769Total Net Debt 5,703 4,738
Note :Value of 8.4 mio treasury stock amounts to about Rs. 819.6 Crs.
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ENA CostM
ovement
12
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Initiatives to counter cost push
Wet goods
í About 30% of USL¶s EN A consumption is grain based.
í Investment into multi substrate primary distillation will buffer USL from the cynicalprice variance of Molasses
í USL sells 5.6 times higher than its nearest competitor , thereby giving it significantprice advantage due to economies of scale.
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Initiatives to counter cost push Glass
í Glass prices are directly linked with energy prices. Glass producers are seeking price increases due to the
increase in crude prices.
í Short term: USL has strategically focused on alternate packaging formats e.g. recycled bottles, PET
containers and Tetra packs.
All of which generate benefits ranging from 25-45% from current costs.
There is still significant headroom in packing mix change i.e to increase the utilization of recycled bottles
in mass segments
í Long term: Additionally, In collaboration with UBL, USL plans to invest in 1-2 glass manufacturing facilities
which will help it to capture margins currently retained by manufacturers, lower cost and save taxes
Use of the latest technology will help to lightweight the bottles which will help realize further savings.
í Plans to set up a logistics enterprise along with UBL for collection of market bottles
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Whyte & Mackay: Status update
Scotch inventory is valued at GBP 430 Mio with a inventory of 104 Mio liters as of December 2010
Key awards won/landmark events:
o Won the µGlobal Distiller of the Year¶ recognition in 2009 at the International Wine & Spirits competition.
o
Whyte & Mackay 30-year old was named ³Best Whisky in the World 2009
o Shackleton expedition: Recovered 3 bottles of ours which were buried for over 100 years under the Arctic
ice
Branded contribution has gone up by 3% in value terms due to very strong performance from Malts (Dalmore andIsle of Jura)
We are creating a specific cell to address Emerging markets jointly with USL
Revenue for FY 2011 was GBP 140.9 Mio , EBITDA GBP 30.2 Mio and PBT GBP13.3 Mio
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464573
840
0
500
1000
2009 2010 2011
United Breweries: Overview
Business Overview
With 56% market share, UBL is the undisputed leader of theIndian beer industry, with over 5 decades of marketleadership
Sold more than125 MM cases during FY 2011
Kingfisher is the ubiquitous Indian beer, available asKingfisher Premium, Strong, Blue, Red and Ultra
UBL is uniquely positioned with manufacturing facilities in allkey markets
í Ensuring freshness of beer
í Leveraging India¶s interstate tariff difference to economicadvantage
UBL ± Heineken Deal
Heineken holds 37.5% stake in UBL and has a shareholder¶sagreement with UBL based on which Heineken will be activein India solely through UBL. We are working towards creatinga unified structure, and realize synergies
Heineken will be produced in India by UBL. UBL will nowhave an access to Heineken¶s distribution and manufacturingfacilities in the international markets, which UBL is currentlycatering through exports
Financial Snapshot- Q4 ( INR Crs.)
Revenue
103 88125
0
100
200
2009 2010 2011
EBITDA
33 26
40
0
50
2009 2010 2011
PAT
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Beer consumption is very low in India
1.5 litres 20 litresPer Capita Beer
Consumption at
comparable GDP
Per Capita Beer
Consumption at
comparable GDP
22%
<0 .5 %
7 8 %
8 7%
8 %
5 %
Beer Spirits Wine
India EmergingMarkets
AFFORDABILITY
í Highest duty in the world
í Duty not set according to alcoholcontent
í Expensive alcoholic beverage
AVAILABILITY
í 65,000 licensed outlets across thecountry
í 1 per 18,000 people
í In China: 1 per 300 people
Excessive State regulation andintervention
í Route to market
í Economics, need to have a brewery ineach state
í Pricing
Driver of growth is Strong beer
í Specific to Indian market
Ban on advertising alcohol
í Difficult to build new brands
Key Reasons
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Indian Beer market is at the start of the growth curve
Lowest consumption among BRIC countries GDP growth will drive consumption
P C C
i n L
i t e
r s
Per Capita Beer Consumption
P C C
i n
L i t e r s
Per Capita Consumption vs. GDP Growth
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In the Twelve months ended March 31, 2011 UBL volumes have grown by 23%.
UBL has achieved a all time high market share of 56% in these 12 months
The company has for the first time achieved market leadership in the State of Andhra Pradesh and
extended its positions in Orissa and Uttar Pradesh Strong beer growth 27%. Mild beer growth of 16% vs.9% mild beer industry growth rate
The mergers of ABDL, MAPL and EMPEE into UBL has been completed.
The schemes of MBIL , UMBL , UB Nizam , UB Ajanta and Chennai Breweries are progressing asplanned
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United Breweries: FY 2011 Update
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United Breweries: Financials & Debt
in INR C rs Mar-11 Mar-10
Net Debt 667 671
Debt profile
in INR C rs FY2011 FY2010 Growth
Revenues 2,779 1973 41%
EBITDA 431 295 46%PBT 263 151 74%
PAT 168 97 73%
Financials:
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Unifying our operations :Merging all subsidiaries into UBL
Simple Corporate Structurecollapsing multiple legal entities to getunified ownership in one single entity
Optimised cash flows reduction inoverall effective tax rate
Realize SynergiesOperational efficiencies in runningcombined operations
Enhanced financial strength with15m new shares issue
Consolidation of all installed capacitywithin UBL
Note: Ownership pattern depicted representsvoting equity ownership
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Kingfisher Airlines Limited
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Kingfisher Airlines: Overview
Business Overview
Started airline operations in May 2005,
merged with Deccan Aviation w.e.f. April
2008. Operates 364 flights a day
Started international operations inSeptember 2008 by connecting Bangalore to
London
Network spread across 59 Indian cities and
13 foreign cities with a fleet size of 66 aircraft
Carried 12 Mio passengers in FY2011
Market Share (May 2011)
Financial Snapshot ( INR Crs)
Jet Airways
18.5%
Kingfisher
20 .0%
Go Air
6.6%
Spicejet
14.2%JetLite
7.6%
IndiGo
19.9%
Air India (D)
13 .2%
52716496
(690)
140
(1,000)
500
2,00 0
3,500
5,00 0
6,500
FY20 10 FY 20 11
Revenue EBITDA
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India is one of the fastest growing aviation markets in the world
Source: DGCA, Research & analyst reports; Airbus Website, Boeing Website; CAPA reports
* Based on average GDP growth of 8% & 2.0x multiplier and based on average GDP growth of 8% &
1.6x multiplier
Indian Aviation traffic has grown at a CAGR of ~ 20% over the last 6 years (2.3 times GDP growth)
Various leading agencies have forecasted growth to continue over the next 15-20 years
Airbus & Boeing predict that India will be the highest growth market in the world over the next 20 years, ahead of
China
Centre forAsia Pacific Aviation (CAPA) expects domestic traffic to expand at 14.8% CAGR through 2020
CAPA Forecast
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Massive government infrastructure investment to support growth
2010
(92 Airports )
2004
(45Airports)
2015
(125+ airports)
New domestic airports added New domestic airports proposed
The Vision 2020 statement announced by the Ministry of Civil Aviation, Government of India, envisages creating
infrastructure to handle 280 million passengers by 2020
26 new airports added in the last three years; AAI has 35 new non metro airports under development expected to be added
over the next five years
Over the next five years, investments in aviation infrastructure are expected to be over USD 9 billion
It is expected that this will further support the spread of traffic outside the top 6 cities, which today account for ~90% of
revenueSource: AAI
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Accelerating demand coupled with modest supply is expected to keep thedomestic aviation industry on a profitable trajectory
Source: DGCA , ACAS March 2009, Research reports
The traffic growth through FY2014/15 is forecasted at 16.7% per annum The capacity growth through FY2014/15 is forecasted at 13.5% per annum
No new airline licenses have been granted for several years at a national level
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Route Network
With 59 domestic destinations tooffer, KFA has the widest reach inIndia
Flying to all major business &leisure destinations in the countrycovering > 95% of theaddressable passenger base
13 unique destinations in India notserviced by any other airline
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Domestic Operating Environment
The industry exhibited strong demand growth; passenger traffic increased by over 18% in FY 11(over FY10)
Capacity in the industry grew by 11% for the same period and continued to lag behind demand
The demand growth coupled with capacity lag has led to increase in industry load factors to 78% (6percentage points over last year )
Yields have remained stable over the year and premium traffic has continued to grow. DomesticPassenger RASK is up by 8% Q4 FY11 over Q4 FY10 despite some aggressive pricing bycompetitors
Crude oil price has been on upward trend increasing from USD 85/bbl to more than USD 110/bblover the last fiscal year
28 Source: DGCA data
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Kingfisher has consistently increased load factors since Q2FY09 & maintained a steady ³effective market share´ «
29 Source: DGCA . Note: Market share/capacity share calculated on a RPKM/ASKM basis
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«Despite a significant reduction in capacity
30
Aircraft utilization has been enhanced by > 10% to offset capacity loss due to groundedaircraft
Current utilization of the Airbus A320 family stands at 11.6 hrs/day & of the ATR family stands at
10.9 hrs/day
Source: DGCA
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Which has led to a significant improvement in the operating
performance
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International Operating Environment
The total international traffic to and from India has shown aCAGR of 13% between FY¶06- FY¶11
Indian carriers currently account for ~35% of international routes ASKMs from India.
Other industry players have grown the international business andmargins significantly- 9W revenue increased by 5 times andEBITDAR margin by 15 percentage points between FY¶07 andFY¶11
oneworld has set the growth path for KFA into key internationalmarkets with enhanced connectivity and traffic sources fromworlds largest airlines ± British Airways, Qantas, Cathay Pacific American Airlines etc
KFA has already exceeded fair share of the local O&D marketsin 11 out of 14 routes it operates vs. its capacity share
32 Market Size based on PAX-IS plus data for Apr 10-Mar 11. PPDEW = Pax per day each way Source : DGCA, PAXIS, 9W investor presentation
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The growing acceptance of the KF product has led toa significant growth in business «
33 Source: DGCA, Jet Airways published financials , Jet Airways Pax Revenue = RPKM * RRPKM
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«and an improving operating performance
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Kingfisher has further planned multi-pronged initiatives for cost-cutting,revenue enhancement & capital re-structuring
Key Revenue Enhancement
InitiativesKey Cost Reduction Initiatives Capital Restructuring
One World Alliance
Membership with oneworld Alliance todrive inbound domestic passenger
growth
Kingfisher Express
DTD Cargo Express service to tapunder penetrated air-cargo delivery
service
Co-branded Credit Cards Re-negotiate King Club Amex co-
brand card contract; introduce King
Club ICICI co-brand card
Rationalizing Distribution Channels
Reduction of S&D costs by reviewing distribution channels,negotiating GDS contracts
Renegotiating Vendor Agreements
Additional airport & fuel discount* Additional discounts from airports*
E&M costs to reduce with new vendor
Renewal of operating leases at a discount to existing rates
Control Discretionary Spend
Reduce rentals, costs of transportation, local conveyance andcommunication
Optimize space (warehouses, offices, call centres)
Operational Efficiency
Reduce fuel consumption for Airbus & ATR operations
Target E&M spend reduction (in-house C-checks, controlled
redelivery)
Debt Re-schedulement
Debt recast program of Kingfisher Airlines earlier
approved by RBI has now beencompleted
Key Highlights of program
Conversion of debt to equity
Lower interest rate
Moratorium on repayment
Equity Infusion
Received shareholders¶
approval to raise additional
capital through equity based
securities Promoter fund infusion
* - Subject to capital raising
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KFA Debt : Post Debt Recast
36
Particulars
(in Rs. Crs)
Debt beforerecast
Conversion of debt Additional Loan Debt postrecastto CCPS to NCRPS to OCDS to WCTL FITL RTL
Working Capital 590.5 (297.40) 293.1
Term Loan 4,263.49 (750.10) (553.10) 297.40 248.42 768.30 4,274.40
PDP Loan 166.44 166.44
Promoter loan 656.30 (648.00) 8.30
Inter corporatedeposit (ICD)
1,137.32 (709.32) 428.00
sub total 6,814.0 (1,398.10) (553.10) (709.32) - 248.42 768.30 5170.2
Other short termloan
75.20 75.20
Hire Purchase 86.15 86.15
Finance lease 675.73 675.73
Grand total 7,651.12 (1,398.10) (553.10) (709.32) - 248.42 768.30 6,007.30
As of 31st March 2011, Promoter & Bank debt which were converted to Compulsorily Convertible Preference Shares,pursuant to the Debt Recast were further converted into equity at INR 64.48 which was higher than the prevailing
market price of INR 39.90
W orking Capital represents sanctioned fund based limits
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Overall company performance highlights: FY 2011
Total revenue of Rs. 6,496 Cr (+23% over FY10)
Operating revenue growth of +25% over FY10
EBITDA profit of Rs. 140 Cr vs. loss of Rs. 690 Cr in FY10 (An improvement of Rs.
830 Cr over FY10)
EBITDA margin improved from -13.1% to +2.2%
EBITDAR margin improved from +7.7% to +17.3%
Total RASK improved to Rs. 4.02 from Rs. 3.56 in FY10 (+13%)
Pax RASK growth of +9% over FY10 (Rs. 3.48 from Rs. 3.18)
CASK (EBITDA) reduced to Rs. 3.93 from Rs. 4.03 in FY10 (-2%) Ex-fuel EBITDA CASK reduced by 10% over FY10 (Rs 2.52 from Rs 2.81)
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Company P&L ± FY 2011
Rs Crores FY 2011 FY 2010 Variance (%)
INCOME
Operating Revenue 6,360 5,090 25%
Non Operating Revenues 136 181 -25%
Total Revenues 6,496 5,271 23%
EXPENDITURE
Employee Remuneration & Benefits 676 689 -2%
Aircraft Fuel Expenses 2,274 1,803 26%
Other Operating Expenses 2,421 2,376 2%
EBITDAR 1,124 404 179%
Aircraft Lease Rentals 98 4 1,094 -10%
Total Operating expenditure 6,355 5,961 7%
EBITDA 140 (690)
Depreciation 241 217 11%
Interest and finance charges 1,313 1,103 19%
Total Expenditure 7,909 7,281 9%
Loss before exceptional items and Tax (1,414) (2,010) 30%
Exceptional Items 91 358 -74%
Foreign exchange translation difference 16 50 -68%
Provision for taxation (493) (771) 36%
PROFIT / (LOSS) AFTER TAXATION (1,027) (1,647) 38%
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CompanyBalance Sheet : FY 2011
Rs. Crores FY 2011 FY 2010
Shareholders¶ Funds:
Capital 1,050.88 362.91Reserves and Surplus 1,346.40 87.70
Loan Funds 7,057.08 7,922.60
Total 9,454.36 8,373.21
Fixed Assets 2,245.23 2,535.12
Investments 0.05 0.05
Foreign Currency Monetary Item Translation
Difference Account27.98
Deferred Tax Asset 2,927.78 2,434.37
Current Assets, Loans and Advances 2,973.83 2,457.12
Less: Current Liabilities and Provisions 4,166.85 3,548.13
Initial cost on Leased Aircrafts 125.84 145.64
Profit and Loss Account 5,348.47 4,321.08
Total 9,454.36 8,373.21
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Single window to invest in the growing Indian consumer story
Owns controlling stakes in UB Groups¶ market leading companies: USL, UBL, KFA
Each of the principal investments is dominant leader in its space
Each investee company is in a fast growing segment catering to current and emerging
consumer trends
Apart from the above key investments, other group investments into engineering,
fertilizers are also through UBHL
Transparent shareholding structure and ultimate economic benefit of holding in each of
the investments flows to UBHL
United Breweries (Holdings) Limited
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Diversified Business Interests
Mangalore
Chemicals &
Fertilizers Ltd.
VittalMallya
Scientific Research
Foundation
UB Engineering Ltd.
Only manufacturer of chemical fertilizers in Karnataka
Produces a wide range of products that include urea, di-ammoniumphosphate, granulated fertilizers, micronutrients and soil conditioners
FY 2011
± Total Income Rs. 2508 Crs
± PAT Rs. 77 Crs
Is a non-profit organization named after Dr.Vijay Mallya¶s father, Mr. VittalMallya
Is into research in areas of biotechnology and organic chemistry
Into EPC, O&M and Erection services for large industrial projects such aspower, refineries, steel, cement, etc
FY 2011
± Total Income Rs. 613 Crs
± PAT Rs. 26 Crs
The Bangalore-based franchisee ± one of eight ± in the Indian Premier LeagueT20 cricket tournament ± possibly the world¶s largest commercially run sports
event
Royal Challengers
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Thank You