USL Shareholders to Vote on Diageo Licence Pact Today

Shareholders of United Spirits (USL) will meet on Friday at an extraordinary general meeting (EGM) to vote on a special resolution granting approval for exclusive licence and distribution agreement to its parent Diageo.

In November 2014, the proposal had failed to get approval of minority shareholders at a postal ballot. Certain investors had demanded USL to disclose the estimated monetary benefits it would get from the pact with Diageo. USL needed at least 75 per cent votes of minority shareholders to get the deal approved as this was a related party transaction.

Now, USL has provided additional details of the deal to the shareholders. In an explanatory statement, USL has clarified that the exclusive agreement with Diageo would likely add Rs 700 crore in revenue to the company in the first full year as against Rs 42 crore under the existing sales promotion agreement.

USL also said that the estimated addition to earnings before interest and tax (EBIT) in the first full year is likely to be Rs 70 crore as against Rs 16 crore in the current role as sales agent.

Currently, Diageo India has a sales promotion service agreement with USL for distribution of brands such as Johnnie Walker, Smirnof and Vat 69 in the country.

After the exclusive licence and distribution agreements with Diageo, the license to manufacture the above brands will be transferred to USL from Diageo India. USL expects significant increase in profitability post this pact with Diageo.

Shares in USL ended 0.69 per cent higher at Rs 2,853 apiece on Friday.