MANAGEMENT DISCUSSION AND ANALYSIS
1. OVERVIEW OF THE COMPANY
The Company is the flagship Holding Company of the UB Group, through which thePromoters and the Promoter Group hold their stakes in the various Companies which comprisethe UB Group. The Company owns controlling interests in a number of Companies that havemarket-leading positions in a fast-growing consumer space, reflecting the aspiration of agrowing consumer class in India. While the Company is primarily the investment arm of theUB Group, which is in the business of investing and funding various Group Companies, italso facilitates the UB Group’s entry into new business ventures. The Company derivesmost of its income from export sales, lease rentals, property development, dividends fromInvestee Companies, licensing fees, interest and guarantee commissions from InvesteeCompanies. The Company derives a significant portion of its value from various stakes thatit holds in the Investee Companies, to which it provides managerial and strategy-relatedassistance, as well as financial support. Through the holdings in Kingfisher AirlinesLimited, United Spirits Limited and United Breweries Limited, the Company is one of theleading conglomerates in the consumer-oriented products and services industry in India,with a leading market share in the Indian aviation, spirits and beer industries. TheCompany owns several brands and trademarks, including the UB "Pegasus" and the"Kingfisher" brand under certain classes of the Trade Marks Act, 1999. TheCompany also has a presence in the property development, fertilizer and engineeringindustries through UB City, Mangalore Chemicals & Fertilizers Limited, McDowellHoldings Limited and UB Engineering Limited.
2. RISKS, CONCERNS AND MITIGATIONS
The Company has a proper risk identification and management process. This processgenerally involves the following steps:
• Identifying risks inherent in the Group strategy
• Selecting the appropriate risk management strategy
• Implementing controls to manage the risks
• Monitoring the effectiveness of risk management approaches and controls
• Learning from experience and making improvement
Strength
Universally recognized UB Group, brand image and market share in alcoholic beverages,Kingfisher brand reach in International markets, UB City a landmark in the City ofBangalore patronized by International Brands and coveted premium office space are all seenas inherent strengths of the Company.
Risks
The Company is dependent upon export income, sale of developed office space, leaserentals of UB City properties, license fee for use of Pegasus logo, dividends anddistributions from the Investments for a significant portion of its cash flow.
Concerns
[a] Rental income from property in UB City is subject to variations as lessees whorepresent international brands are susceptible to global economic trends.
[b] Being a holding Company, Dividend income is related to Group investee Companiesdeclaring adequate dividends, trademark license fees, Royalty, commission etc. by GroupCompanies, rentals by Lessees of office and retail areas on time.
[c] The Company has guarantee exposure on behalf of Subsidiaries.
[d] The Company’s majority of shares and fixed assets are under charge in favourof lenders who had advanced loans to the Company and its Subsidiaries.
[e] Any decline in the market value of the securities and property could impact thepermitted margins which could result in the lenders requiring the margin shortfalls to betopped up.
Risk Mitigation
The Chairman, Managing Director, CFO and Internal Audit keep constant vigil over thefunctioning and performance of individual companies in the Group.
3. INTERNAL CONTROL SYSTEM
The adequacy of the internal control system is reviewed by the Audit Committee of theBoard of Directors. The Group Internal Audit Department evaluates the functioning andquality of internal controls and provides assurance of its adequacy and effectivenessthrough periodic reporting. Your Board believes that appropriate procedures, controls andmonitoring assessment procedures are in place.