United Spirits jumps 35 pct as Diageo deal seen positive

MUMBAI Mon Nov 12, 2012 4:12pm IST

Vijay Mallya, chairman and chief executive of Kingfisher Airlines, speaks during a news conference in Srinagar January 12, 2009. REUTERS/Danish Ismail/Files

Vijay Mallya, chairman and chief executive of Kingfisher Airlines, speaks during a news conference in Srinagar January 12, 2009.

Credit: Reuters/Danish Ismail/Files

Related Topics

Stocks

   

MUMBAI (Reuters) - United Spirits posted its biggest single-day share gain since at least 1995 on Monday after its stake sale to Diageo spurred upgrades from several analysts, who called the deal "transformational" and a "game changer" for the Indian liquor maker.

Morgan Stanley, J.P.Morgan and CLSA raised their ratings to the equivalent of a buy, saying United Spirits (UNSP.NS) will substantially cut its debt and improve its profits after its deal to sell a 53.4 percent stake to Diageo (DGE.L) for $2.1 billion.

The jump of as much as 37.8 percent on Monday added around $1.1 billion (61.8 billion rupees) to the market value of the company controlled by Indian businessman Vijay Mallya after the glowing research reports.

The liquor maker had gained 1.3 percent on Friday when the deal was announced.

"USL is now a stock for every portfolio, we believe," Morgan Stanley said in a note on Monday, adding the deal priced United Spirits "significantly higher" than its base-case value.

The U.S. investment bank raised its rating on United Spirits to 'overweight' from 'equal-weight', while also raising its price target to 1,905 rupees from 1,000 rupees.

Under the deal announced on Friday, Diageo would first buy a 27.4 percent stake from United Spirits' founders at 1,440 rupees per share, and then launch a mandatory open offer for the remainder.

The deal would pair together the global maker of Johnnie Walker with a domestic company owning a portfolio of spirits including the popular McDowell's whiskey in India.

CLSA raised its rating to 'buy', while setting a new target price at 1,800 rupees, saying the deal would benefit United Spirits by reducing debt levels, increasing earnings, imposing financial discipline and providing operational advantages.

The brokerage estimated Diageo would inject around 33 billion rupees into United Spirits, helping pare down debt of around 78 billion rupees. CLSA also raised fiscal 2014-15 earnings-per-share estimates by 35 to 40 percent.

"We see this deal as a game changer for UNSP," CLSA said in an email to clients, a copy of which was seen by Reuters.

In a report headlined "transformational deal," J.P.Morgan raised its rating on United Spirits to 'overweight' from 'neutral', while raising its price target to 1,645 rupees from 720 rupees.

"This will likely help increase focus on premiumisation, rationalise expenditure and exploit synergies between the two companies leading to better profitability and support re-rating for the stock," said the bank in a note dated on Sunday.

United Spirits shares rose 34.7 percent to 1,832.95 rupees, after rising to as much as 1,874.60 rupees, their highest since January 18, 2008. (Reporting by Rafael Nam and Abhishek Vishnoi; Editing by Anupama Dwivedi and Muralikumar Anantharaman)

FILED UNDER:

REUTERS SHOWCASE

2015: India Outlook

2015: India Outlook

India in 2014: A dream run for markets  Full Article 

Funding Woes

Funding Woes

Co-founder of SpiceJet seeks time to finalise rescue  Full Article 

Regulating Airfares

Regulating Airfares

India considers temporary cap on airfares - government official  Full Article 

Flying Back on Course

Flying Back on Course

The inside story of the new Airbus A350 jet  Full Article 

Oil Price Forecast

Oil Price Forecast

Oil prices likely to rebound in second half of 2015: poll  Full Article 

Cyber Attacks

Cyber Attacks

China condemns cyberattacks, but says no proof N.Korea hacked Sony  Full Article 

Connecting Markets

Connecting Markets

China stock connect scheme scorecard throws up surprises  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage