USL shares in high spirits, get past open offer price

Tags: Stock Market
Shares of United Spirits (USL) zoomed 35 per cent on Monday to touch a multi-year high since January 2008, after the UK-based Diageo came on board of the company through last week’s acquisition, which compelled several brokerages to upgrade the stock.

On Monday, the stock closed at Rs 1,834.60, implying a 27 per cent premium to the open offer price of Rs 1,440 proposed by Diageo. From a share price of Rs 835, the stock has surged 120 per cent over the past one year, indicating that the market was already anticipating the deal to happen. On Monday, the stock saw two bulk deals on BSE, with Crossseas Capital Services buying the scrip at Rs 1,665 and offloading it at Rs 1,688.07 in a deal worth Rs 113.85 crore.

However, shares of other group companies, United Breweries and United Breweries Holdings, tumbled as much as 5 per cent during the day, as Vijay Mallya’s exit from United Spirits is seen as a major dampener for these stocks going ahead, analysts said.

Many brokerages — including JP Morgan, Religare Capital Markets and IIFL — have given a thumbs-up to the Diageo-USL deal and upgraded the stock to buy/overweight, raising investor interest on the counter.

The brokerages argued that the deal would lead to lowering of the debt load and help the company improve margins and access new markets.

“The company has confirmed that once the deal is completed, Rs 3,300 crore will come into USL. A large part of this will be used to reduce debt, which stands at Rs 8,300 crore. The benefit of the debt reduction will be approximately 43 per cent for FY14E, in our view,” said Manish Jain and Anup Sudhendranath of Nomura India, who are neutral on the stock.

Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, said: “United Spirits will now become a subsidiary of an MNC company, which will lead to an upward re-rating of the stock going ahead.”

In the morning, the scrip opened as much as 12.50 per cent above its previous close and the buying momentum continued through the session. The scrip eventually settled for the day at Rs 1,834.60 on BSE, up 34.93 per cent. This was in addition to the 1.22 per cent gain it had seen in Friday’s session after reports that the much-awaited deal had fructified.

This was the highest intra-day gain by the scrip in the past decade. On NSE, the stock climbed 34.73 per cent to close at 1,832.95. Over 3.11 crore shares changed hands on both the bourses, which is 10 times higher than the average volume seen on the counter in 2012.

However, shares of group company United Breweries hit the lower circuit of 5 per cent to close at Rs 129.25 after rising in the five preceding sessions. United Breweries lost 4.48 per cent to Rs 756.60.

“Since the deal has been struck at a premium to the market price, USL shares saw immense investor interest on Monday. Nonetheless, we don’t see much gains from here on,” said Sudip Bandyopadhyay of Destimoney Securities.

Previously, the biggest intra-day gain on the counter was 19.99 per cent and 19.44 per cent logged in 2004 and 2008, respectively.

On the downside, the biggest intra-day fall on the counter over the past 10 years was 22.91 per cent in January, 2009; 19.63 per cent in October, 2008; 17.52 per cent in October, 2008 and 15.59 per cent in January, 2009.

After the stake sale, UB Holdings (group and promoters) will hold a 14.9 per cent stake in USL, while Diageo will hold 19.30 per cent. The average net profit margin of USL in the past four quarters has remained a low 2.91 per cent.

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