Maintain ‘buy’ on United Spirits: Motilal Oswal

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Updated: May 6, 2016 12:35:13 AM

The latest media reports suggest that Diageo is considering the possibility of increasing its stake in United Spirits (UNSP) from the existing 55.06% to 72% through open market transactions.

The latest media reports suggest that Diageo is considering the possibility of increasing its stake in United Spirits (UNSP) from the existing 55.06% to 72% through open market transactions. However, the management has denied these reports in a clarification provided to stock exchanges.

The current market price of Rs 2470 is at a discount of 19% to the earlier open offer price of Rs 3,030. Diageo had raised its stake in UNSP from 28.78% to 54.7% in Q1FY15 via an open offer at an outlay of Rs 114.5 billion. The open offer price was at a premium of 18% to the then prevailing market price. Back in September 2015, Diageo had offered to increase its stake in Guinness Nigeria to 70% from 54.3%.

In India, Hindustan Unilever and GSK Consumer witnessed open offers in FY14 with both their parents increasing their stakes to 67% and 72%, respectively. Stock undergoes material correction due to policy headwinds: The stock has corrected by 30% in the last one year on account of policy headwinds as a result of Kerala’s proposed liquor ban (staggered ban) and more recently by Tamil Nadu (key political parties in the state have promised prohibition if voted to power). Prohibition on liquor was implemented in Bihar in April-16 as the ruling party fulfilled its promise made during the elections. The industry’s focus on value growth will be a key medium-term positive for UNSP,in our view. Maintain ‘buy’.

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