London-based Diageo Plc’s new open offer to take a controlling 55% stake in Vijay Mallya-led United Spirits may not be successful as long-term investors are likely to hold on to their shares in hopes of a further upside over the next couple of years, analysts said on Wednesday.
Diageo, the maker of Smirnoff vodka and Johnnie Walker scotch, holds 28.8% stake in United Spirits through Relay BV. It has now offered to buy up to 26% more stake at Rs 3,030 a share, over double of its 2012 open offer price of Rs 1,440. After rising over 11% on Tuesday, USL shares gained further 0.6% to close at Rs 2,871 on the BSE on Wednesday.
The stock has gained 12.3% in the last two trading sessions and is up 33% in the last one year. The company has a market cap of Rs 41,730 crore.
"Diageo’s move to increase the stake in USL provides confidence towards its commitment to turn around USL in India.
With Diageo having better control of USL, the structural changes will get implemented at a more rapid pace, thereby providing scope for further upside," said Bharat Chhoda of ICICIDirect.com, the retail broking arm of ICICI Securities, advising investors to "hold" on to the shares.
Analysts said USL is "perfectly poised" to benefit from a change in management control and the resultant shift in focus from volume to value growth.
USL’s growth is expected to get a boost over the next few years as it focuses on expanding its high-margin premium whisky portfolio, which includes brands like Royal Challenge, Signature and Antiquity.
Also more fund infusion by Diageo and the sale of Whyte & Mackay’s whiskey business is likely to help USL reduce its debt, which currently stands at around Rs 7,000 crore . Hence, long-term investors could hold on to these hopes and not exit at this point, analysts said.
As of quarter ended March 31, public shareholders held 60.85% of USL shares, of which institutional holding was 44.11%.
"We do not expect a full acceptance for the offer and believe long-term investors will wait for the premiumisation theme to play out in USL over the next 18-24 months," said Harit Kapoor of IDFC Institutional Securities, maintaining an "outperformer" rating on the stock.