United Spirits scrip zooms 35% as Diageo deal raises the mood

Shares of Vijay Mallya-led United Spirits Ltd on Monday jumped by 34.9% to touch a four-month high on the company's announcement last week that it is selling a majority stake to Diageo.

Shares of Vijay Mallya-led United Spirits Ltd on Monday jumped by 34.9% to touch a four-month high on the company's announcement last week that it is selling a majority stake to Diageo.

The share touched Rs 1,834.6 on Monday, up by Rs 474.9, as the stake sale would reduce United Spirits' debt-level and may increase profitability. The company's profit was down by 72.9% in the September quarter from last year.

In a joint statement after trading hours on Friday, UK-based Diageo said it has entered into an agreement with United Breweries and United Spirits to acquire a 27.4% stake in USL. Diageo would also acquire a 19.3% stake in USL at Rs 1,440 per share from the UBHL group, the USL Benefit Trust, Palmer Investment Group and UB Sports Management and SWEW Benefit Company.

Industry estimates that the profits of United Spirits could go up following the acquisition.

Analysts, including from Morgan Stanley and CLSA, upgraded the stock after the deal, saying the $2.1 billion deal would substantially benefit USL.

The company's stock had hit a 52-week low in January this year, when it was seen as going through a rough patch. The stock of the company has jumped by 308% since then.

USL stock has risen by 85% in the last one month on news that Diageo was eyeing a stake in the company.

By contrast, the stock price of Unites Breweries were down by Rs 35.5 or 4.48% on Monday to close at Rs 756.6.