My Best Pick 2013

Game for more

United Spirits’ stock is up 300%, but Diageo’s entry is just the beginning of good times for the spirits major

Tushar Mane

Vijay Mallya’s decision to sell his family silver bodes well for the company that we are talking about. I expect a big re-rating for United Spirits now that Diageo PLC has bought a 27.4% stake in it. The deal is a win-win for the buyer (Diageo), the seller United Breweries Holdings (UBHL) and the minority shareholders.

So, what does Diageo get from the deal? It clearly benefits from a much sought-after lead position in a key emerging market, a lead it can hope to maintain over its global rival, Pernod Ricard, which has tasted huge success in India. The valuation multiple of 20 times trailing Ebitda seems quite reasonable in view of the company’s current margin profile. The acquisition would also provide a fillip to Diageo’s international spirits business in India because it could leverage United Spirits’ distribution and manufacturing abilities even though it’s not going to be merged with United Spirits. 

Prima facie, it may look like United Breweries has parted with a significant value driver, but I feel the value creation potential with Diageo is higher, given United Spirits’ weak balance sheet. UBHL’s 14.9% stake will be far more valuable in the future compared with the 27.8% it held in United Spirits without Diageo.

The biggest beneficiary of this trans


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