United Spirits set to get re-rated with Diageo acquisition: IDFC

MUMBAI: IDFC Institutional Securities is bullish on the outlook of United Spirits as Diageo nears completion of transaction process for acquiring over 27 per cent stake.

Diageo has completed the first two legs of the three-part transaction process (open offer and preferential allotment) and now owns 10 per cent in USL. The final step of share transfer from the UB Group (including treasury stock) is awaiting clearances from the Karnataka High Court and is likely to get completed by July 2013.

According to the brokerage, as Diageo gets its targeted 27.4 per cent stake in USL, changes to the management and operational team of USL are poised to take place. Diageo is extremely clear on evaluating each of USL's brands on profitability and feasibility metrics and take critical decisions to improve overall business profitability.

"As Diageo transitions into USL, we believe the business model will see a significant shift towards premiumisation, rendering strong visibility to the long term profitability of the business," the report said.

"We see USL becoming one of the biggest names in the Indian consumer space in the long run on the lines of an ITC or Hindustan Unilever," the report added.

The brokerage has an 'Outperformer' rating on the stock with a target price of Rs 3,000 in next one year.

However, the stock has been on a run in the last one week and has surged over 17 per cent as demand from institutional buyers picked up.

There is buzz in the market that the company may soon come out with important announcement. Four members from Diageo are expected to join the company board.

At 12:00 p.m.; the stock was at Rs 2,559.95, up 1.84 per cent, on the BSE. It touched a high of Rs 2,566 and a low of Rs 2,532.25 in trade today.