Business
Updated : Mar 19, 2018, 03:50 AM IST
United Spirits Ltd (USL) on Tuesday saw its share price take a knock on news that it may have to sell Whyte & Mackay, its 169-year-old profitable scotch whiskey brand, following competition concerns in the UK.
The stock of USL, which is majority owned by the world’s largest liquor maker Diageo, tumbled 8% in intra-day trade before ending the day down 1.5% at Rs 2,581 over previous close.
However, analysts feel the sale of W&M will be good for Diageo-USL.
Abneesh Roy of Edelweiss Securities Ltd said the divestment of W&M would be a positive for the company as it will help reduce debt.
“W&M which was acquired by USL for $1.2 billion in 2007 led to a substantial rise in debt. At the end of the second quarter of this financial year, USL had a consolidated net debt of Rs 7,170 crore; infusion of funds will help reduce debt substantially,” he said.
Sanath Sudarsan of Morgan Stanley concurred. “We assume that W&M assets are disposed of at a value close to the purchase price, USL would be nearly debt-free.”
Moreover, since Diageo and W&M both have a strong portfolio of scotch, W&M’s loss will not substantially impact the liquor company, experts said.
Earlier, Diageo had mentioned that W&M is not a core asset of the company and did not play a role in acquiring stake in USL.
Retailers in the UK had raised concerns over Diageo and W&M’s partnership. The Office of Fair Trade (OFT), UK regulator, has said they they are looking at Diageo’s offer to sell W&M.
Also, the valuations of W&M will be under pressure as a result of UK’s competition watchdog’s statement, analysts said.
However, Roy said the OFT gives 4-8 months for the sale and so a case of distressed sale is not likely to rise.