Today will be a red-letter day for United Spirits’ shareholders. The much awaited deal with Diageo was officially announced on Friday evening. United Spirits will sell 27.4% stake to Diageo at Rs 1440 per share. Diageo will buy another 26% shares from the non-promoter shareholders under the open offer route as specified by SEBI.
The stock opened 15% high today morning and while a number of skeptics were offloading their stake, the stock, slowly but steadily, rose, to reach all-time hike of Rs. 1834. The steep rise took all market participants by total surprise.
The euphoria is because Diageo’s entry as a majority shareholder will have a positive impact on United Spirits’ financial performance. Diageo will introduce its premium global brands such as Johnny Walker which will rake in big bucks.
Now, the million dollar question is whether United Spirits is worth a buy at this stage. Well, the stock is trading at frightening valuations. Its’ TTM PE at the CMP is a frightening 158 times.
Even assuming that Diageo’s entry causes the EPS to double, you are still talking of a PE of 79 times.
Of course, now is not the time to worry about mundane things like EPS and PE. Now is the time to uncork the bubbly and hand over congratulations.
S. P. Tulsian deserves to be complimented for being one of the earliest spotters of the opportunity. He had foreseen that Vijay Mallya’s desperation over Kingfisher Airways and Diageo’s ambitions over the Indian liquor market meant that the two had to come together. At that time the stock was quoting Rs. 600. Thereafter, in August 2012, S. P. Tulsian reiterated his buy call and expressed confidence that United Spirits would soar to Rs. 1200.
Well, even S. P. Tulsian would be (pleasantly) surprised by United Spirits’ performance.
N. Jayakumar of Prime Securities had also foreseen the Diageo deal and was bullish on United Spirits calling it a potential multibagger.
Of course, our own Rakesh Jhunjhunwala, was one of the very first believers in United Spirits. In fact, Rakesh Jhunjhunwala bought tons of the stock at a time when it was being “held in contempt” by the investing masses. He has made such incredible gains from the stock that counting that will be a futile exercise. Also, never one to miss out on an opportunity, Rakesh Jhunjhunwala jumped in when the Diageo rumors were floating around and drove its stock price to Rs. 996 in August 2012.
Utpal Sheth was also one of the earliest believers that United Spirits & United Breweries would be super-duper multibaggers.
Well, conservative investors like me (and you?) who pay attention to stuff like EPS and PE can only stand and gape while the savvy investors take home the loot.