12,224.55-127.8
Stock Analysis, IPO, Mutual Funds, Bonds & More

With results still on hold, United Spirits may fall off investors' radar

United Spirits shares will be out of Nifty and its futures and options contracts will not be traded as the company has failed to adhere to norms.

, ET Bureau|
Updated: Aug 22, 2014, 01.31 PM IST
0Comments
United Spirits shares will be out of Nifty and its futures and options contracts will not be traded as the company has failed to adhere to norms.
United Spirits shares will be out of Nifty and its futures and options contracts will not be traded as the company has failed to adhere to norms.
MUMBAI: In just six months after being added to the CNX Nifty , United Spirits (USL) has failed to retain its place in the benchmark index. From September 19, United Spirits shares will be out of Nifty and its futures and options contracts will not be traded as the company has failed to adhere to the listing agreement in the past two quarters.

The stock, which was the darling of investors and traders in late 2012 and 2013, is losing its popularity on Dalal Street as the company has delayed publishing its fourth quarter and full year results for 2013-14 for the third time, raising a big question mark on its previous year annual balance sheet numbers. This has resulted in a drop in the traded volumes and the recent open offer has also resulted in lower free float, which are the two most important criteria for a stock to be a part of Nifty .

“We are all in a wait and watch mode,“ said a fund manager who did not want to be quoted. “With such delays in publishing the results, there is it is very difficult to take a decision,“ he added.

USL, which was earlier in the portfolio of most of the funds -India focus foreign funds as well as domestic funds -has seen institutional holding fall to 11% in the June 2014 quarter against 44% in l the end of March 2014 quarter, implying most of the funds tendered their shares in the open offer. Rs 3,030 made by Diageo was “The offer of ` a very attractive offer, as a result of which most of the funds tendered and are expecting to buy back the shares from the market at a lower price,“ said an analyst with the domestic brokerage house who did not want to be quoted.

The stock closed at Rs 2,402 on Thursday ` , 20% lower than the offer price. The company's stock is down 19% t in the past three months in comparison to CNX FMCG index which has gained v 8% and Nifty which has gained 9% dur q ing the same time.

Going by the previous year numbers, on an adjusted profit after tax of Rs 700 crore, the company is trading at a PE multiple of 50, which is not very expensive given the huge potential in the segment.

With the recent sale of its subsidiary Whyte & Mackay , its debt is also likely to come down, which will further reduce the interest cost and improve its profits. USL agreed to sell W&M for 430 million pounds, or around Rs 4,300 crore, and its debt for FY13 was Rs 8,246 and its interest expense was 80% of the PBIDT (profit before interest and tax). However, the Street seems to be clueless at the moment without any numbers from the company .

Although this holds true, experts believethe segment holds a huge potential. Liquor demand is on the rise and Pernod Ricard's numbers give confidence that a company with a strong multinational parentage can do well in India.

Pernod's sales have grown seven times from 2002 to 2012 and its operating profit by eleven times. Despite its volumes being only one fourth of that of United Spirits, its sales in FY13 was marginally lower than that of United Spirits and its net profit was Rs 685 crore versus United Spirits' Rs 320 crore “United Spirits is a good long-term play.

However, in the medium term concerns remain over how much write off will the company take.“ said Abneesh Roy, consumer analyst with Edelweiss Securities.“Given the consumer discretionary nature of the industry, the demand which is slow right now could pick up with the revival in the economy.“ he said.

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service