United Spirits posted its biggest single-day share gain since at least 1995 on Monday after its stake sale to Diageo spurred upgrades from several analysts, who called the deal "transformational" and a "game changer" for the Indian liquor maker.
Morgan Stanley, J.P.Morgan and CLSA raised their ratings to the equivalent of a buy, saying United Spirits will substantially cut its debt and improve its profits after its deal to sell a 53.4 percent stake to Diageo for $2.1 billion.
The jump of as much as 37.8 percent on Monday added around $1.1 billion (Rs 6,180 crore) to the market value of the company controlled by Indian businessman Vijay Mallya after the glowing research reports.
The liquor maker had gained 1.3 percent on Friday when the deal was announced.
"USL is now a stock for every portfolio, we believe," Morgan Stanley said in a note on Monday, adding the deal priced United Spirits "significantly higher" than its base-case value.
The U.S. investment bank raised its rating on United Spirits to 'overweight' from 'equal-weight', while also raising its price target to Rs 1,905 from Rs 1,000.
Under the deal announced on Friday, Diageo would first buy a 27.4 percent stake from United Spirits' founders at Rs 1,440 per share, and then launch a mandatory open offer for the remainder.
The deal would pair together the global maker of Johnnie Walker with a domestic company owning a portfolio of spirits including the popular McDowell's whiskey in India.
The brokerage estimated Diageo would inject around Rs 3,300 crore into United Spirits, helping pare down debt of around Rs 7,800 crore. CLSA also raised fiscal 2014-15 earnings-per-share estimates by 35 to 40 percent.
"We see this deal as a game changer for UNSP," CLSA said in an email to clients, a copy of which was seen by Reuters.
In a report headlined "transformational deal," J.P.Morgan raised its rating on United Spirits to 'overweight' from 'neutral', while raising its price target to Rs 1,645 from Rs 720.
"This will likely help increase focus on premiumisation, rationalise expenditure and exploit synergies between the two companies leading to better profitability and support re-rating for the stock," said the bank in a note dated on Sunday.
United Spirits shares rose 34.7 percent to Rs 1,832.95, after rising to as much as Rs 1,874.60, their highest since January 18, 2008.
Copyright Thomson Reuters 2012