ICICI Direct Research has 'buy' rating on United Spirits at a target price of Rs 720 in the long term. The long-term (one year) target price of USL is over 20 percent from its current market price.

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Shares of United Spirits quoted at Rs 575.80, down almost a percent at 2.15 pm on the National Stock Exchange. The stock had closed at Rs 581.40 and opened flat at Rs 581.50 per share. It touched a high and low of Rs 581.95 and 574.55 per share, respectively. So far, almost 6 lakh shares of USL have traded on the NSE.

In the past one year, USL shares have corrected 4.55 percent, while the three-year return on the stock is positive by over 50 percent.

"The company management has guided double digit revenue growth and mid-to -high teen margin over the medium term. We value the stock at ~46x FY21 EPS to arrive at a target price of Rs 720 with a BUY rating," analysts at ICICI Direct Research wrote in a report on Tuesday.

Diageo-controlled United Spirits proposed a merger with its majority owned and listed subsidiary Pioneer Distilleries ltd (PDL) in early December. The amalgamation scheme has been approved at the company's board meeting and awaits other requisite approvals.

According to the scheme, "upon merger completion, Pioneer Distilleries’ non-promoter shareholders would receive 10 USL equity shares for 47 equity shares of Pioneer Distilleries. The merger would result in expansion of USL’s issued capital by 0.1 percent and reduce Diageo shareholding from 55.24 percent to 55.18 percent," the report added.

Explaining synergies of the merger, analysts at the brokerage said that USL could continue to rely on PDL for raw materials, while the latter would get access to lower cost of funding. A simplified corporate structure and consolidation would ensure better allocation of capital and lower compliance.

From shareholders' point of view, the merger would provide access to large business entity with dominant share in Indian market in profitable branded IMFL business, the report added.

United Spirits will release its unaudited financial results for the quarter ended December 31, 2019, on 27 January, according to the information available on its exchange filing.

Bengaluru-headquartered USL reported a decline of 13 percent in net profit at Rs 224.6 crore for the second quarter ended in September, due to consumer slowdown.

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First Published:Jan 15, 2020 3:19 PM IST