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Why Heineken deal gives United Breweries a high – Mint

On Wednesday morning, a large block deal in United Breweries Ltd was done at a price of 1471.25 per share. Reports suggest the buyer was the company’s promoter, Heineken. With this deal, Heineken would have increased its stake in United Breweries Ltd by 15% to 61.5%.

Analysts say that the deal shows Heineken’s confidence in United Breweries and at the same time, in the Indian beer market. The deal was done at a slight premium to Tuesday’s closing share price, and at a close to record high for the stock, which shows Heineken’s eagerness to do the deal. Note that when a seller initiates a large block trade, the shares are typically sold at a discount of roughly 5-7%. Note that Heineken is acquiring the shares from the Debt Recovery Tribunal (DRT), which is trying to recover dues from the Vijay Mallya Group, the erstwhile promoter of the comp.

Analysts from Emkay Global Financial Services Ltd said in a report on 23 June, “The higher stake may result in higher involvement and support from Heineken. However, United Breweries is an efficiently run company with access to Heineken’s global portfolio. Hence, we don’t see any material benefits immediately.”

Market regulator Sebi has exempted Heineken, a promoter entity, from making an open offer to United Breweries’ shareholders as a result of the 15% stake purchase.

Meanwhile, financial year 2021 (FY21) results have been impacted deeply by the covid-19 pandemic. FY21 revenues have declined as much as 35% over the same period last year to 4241 crore. Unfortunately for investors, the second covid wave will cast its dark shadow on the June 2021 quarterly performance as well. Even so, the recovery is anticipated to be sooner this time around. “We see a faster recovery than the first lockdown given benign taxation, earlier re-opening of on-premise and ongoing vaccination,” said Emkay’s analysts.

Shares of United Breweries hit a new 52-week high on the National Stock Exchange (NSE) on Wednesday in early deals and gave up some of the gains later on. The stock trades at around 50 times estimated earnings for financial year 2023, based on Bloomberg. Higher valuations may limit sharp upsides from a near-term perspective.

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