Mumbai: United Spirits Ltd, which only last month found a way out of its mounting debt woes through a majority stake sale to Diageo Plc, has emerged the best performing international stock in a global index this year, according to a Bloomberg study.
The analysis is based on a basket of 2,443 stocks from developed and emerging countries that constitute the MSCI ACWI index that measures the performance of global equity markets. India’s country weight in the index is less than 1%.
The United Spirits rally puts the spotlight on the performance of the Indian stock market. The country’s benchmark Sensex index on BSE Ltd has gained nearly 26% this year, though the market was bogged by a limping economy, rising prices, policy flip-flops, and a government that for the most part was inactive.
Despite these and fears that the government was pushing away overseas investors, foreign institutional investors (FIIs), the main driver of Indian equities, too, favoured Indian equity markets. FII inflows surged to about $23.3 billion (nearly Rs.1.28 trillion) as of 28 December—the second highest since 1993, when India opened its doors to this class of investors.
United Spirits has rallied nearly 290% this year. But to be sure, a few other Indian stocks have fared better. The BSE 500 index has eight stocks that have gained more—CCL International Ltd surged 820% this year—but these do not figure in the global index.
The MSCI ACWI comprises stocks from 24 developed and 21 emerging nations. Individual stock data of the MSCI ACWI index is available only to those who have registered for it.
Though Vijay Mallya’s UB Group, to which United Spirits belongs, was weighed by a total debt of Rs.22,999.11 crore as of 31 March, according to Mint research, and worries at his aviation business Kingfisher Airlines Ltd, United Spirits has held strong through the year.
The producer of Royal Challenge and McDowell’s No.1 whiskies and Romanov vodka has among the largest share of the Indian spirits market, and the stock began the year well gaining 24% between January and March.
In fact, Icra Equity Research, in a report published in the beginning of this year, assigned a fundamental grade of four out of five to United Spirits, sighting the consistent growth prospects of alcoholic beverages, the company’s wide product basket, its pan-India manufacturing and distribution, and its strong brand position.
Despite volume pressures in its domestic premium brands, Whyte and Mackay, a global subsidiary, reported a strong turnaround in operating performance in the second half of fiscal 2012, which could have contributed to the stock performance, said Devang Mehta, senior vice-president, equity advisory and sales, Anand Rathi Financial Services Ltd.
“The market was sensing some activity at the corporate level. Also, at that time, the consumption story was on fire and generally stocks in the space with visible brand advantage were moving up, which could have impacted USL (United Spirits) stock price, too,” he said.
“Indian equities have made a comeback in 2012 with the broader markets (read Sensex) giving a 25% return,” Sunil Singhania, head equities, Reliance Capital Asset Management, said in his outlook for 2013. He added that companies in sectors such as consumer packaged goods and pharmaceuticals and consumption-led sectors have so far done very well.
At UB Group, concerns were increasing that the heavy funding need for Kingfisher Airlines would hurt its other businesses. Moreover, the debt on United Spirits’ balance sheet had increased. According to a report by brokerage Edelweiss Financial Services Ltd, the spirits company has borrowed Rs.400 crore since April. As at 31 March, its consolidated long-term borrowings were Rs.5,390 crore.
In November, Diageo, the world’s largest distiller by revenue, agreed to a deal that could see it acquiring a 53.4% stake in United Spirits.
Diageo made an open offer to buy 26% of the expanded equity from public shareholders of the United Spirits stock at Rs.1,440 a share—the price paid for the direct purchase. United Spirits ended Friday on BSE at Rs.1,899.05 a share.