Radico Khaitan Denies News of Stake Sale

The Indian liquor space seems to be getting eventful day by day. After much of volatility seen in the United Spirits (USL), even Radico Khaitan witnessed an up-move on the bourses. Radico Khaitan, which is India's fourth largest liquor maker, witnessed a strong move on the bourses in the past few trading sections on the back of the news that the company has begun preliminary talks to sell a minority stake to Japan's oldest liquor company Suntory Holdings. Radico Khaitan which makes leading brands like Magic Moments vodka and 8 PM whisky is reportedly said to be examining the option of offering 26% in the company to Suntory.

The reports suggested that the Japanese spirits major is expected to pay close to Rs 870 crore for the stake, valuing Radico Khaitan at Rs 3,500 crore, or close to 20x its FY13 operating profit. Earlier it was Diageo that bought 53.4% in USL for close to Rs 12,000 crore in November 2012 at a valuation of 20x the operating profit of USL.

As regards the market share of Radico, it accounts for 18 million cases in the Indian spirits market, with 8 PM whisky alone crossing four million cases. Suntory has been trying to ramp up its presence in India through acquisitions. In 2009, it launched an unsuccessful attempt to acquire a stake in IndageVinters.

However, the management of the company has denied the reports.  With reference to the news items appearing in a leading financial daily titled "Radico in Talks to Sell 26% to Suntory of Japan for Rs 870 Cr." Radico Khaitan has clarified to the BSE that the news item forwarded contains speculative information and it would not be appropriate for the company to comment on such market speculation.

We are of the opinion that though the company has denied about the reports, many companies are looking for an opportunity in the fast growing Indian liquor markets. And if the deal gets sealed, there is good amount of upside expected in the counter. At this juncture, however, the news seems to be factored in the price. Hence, we recommend that investors avoid the counter at the current levels.