World's largest spirits make Diageo Plc will use United Spirits, in which it picked 25.02 percent stake for Rs 5,235.85 crore, as the entity to sell all its brands in India as part of plans to consolidate its business in the country.
World's largest spirits make Diageo Plc will use United Spirits , in which it picked 25.02 percent stake for Rs 5,235.85 crore, as the entity to sell all its brands in India as part of plans to consolidate its business in the country.
Diageo has agreed to ink a pact with the Bangalore-based United Spirits Ltd (USL) under which the latter would sell Diageo brands in India with effect from next month.
"Diageo has agreed on the principles of a proposed sales agency agreement with USL under which USL will be a sales agent for all Diageo brands in India," a company spokesperson told.
Under the proposed sales agency arrangement, USL will provide sales promotion services to Diageo India for all Diageo brands manufactured and/or imported by Diageo India and sold in India from October, 1, 2013.
Diageo India would remain responsible for the strategy, marketing, import, manufacture, and bottling of Diageo's brands in India.
Further Diageo India would remain responsible for business performance relating to Diageo brands, including all marketing and investment decisions relating to those brands.
"We would expect to formalise this arrangement shortly and that the arrangement will be effective from October 1, 2013," the spokesperson added.
Commenting on the rationale behind the deal, the company said the arrangement puts into place the best model that will help deliver growth and maximise USL's existing infrastructure and relationships with trade.
"USL brings increased scale to Diageo's current sales activity with their large sales force which can promote Diageo's brands through their calls to on and off trade outlets and through merchandising activities and sales activation," the spokesperson said.
The arrangement leverages USL's superior route to market and Diageo's suite of brands and expertise in premium and luxury marketing, she added.
Earlier this year, Diageo Plc had completed the acquisition of 25.02 percent stake in Vijay Mallya-led USL on completion of a share purchase deal announced last year.
Last year, Diageo had announced that it would pick up 53.4 per cent stake in USL in a multi-structured deal for a total of Rs 11,166.5 crore. Instead, it could pick only 25.02 per cent stake in USL for a total consideration of Rs 5,235.85 crore due to subdued response to its open offer.
Diageo sells various popular brands, including Smirnoff Vodka and Johnnie Walker whiskey. USL, which is the India's top spirits maker, markets various liquor brands including Signature, Bagpiper, Antiquity, Royal Challenge in the country.
United Spirits stock price
On July 23, 2014, United Spirits closed at Rs 2391.65, up Rs 4.90, or 0.21 percent. The 52-week high of the share was Rs 2940.55 and the 52-week low was Rs 1993.30.
The company's trailing 12-month (TTM) EPS was at Rs 22.94 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 104.26. The latest book value of the company is Rs 440.83 per share. At current value, the price-to-book value of the company is 5.43.
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