UB Group stocks yo-yo as uncertainties abound

MUMBAI: Ever since Vijay Mallya inked the sweetheart deal with Diageo to quit as chairman of United Spirits Ltd (USL) for $75 million, the stocks of the companies he once held majority stakes in, have shown mixed performances.

The Mallya-Diageo deal was announced after market hours on February 25.

Particularly, in the case of USL, the initial euphoria of Mallya’s exit has given way to nervousness, and till Friday’s close, the stock declined 9%, even as the Sensex rose 7% during the same period.

Among others, United Breweries (Holdings) Ltd (UBHL) has risen by 14%, while United Breweries has gone up by 1%.

USL shareholders initially cheered Diageo’s separation deal with Mallya and the stock rose 2.5% on February 26. This was largely due to optimism that with the absence of Mallya, the board of directors of USL will now be more free to execute their plans for the company. However, the mood turned cautious after reports that Sebi was likely to examine the deal and State Bank of India, which is leading a consortium of lenders to Mallya’s now defunct Kingfisher Airlines, has approached the Debt Recovery Tribunal seeking his arrest.

According to analysts, Mallya’s exit would be positive for USL as it will end the corporate governance-related issues surrounding the company. However, recent developments are likely to hit the stock initially.

“The agreement with Mallya removes an overhang pertaining to related party transactions, several legal battles and also frees up the management bandwidth to focus on core business,” said Gautam Duggad of Motilal Oswal.

On Monday, the DRT ruled against Mallya, saying that he cannot access the $75 million until disposition of the case. Separately, the Enforcement Directorate has also filed a money laundering case against Mallya. The fresh developments could further weigh on United Breweries and USL.