United Spirits not attractive for bottom-fishing, says CLSA
Mumbai: The 15% decline in the stock price of United Spirits may appear enticing to some but the level is not attractive for bottom-fishing as the noise around prohibition is rising further, said CLSA, retaining cautious view on the spirits maker.
The brokerage has turned more bearish on United Spirits since March. In a report dated March 15 this year, global brokerage had downgraded the stock to ‘sell’ from ‘underperform’ citing continued regulatory issues in Karnataka. Following the Supreme Court decision to ban sale of liquor within 500 metres of national and state highways, CLSA had cut target price to Rs 1,600 from Rs 2,100.
In a report today, the brokerage cut target price further to Rs 1,400.
“A while ago, prohibition seemed to be rhetoric and appeared almost impossible due to the economic aspect but it is increasingly becoming a reality,” said CLSA.
Following the SC ban, Madhya Pradesh and Chhattisgarh have announced partial bans on liquor and intend to move to a complete ban in phases. Last year, Bihar had announced total prohibition.
“States like Bihar, Chhattisgarh and Madhya Pradesh are relatively smaller ones from USL’s perspective, but we see rising risk of other BJP (Bharatiya Janata Party)-led states following suit given a perceptible support from voters,” the brokerage said.
CLSA said it strongly recommends holders to sell the stock as the road to profitability could be quite long unless there is a tender offer from Diageo.
The brokerage has turned more bearish on United Spirits since March. In a report dated March 15 this year, global brokerage had downgraded the stock to ‘sell’ from ‘underperform’ citing continued regulatory issues in Karnataka. Following the Supreme Court decision to ban sale of liquor within 500 metres of national and state highways, CLSA had cut target price to Rs 1,600 from Rs 2,100.
In a report today, the brokerage cut target price further to Rs 1,400.
“A while ago, prohibition seemed to be rhetoric and appeared almost impossible due to the economic aspect but it is increasingly becoming a reality,” said CLSA.
Following the SC ban, Madhya Pradesh and Chhattisgarh have announced partial bans on liquor and intend to move to a complete ban in phases. Last year, Bihar had announced total prohibition.
“States like Bihar, Chhattisgarh and Madhya Pradesh are relatively smaller ones from USL’s perspective, but we see rising risk of other BJP (Bharatiya Janata Party)-led states following suit given a perceptible support from voters,” the brokerage said.
CLSA said it strongly recommends holders to sell the stock as the road to profitability could be quite long unless there is a tender offer from Diageo.
