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Why Heineken deal gives United Breweries a high? June 25 2021United Breweries, Heineken

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A big block sale in Vijay Mallya led United Breweries Ltd was executed on Wednesday morning at a price of Rs1471.25 per share. According to reports, the company''s promoter, Heineken, was the buyer. The Dutch brewer- Heineken''s share in United Breweries Ltd (UBL) would have expanded by 15% to 61.5 percent after the purchase of 39.6 million shares worth 58.1 billion Indian Rupees. 

According to analysts, the deal demonstrates Heineken''''s faith in United Breweries as well as the Indian beer market. The purchase was struck at a modest premium to Tuesday''s closing share price, and near a record high for the company, demonstrating Heineken''''s willingness to complete the transaction. The shares are often sold at a discount of roughly 5-7 percent when a seller initiates a massive block deal.

It''s important to note that Heineken is buying the shares from the Debt Recovery Tribunal (DRT), which is attempting to recover debts owed to the Vijay Mallya Group, the company''s former promoter.

The increased shareholding may result in higher involvement and assistance from Heineken. United Breweries Limited, on the other hand, is a well-run corporation with access to Heineken''s global portfolio. Although, one can''t expect any tangible gains right away.

As a result of the 15 percent stake purchase, market regulator SEBI has exempted Heineken, a promoter entity, from making an open offer to United Breweries shareholders.

Meanwhile, the covid-19 pandemic has had a significant influence on financial year 2021 (FY21) performance. Revenues in FY21 fell by as much as 35% compared to the same period last year, reaching Rs 4,241 crore.

Unfortunately for investors, the second covid wave will also have a negative impact on the June 2021 quarterly results. Although, this time around, the recovery is expected to be quicker. Due to re-opening of on-premise and continuous vaccination the recovery is expected to be faster than the previous lockdown.

On Wednesday, shares of United Breweries hit a fresh 52-week high on the National Stock Exchange (NSE), but later gave up some of those gains. The stock is expected to trade at about 50 times expected earnings for the fiscal year 2023. From a short-term perspective, higher valuations may prevent dramatic upsides.

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