"Post the exuberance on takeover, downgrade to sell," UBS said in a note.
Shares in the company traded 1.1 per cent lower at Rs 1,829.50 on the BSE at 09.25 a.m.
United Spirits shares have gained over 35 per cent in the last three trading sessions. The stock had closed at Rs 1,360 on Friday last week, the day Diageo said it would acquire 53.4 per cent stake in the company. On Monday, it posted its biggest single-day share gain since at least 1995 as the stake sale spurred upgrades from several analysts, who called the deal "transformational" and a "game changer" for the Indian liquor maker.
Morgan Stanley, JPMorgan and CLSA had raised their ratings post the deal announcement to the equivalent of a buy, saying United Spirits will substantially cut its debt and improve its profits post the deal.
However, UBS says Diageo’s strategy will take long to play out.
"Diageo changes the game but earnings upside is more back-ended," it said.
Under the deal announced on Friday, Diageo would first buy a 27.4 percent stake from United Spirits' founders at Rs 1,440 per share, and then launch a mandatory open offer for the remainder.
The deal would pair together the global maker of Johnnie Walker with a domestic company owning a portfolio of spirits including the popular McDowell's whiskey in India.
(With inputs from Reuters)