Shares in United Spirits (USL) surged over 10 per cent to hit a fresh 52-week high of Rs 3,143.65 on Monday after its minority shareholders approved a pact between USL and its parent Diageo, under which USL would manufacture and distribute Diageo products in India, boosting its revenue and profitability.
USL in a filing to exchanges has informed that in the extraordinary general meeting (EGM) held last Friday, 76.33 per cent of its minority shareholders have approved the pact with Diageo. USL needed approval of at least 75 per cent of its minority shareholders to get the deal approved, as this was a special resolution.
In an explanatory statement, USL has clarified that the exclusive agreement with Diageo would likely add Rs 700 crore in revenue to the company in the first full year as against Rs 42 crore under the existing sales promotion agreement.
USL also said that the estimated addition to earnings before interest and tax (EBIT) in the first full year is likely to be Rs 70 crore as against Rs 16 crore in the current role as sales agent.
In November 2014, the proposal had failed to get approval of minority shareholders at a postal ballot. Certain investors had demanded that USL disclose the estimated monetary benefits it would get from the pact with Diageo.
Currently, Diageo India has a sales promotion service agreement with USL for distribution of brands such as Johnnie Walker, Smirnof and Vat 69 in the country.
After the exclusive licence and distribution agreements with Diageo, the license to manufacture the above brands will be transferred to USL from Diageo India. USL expects significant increase in profitability post this pact with Diageo.
As of 2.15 p.m. shares in USL traded 6.78 per cent higher at 3,050.70 apiece, as against 0.04 per cent gain in Nifty.