Investing.com -- Diageo (LON:DGE) shares rose on Tuesday after media reports said the company is considering a sale of its Indian Premier League cricket team, Royal Challengers Bengaluru, in a move that could raise as much as $1.1 billion.
Bloomberg and Indian news outlets reported that Diageo may be evaluating options for the team, which is owned through its Indian unit, United Spirits (NSE:UNSP).
Diageo holds a 55.9% stake in United Spirits. The company has not commented on the reports, and no transaction has been confirmed.
Estimates cited in the reports suggest the franchise could be valued at up to $2 billion.
A full sale at that valuation would reduce Diageo’s net debt to EBITDA from 3.2 times to 3.1 times in fiscal 2026, according to Jefferies.
The sale would also be approximately 1% accretive to earnings due to lower finance costs.
Jefferies said a potential disposal would align with Diageo’s previously stated strategy of exiting non-core holdings.
In recent financial updates, including the third-quarter fiscal 2025 trading statement and the Guinness Capital Markets Day, the company signaled a broader approach to asset sales, targeting not only smaller assets but also larger, more substantial ones.
The Royal Challengers franchise, acquired by United Spirits in 2012 under previous ownership, became part of Diageo’s portfolio following its acquisition of the Indian business.
The franchise is one of the original IPL teams and remains among the most prominent in the league.
Advertising of alcoholic beverages is prohibited in India, and additional restrictions have been considered regarding indirect alcohol promotion through sports sponsorships.
The Royal Challenge brand, which shares branding elements with the cricket team, accounted for 12.4% of Diageo’s sales in India.
That is smaller than the company’s McDowell’s brand, which made up 33.1% of sales in the market. Diageo has not announced any intention to sell the Royal Challenge brand.
Jefferies noted that Diageo has set a leverage target of 2.5 to 3.0 times net debt to EBITDA by fiscal 2028. Based on current projections, Jefferies said that goal may be reached as early as fiscal 2027.
In December, Jefferies revised its outlook on Diageo, flagging changes in cost discipline and cash management under the company’s new chief financial officer.
In the most recent nine-month results, Diageo outlined further cost and cash measures, though revenue growth guidance remained subdued.
Jefferies lowered its fiscal 2026 estimates for Diageo’s organic sales and EBIT growth to 1.8% and 2.3%, respectively, compared with consensus estimates of 3.6% and 4.8%. It projected earnings per share of $1.643, below the consensus forecast of $1.707.
Jefferies said Diageo’s current valuation reflects several known challenges and that any shifts in consensus forecasts could contribute to short-term stock movement.