Why is Unilever increasing its control over HUL?
Ajita Shashidhar April 30, 2013After beating industry expectations with a 14.65 per cent increase in net profit, the country's largest FMCG company's parent, Unilever Plc's announcement of an open offer to increase its stake in HUL from 52.48 per cent to 75 per cent, has ushered in a lot of optimism in the industry. "The open offer makes Unilever Plc's commitment for India all the more obvious," points out Shirish Pardeshi, Executive Director, Anand Rathi.
At Rs 600 per share, the total value of the transaction at the offer price would be close to Rs 29,000 crore. "If the parent company is making an investment of close to Rs 29,000 crore in the Indian arm, it is obviously seeing a lot of potential in the Indian operations," remarks V. Srinivasan, Research Analyst (FMCG), Angel Broking.
The company's stock price surged by 17 per cent to Rs 585, soon after Unilever Plc's announced its open offer.
So, what would Unilever Plc's increase in stake in its Indian arm imply? The analyst community sees a direct impact on the FMCG major's distribution network. The company, in the last three years, has already added more than one million stores, and the number would definitely increase manifold. One could also see more brands from the international portfolio entering the Indian market.
However, the missing link in the HUL puzzle is its failure in the foods business. The Indian processed food market is estimated at $25 billion but the country's largest FMCG company has a dismal presence there. Food contributes less than 20 per cent of the company's overall revenue, while its contribution to Unilever Plc's revenue is 45 per cent. Will the parent company's increase in stake in the Indian arm increase the focus on fledgling food business? HUL definitely can't afford not to have a significant presence in the foods business.