Tuesday, April 30, 2013


The voluntary open offer from Unilever for shareholders of Hindustan Unilever is easily the most significant development for Indian market. Make no mistake, its way bigger than a petrol price decontrol, or allowing FDI in retail or anything where you may have heard lot more noise. What we should not do at this moment is to belittle this deal by talking about valuations, acceptance ratios and punting on what it means for other cash rich MNCs and their Indian arms.

Just think about it, Unilever is willing to put $5.4 bn cash to work, just to increase their stake in Indian arm to 75% and be rest assured, they won’t get all they want at Rs 600/share and they may at some point make a higher offer which we cannot speculate at this point. (By the way, the promoters of Saint Gobain and Fresenius Kabi should note this development and not dither over what is loose change)

What should an investor of HUL do? While the HUL stock is at life time high, this does not take away the fact that the stock would still rank as an underperformer if you invested in the stock 10 years back.

You will be amazed to know that despite all its massive outperformance in the last 3 years, only 3 index stocks have underperformed HUL over the last 10 years. While HUL is up 190% in last 10 years, only Hindalco, Reliance Infra and Ranbaxy have given lower returns if you take data from February 2003, which is when the great Indian bull market actually started.

During these 10 years, Sesa Goa has become 82 fold, Lupin 47 fold, Kotak Mahindra Bank a 40 bagger, and Axis Bank a 30 bagger. Ok, let’s agree that some of them have not been the part of index for 10 years and have only been added after significant outperformance. So look at peers, who have been in index for long. M&M is a 30 bagger, L&T a 15 bagger, Tata Motors 8 bagger and even the closest competitor ITC has been a 14 bagger. Of course all these stocks have had their triggers over last 10 years in terms of economy and individual company issues.

Unilever clearly is not doing this for charity, nor is it doing this because it thinks it owes it to shareholders. No way, it is doing that because it is betting on the much larger theme, which is the Indian consumption story. And while we may keep debating how expensive stocks look in the consumption basket, as the past bull market has shown, the market can make absolute mockery of near term valuations when it gets in the mood to reward a particular sector or a stock.

1 comment:

  1. Anuj,

    Maybe company's plan is to increase the dividend yield and get the lions share and then reinvest it somewhere else. HUL is already maxed out in terms of penetration etc in India.

    If Unilever is putting 5 bn it surely would want more that than in years to come.

    Other possibilty is delisting but ofcourse that would not be easy.