HUL continues gaining streak, hits new high; advances 24% in two weeks

HUL has fixed April 17, 2020 as the record date for determining the shareholders of the GSK Consumer Healthcare to receive the shares of the company.

Shares of Hindustan Unilever (HUL) hit a new high of Rs 2,330, up 8 per cent on the BSE on Tuesday.

Last week, HUL announced the completion of GSK Consumer Healthcare (GSKCH) merger process, post securing necessary regulatory approvals. HUL has fixed April 17, 2020 as the record date for determining the shareholders of the GSKCH to receive the shares of the company. The merger of GSKCH with HUL will be on a basis of an exchange ratio of 4.39 HUL shares for each GSKCH share. HUL’s shares will be allotted to all GSKCH shareholders from end of April to early May.

HUL also announced that it has acquired the Horlicks brand rights for the India market from Horlicks (a GSK-owned entity) for EUR 375.6 million (Rs 3,045 crore).

“HUL now need not pay royalty to GSK or parent Unilever for the use of the Horlicks brand in India (which they would have had to pay if Unilever had rights for the brand in India). Also, there will be no royalty on R&D as research is done in-house in Indian operations of GSKCH, which is now owned by HUL,” brokerage firm Motilal Oswal Securities said in a company update.

In the past two weeks, HUL has rallied 24 per cent after the fast moving consumer goods (FMCG) major on March 23, announced the acquisition of female intimate hygiene wash brand VWash from Glenmark Pharmaceuticals. In comparison, the S&P BSE Sensex has risen 11 per cent during the same period.

Analysts at JP Morgan have ‘overweight’ rating on HUL with March 2021 price target of Rs 2,400 per share.

“HUL’s continued proactive approach toward product innovation and distribution enhancement provides a more sustainable competitive edge over peers, in our view. HUL's best-in-class share price performance over recent years has been supported by best-in-class operational performance and a sound business model (high on innovation, superior GTM capabilities, future ready, digital excellence),” the brokerage firm said in a stock update.

Despite the muted general consumption sentiment and adverse impact from the COVID-19 challenge, we expect HUL’s topline performance to fare better (vs home & personal care peers) on the back of its market growth focus, and participation in categories/channels of the future. Merger with GSKCH also provides upside optionality on topline and margins. In the current volatile market environment, we expect HUL’s strong earnings growth visibility to support premium multiples, it added.