GSK’s Divestment Plan Weighs on HUL

The share price of Hindustan Unilever (HUL), the maker of Lux soap and other consumer staples, fell more than 5% in last one month and are down 1.3% in today’s trade feeling the pressure from the stake sell plan of global healthcare major GlaxoSmithKline (GSK) Plc.

HUL share price has appreciated, in recent times, benefiting from tax cuts and momentum in large-cap counters.

GSK is exploring its exit from HUL the Indian unit of Unilever Plc, early in the New Year

This comes about a year after the former’s publicly traded nutrition business, GSK Consumer Healthcare, agreed to merge with the country’s largest pure-play consumer goods company.

GSK Plc said it would sell the stake once the merger was completed in early 2020.

The company is hoping to cash out what will be a near 6% stake in HUL after a pending merger approval comes through, possibly by the end of this month.

GSK’s stake could be valued at Rs 26,580 crore ($3.7 billion) on an expanded equity base.

That could make it one of the largest block trades in India.

The valuation is a near 17% appreciation over the price at which the merger had been announced.

GSK Plc said in October that the value of HUL shares to be received on the disposal of Horlicks and other consumer healthcare brands had risen £247 million in nine months.

The cumulative increase in value since the deal was signed is £345 million.

HUL has been a steady performer compared with most peers in the consumer staples space that are grappling with overall market sluggishness on the back of a sustained rural slowdown.

The July-September quarter saw its margins expand 150 basis points with the premium laundry, skincare, color cosmetics and food and refreshments portfolio remaining bright.

The company is also taking corrective action to recoup market share in parts of the skin cleansing portfolio.

Net net we understand that long term fundamentals for HUL continue to be strong and this sell-off is likely to be temporary

Longer-term we believe the growth levers for HUL continue to be strong and one can expect solid growth ahead.

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