MUMBAI/LONDON
UNILEVER plans to pay up to $5.4 billion to raise its stake in its Indian subsidiary, making its biggest deal in 13 years a huge bet on the strength of demand for personal care and food products in Asia’s thirdlargest economy.
The Anglo-Dutch giant said it planned to lift its share in Hindustan Unilever, India’s largest consumer goods maker, known for its Dove and Lipton brands, to as much as 75 percent from 52 at present.
The deal, the largest single investment in the Indian consumer goods sector, is a major vote of confidence in the Indian economy, where growth is at its lowest for a decade.
It fits Unilever’s strategy of increasing its presence in fast-growing markets.
Emerging markets, which make up 57 percent of its turnover, have contributed double-digit growth in recent quarters.
That contrasts with rivals who have been slower to move into fast-growth regions. Unilever’s main household products rival Procter & Gamble has been shedding jobs, while Danone is the most exposed among the big food groups to the eurozone crisis.
“The long heritage and great brands of Hindustan Unilever, and the significant growth potential of a country with 1.3 billion people, makes India a strategic long-term priority for the business,” said Unilever Chief Executive Paul Polman.
The bid at 600 rupees per share - 20.6 percent over Monday’s closing price - sent shares in Hindustan Unilever surging as much as 20 percent to an all-time high early on Tuesday.
But the firm, formed in 1956, generally trades at a heady multiple, and several market watchers said investors might be unwilling to part with their shares at the offer price.
Unilever is paying nearly 36 times the unit’s forecast earnings for the year ending March 2014, according to Thomson Reuters data. It trades on a price/earnings ratio for the next 12 months of 29.5, compared with 19 for Unilever Plc.
Its 2012 return on equity was 87 percent, well ahead of an industry mean of 66.5 percent.
“Many of the foreign funds or institutional investors hold the stock and when they play the India growth story they love to play it with HUL (Hindustan Unilever),” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, which holds shares in the company.
“It is a very attractive stock and the quality of management is the best.
So, given these factors, investors will not sell so easily,” he said.
On Monday, Hindustan Unilever, whose brands include Rin bar soap and Lakme skincare products, beat expectations with a 15 percent increase in earnings in January- March.
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