HUL open offer: FMCG stocks rise

The second voluntary open offer by a consumer goods firm in a span of four months to increase promoter shareholding has fuelled investor optimism towards stocks in this space. Even though stocks in the fast moving consumer goods (FMCG) sector already trade at rich valuations compared to other sectors, the Rs 29,220-crore open offer announced on Tuesday by Unilever Plc to buy an additional 22.5 per cent in its Indian arm could give a fillip to the valuations of companies in this space, said analysts. Most FMCG companies, especially those with foreign backing, surged over five per cent on Tuesday.

“Prices are likely to go up further as there is an anticipation that the promoters of these companies could make an open offer to increase their stakes. This means that the foreign-parent companies continue to see good potential in their India business,” said Ruchita Maheshwari, research analyst with brokerage firm Nirmal Bang.

Nestle India, GSK Consumer Healthcare, and Colgate-Palmolive went up by more than 5 per cent each on a day when the broad-market indices were up less than 0.5 per cent. Britannia Industries saw its stock price move up by about 3 per cent. The promoter-holding in these companies is less than 75 per cent as of March 2013.

“These companies have also been affected by the spill-over effect. If there is a reduction in supply during the open offer, the free-float would decrease and could get re-allocated to the rest of the companies in the FMCG space,” said Dhananjay Sinha, co-head (institutional research), Emkay Global Financial Services.

Hindustan Unilever is the second company this year to have announced a voluntary open offer for minority investors. Earlier this year, UK-based GlaxoSmithKline Plc had decided to shell out Rs 5,220 crore to buy an additional 31.8 per cent in its Indian arm, GlaxoSmithKline Consumer Healthcare.

According to analysts, the decision by foreign promoters to invest heavily in the Indian arms is positive in terms of growth and profitability.

“Fundamentally, nothing has changed for these companies. The stocks of these companies will continue to move up on positive sentiments,” said Suruchi Jain, equity research analyst at Morningstar India.

Analysts said that any doubts on India’s growth story has been laid to rest with this announcement. While the impact has been more speculative in nature, the India growth story and the potential therein remains intact and continues to be strong, they added.

The open offer by GSK, which was at a premium of 28 per cent to its prevailing market price, was well received by investors. After the offer, the promoter holding in GSK rose by 29.3 percentage points from 43.16 per cent to 72.46 per cent.