A great deal – for Indian investors

Elizabeth Fournier
JUST three months ago, Hindustan Unilever’s stock was trading at 465 rupees per share. Yesterday Unilever offered 600 rupees for an extra 23 per cent stake in the firm – a huge 21 per cent premium to Monday’s closing price and a valuation of 36x its projected earnings to March 2014.

As the Indian subsidiary’s share led the country’s market higher yesterday, its parent’s stock dipped lower – and no wonder. Investors have been left wondering why it’s taken so long for the Anglo-Dutch firm to spot a deal that’s been under its nose for years – not to mention why it has offered such a high price.

It’s obvious why Unilever wants a bigger slice of its Indian arm. According to the consumer giant’s latest results, emerging markets now make up 57 per cent of its revenues and have been growing by more than 10 per cent for each of the past eight quarters. Hindustan Unilever distributes huge brands including Lipton tea and Vaseline skincare, and is forecast to continue growing at a similar pace over the next year.

Compare that with Europe, where sales shrunk by three per cent in the three months to March, and it’s not hard to argue that looking east is the right choice for the group.

But why now? These high-growth markets are such an obvious pathway to expansion that it’s barely credible to call them emerging anymore. And Unilever already owns a controlling stake – it should have identified ages ago just how well its Indian arm has been doing and struck while the iron was not only already hot, but significantly cheaper. It’s a wonder the parent company’s shares only fell by less than one per cent yesterday. This deal is too little, too late.