Mumbai: Shares in India’s Hindustan Unilever Ltd. rose as much as 5.4% on Monday, after the country’s top consumer goods maker said it would consider its first-ever buyback of shares.
The board of Hindustan Unilever, 52% owned by Anglo-Dutch Unilever Plc, will consider a share buyback on Sunday, July 29, when it also reports earnings for its second quarter to end-June.
Hindustan Unilever, maker of Lux soap and Sunsilk shampoo, has hived off some non-core businesses and relaunched several of its products recently, and analysts expect it will gain from the growing demand for premium foods, personal and household products on the back of rising incomes and the expansion of modern trade.
Analysts say the share buyback gives parent Unilever greater control of its subsidiary in a fast-growing economy.
Developing and emerging markets, which made up more than 40% of Unilever’s revenue in 2006, are a key priority.
“India is a high-growth market and the parent obviously wants more control so it can make the necessary investments and reap the rewards,” said one analyst who asked not to be named.
Shares in Hindustan Unilever rose to as much as Rs 204.80 in early deals, valuing the company at $11.20 billion.
The shares have risen 11.5% this year, beating a 5.4% decline for the sector index, but trailing a 12.9% gain for the main share index. After a bruising price war in detergents and shampoos with the Indian unit of Procter & Gamble, Hindustan Unilever posted its first profit rise in more than a year in the April-June quarter of 2005.
Now, competition is coming from other quarters.
Top cigarette maker ITC Ltd. has entered personal care, snacks and ready-to-eat foods, and is expanding its portfolio. Others, including Dabur India and Marico are stepping up their presence in premium segments.
The share buyback, analysts say, is also a way for the company to shore up investor confidence and boost its valuation.
“The shares had been beaten down, and rather than keep doling out dividends, it makes sense to buy back shares,” said Hemant Patel at Enam Securities, who has a “buy” rating on the stock. ($1=40.4 rupees)