MUMBAI: Hindustan Unilever, the worst-performing consumer goods company in the BSE sectoral index, plans to buy back shares aimed at boosting stock
prices and raising per share earnings in future. The company said its board would meet on June 11 to decide on the price at which it may buy back the shares and the quantity.
HUL, the Indian unit of Anglo-Dutch Unilever which makes Rin detergents and Dove soaps, has lost 6.33% this year, compared with an 8.11% gain for the BSE's Fast Moving Consumer Goods Index, according to Bloomberg data. Rival Godrej Consumer has returned 26% and toothpaste maker Colgate 22% in the same period.
"At a time when HUL is tackling a challenging market scenario, this move would safeguard investors' interest," says Shirish Pardeshi, senior analyst at Anand Rathi Securities. "It will boost investor morale."
Investors are shunning HUL stock since its profit margins have been under pressure due to intense competition. It is also unable to grow sales satisfactorily as rivals Procter & Gamble and Nestle are doing. Its shares trade at a lower price to earnings multiples compared to peers because of the poor show in the past few years.
While HUL is trading at a price-to-earnings multiple of 25 times, Nestle trades at 41 times, Bloomberg data show. Local companies such as Dabur are also trading at a premium to HUL. Marico, makers of Parachute coconut oil is at 29 times and tiger biscuits fame Britannia Industries is at 39.
The buyback, once completed, may help Unilever raise its stake in the company beyond the 52.2% it now holds. Its last buyback was in July 2007. The buyback may act as a cushion against a share price fall. It rose 4% to close at Rs 247 on Thursday. "Once the share price improves, HUL's employee stock option programme will also work better at talent retention," said an analyst at a global brokerage.
HUL, the Indian unit of Anglo-Dutch Unilever which makes Rin detergents and Dove soaps, has lost 6.33% this year, compared with an 8.11% gain for the BSE's Fast Moving Consumer Goods Index, according to Bloomberg data. Rival Godrej Consumer has returned 26% and toothpaste maker Colgate 22% in the same period.
"At a time when HUL is tackling a challenging market scenario, this move would safeguard investors' interest," says Shirish Pardeshi, senior analyst at Anand Rathi Securities. "It will boost investor morale."
Investors are shunning HUL stock since its profit margins have been under pressure due to intense competition. It is also unable to grow sales satisfactorily as rivals Procter & Gamble and Nestle are doing. Its shares trade at a lower price to earnings multiples compared to peers because of the poor show in the past few years.
While HUL is trading at a price-to-earnings multiple of 25 times, Nestle trades at 41 times, Bloomberg data show. Local companies such as Dabur are also trading at a premium to HUL. Marico, makers of Parachute coconut oil is at 29 times and tiger biscuits fame Britannia Industries is at 39.
The buyback, once completed, may help Unilever raise its stake in the company beyond the 52.2% it now holds. Its last buyback was in July 2007. The buyback may act as a cushion against a share price fall. It rose 4% to close at Rs 247 on Thursday. "Once the share price improves, HUL's employee stock option programme will also work better at talent retention," said an analyst at a global brokerage.
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