HUL VS GSK Consumer health: Why holding back may be wiser

While most analysts are advising shareholders to tender their shares in the ongoing open offer of India’s top FMCG company, Hindustan Unilever, the experience of another multinational FMCG player GlaxoSmithKline Consumer Health (GSKCH) which successfully completed an open offer earlier this year is illustrative of why investors should hold back.


When GSKCH’s open offer which was aimed at raising the stake of the promoters from 43.2% to 72.5% was launched, most broking firms had recommended tendering of shares in the open offer because of stretched valuations (the stock was trading at a price-to- earnings multiple of 37.6). The stock has risen 39% since the close of the offer on January 30 this year – making it the top performing FMCG stock this year. GSKCH’s good performance in the quarter to March, driven by an 8% volume growth, and the inclusion of its stock in the BSE FMCG index and MSCI index proved to be triggers for the rise. Stretched valuations have not prevented the stock from vaulting to record high levels.
It is now trading at 47 times its earnings of past four quarters. GSKCH’s open offer was probably attractive because the pricing was 22% higher than the stock’s 52-week high before the offer was announced. However, HUL’s open offer price is only 3.5% higher than the stock’s 52-week high prior to the announcement. That and the capital gains tax burden when offloading shares in an auction rather than through the secondary market, makes it unattractive to tender shares.