HUL’s steady ride may upset co’s buyback plans
HUL have been trading within kissing distance of the maximum buyback price at Rs 280 announced by the company in June this year.
By Vijay Gurav, ET Bureau |
MUMBAI: Shares of Hindustan Unilever ( HUL) have been trading within kissing distance of the maximum buyback price at Rs 280 announced by the company in June this year.
This has triggered speculation in the market that the company could revise the buyback price upwards, if the stock stayed above Rs 280. But the company has made it clear that it will not buy back shares, if the price exceeds that limit.
On Tuesday, the HUL stock rose to an intra-day high of Rs 283 before ending flat at Rs 278.5 against the buyback price of Rs 280 a share.
“We have the shareholders’ approval to execute the buyback at a maximum price of Rs 280 a share and so can not buy back shares, if the market price exceeds Rs 280,” said the company. The shareholder approval is valid for a period of one year, the company said in response to an ET query on the possibility of an upward revision in the buyback price. After launching the offer on August 23, the FMCG major bought back two lakh shares on the BSE and NSE until August 31, according to statistics available with the BSE. The company plans to purchase a total of 2.25 crore shares till July 25, ‘11.
Most analysts, however, are not concerned about short-term hiccups in HUL’s buyback plans, given the long period of nearly one year within which the company would have to complete it. Even if the share price rises above the offer price, the management will resuming buying the shares after the price corrects, they say.
HUL has increased the prices of select products in soaps and detergents categories which will push up its margins in the current quarter, said HDFC Securities vice-president-research Ranjit Kapadia. “Hopes of better earnings may keep the momentum on, which also depends on how the broader market moves in the coming days,” he added.
HUL’s track record on share buyback is leading investors to believe that the company is serious about buying back the shares. There have been instances, where companies announced grandiose buyback schemes, and then closed them a year later without buying a single share even the stock price was well below the maximum open offer price. HUL had announced a similar buyback offer in 2007-08, and bought shares for Rs 630 crore within four months of opening the offer. Three crore shares were purchased at an average price of Rs207.1 per share against the maximum offer price of Rs 230 a share. Post-offer, foreign promoter Unilever’s stake went up to 52.1% from 51.4% in the Indian company.
“The current rally in HUL shares may have its short-term impact on the prospects of the company’s offer. But the positive factor is that company’s fundamentals have improved significantly, which are being reflected in its valuation,” said Abneesh Roy, an FMCG analyst with leading broking firm Edelweiss Securities.
The company has seen a double-digit volume growth in the past two quarters and recently increased prices of its select products, he added.
This has triggered speculation in the market that the company could revise the buyback price upwards, if the stock stayed above Rs 280. But the company has made it clear that it will not buy back shares, if the price exceeds that limit.
On Tuesday, the HUL stock rose to an intra-day high of Rs 283 before ending flat at Rs 278.5 against the buyback price of Rs 280 a share.
“We have the shareholders’ approval to execute the buyback at a maximum price of Rs 280 a share and so can not buy back shares, if the market price exceeds Rs 280,” said the company. The shareholder approval is valid for a period of one year, the company said in response to an ET query on the possibility of an upward revision in the buyback price. After launching the offer on August 23, the FMCG major bought back two lakh shares on the BSE and NSE until August 31, according to statistics available with the BSE. The company plans to purchase a total of 2.25 crore shares till July 25, ‘11.
Most analysts, however, are not concerned about short-term hiccups in HUL’s buyback plans, given the long period of nearly one year within which the company would have to complete it. Even if the share price rises above the offer price, the management will resuming buying the shares after the price corrects, they say.
HUL has increased the prices of select products in soaps and detergents categories which will push up its margins in the current quarter, said HDFC Securities vice-president-research Ranjit Kapadia. “Hopes of better earnings may keep the momentum on, which also depends on how the broader market moves in the coming days,” he added.
ADVERTISEMENT
HUL’s track record on share buyback is leading investors to believe that the company is serious about buying back the shares. There have been instances, where companies announced grandiose buyback schemes, and then closed them a year later without buying a single share even the stock price was well below the maximum open offer price. HUL had announced a similar buyback offer in 2007-08, and bought shares for Rs 630 crore within four months of opening the offer. Three crore shares were purchased at an average price of Rs207.1 per share against the maximum offer price of Rs 230 a share. Post-offer, foreign promoter Unilever’s stake went up to 52.1% from 51.4% in the Indian company.
“The current rally in HUL shares may have its short-term impact on the prospects of the company’s offer. But the positive factor is that company’s fundamentals have improved significantly, which are being reflected in its valuation,” said Abneesh Roy, an FMCG analyst with leading broking firm Edelweiss Securities.
The company has seen a double-digit volume growth in the past two quarters and recently increased prices of its select products, he added.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
