The buy-back window that will enable Unilever Plc to mop up shares in Hindustan Unilever from its Indian shareholders opens on June 21. The shares are proposed to be bought at Rs 600 a share. The independent directors in the company have already given the opinion that the offer price is ‘fair and reasonable’. With the market price of the stock at Rs 593, brokers appear to be divided on whether investors should sell in the offer.

One set of brokers say that the stock price may correct once the open offer is completed. According to ICICI Securities, “With expected earnings CAGR (compound annual growth rate) of 10 per cent over FY13-15 against 26 per cent CAGR over FY11-13 and risk of competitive intensity increasing in soaps and detergents business, we believe the stock will correct after the open offer ends.”

Income-Tax angle

Raamdeo Agrawal, Director and co-Founder, Motilal Oswal Financial Services Ltd, said, if one wants to make one-time profit of Rs 70-80 a share then of course one should exit.

But for a very long-term investor, who has gone through the pain of holding through 2001 to 2010 period, the stock could be a ‘hold.’ He also pointed out that selling the share through the open offer would require the investor to shell out capital gains tax on the profits, at his tax slab rate. “If investors are in taxation brackets of 15-20 per cent, then post-tax I do not think it will pay off,” added Agrawal.

Others such as Rudra Dalmia, Managing Director of Saxo India Financial Services, part of Denmark-based Saxo Bank, have unusual advice to offer — sell the Indian company’s shares and buy the parent’s instead. “By shifting to Unilever Plc shares from HUL, investors not only get the benefit of HUL, but of other emerging and developed markets where Unilever is doing well.”

He said Unilever’s share of revenues from emerging markets is more than developed markets and it is doing better than its global peers such as Procter & Gamble and Colgate Palmolive.

> badrinarayanan.ks@thehindu.co.in

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