The stock of GSK Consumer rocketed 20 per cent and locked in at its upper circuit after its promoters announced an open offer to buy up 31.8 per cent of the public shareholding. But after these gains, there may be limited upside left in the stock, resulting from the open offer.
Post the offer, promoter holding in the stock would reach the threshold of 75 per cent, the maximum promoter shareholding stipulated by the SEBI.
After Monday’s rise the stock trades at Rs 3,652. At Rs 3,900, the open offer will be priced at a premium to this. But investors in the stock will not be able to sell their entire holdings. The ratio between the shares likely to be mopped up in the offer and the shares held by the public — known as the acceptance ratio — suggests that an investor would be able to sell about 56 shares in the open offer for every 100 held in GSK Consumer. After the offer closes, investors would be left with about 44 per cent of their holdings, whose performance hinges on stock behaviour once the offer closes.
Post Monday’s gains, GSK Consumer’s stock valuations have already zoomed to 36 times trailing twelve-month earnings, bringing it on par with Godrej Consumer and Marico. It is only a shade below behemoth Hindustan Unilever’s 39 times trailing earnings.
FMCG companies have enjoyed pricing power and GSK Consumer’s near-monopoly of the malted food drinks segment gives it an additional edge. Even so, the strain on consumers is beginning to show, with growth in sales volumes slowing for the company.
Key brand Horlicks’ volume growth dwindled down to 4.5 per cent in September quarter from 10 per cent in the same quarter last year. Part of this drop is attributable to a drying up of bulk buying from the Indian armed forces. Prices of agricultural inputs wheat, sugar and milk are beginning to inch up, which could further dent demand.