After India’s largest FMCG giant HUL announced a mega merger with GSK Consumer, picking up the iconic Horlicks and Boost brands, brokerages see a lot of positives for HUL from the deal. We take a closer look.
After India’s largest FMCG giant HUL announced a mega merger with GSK Consumer, picking up the iconic Horlicks and Boost brands, brokerages see a lot of positives for HUL from the deal. Interestingly, HUL shares have gained by about 4.2% from Friday’s closing price of Rs 1,774.3. HUL share priced gained 1.2% to hit a fresh 52-week high of Rs 1,848.95 on NSE this morning.
Notably, HUL has announced an all equity merger with 4.39 shares of HUL being allotted for every share in GSK Consumer India. This transaction values the total business of GSK Consumer at Rs 31,700 crore.
Taking stock of the mega deal, Deutsche Bank said that the merger will provide a boost to earnings for HUL. The deal is seen to be margin and EPS accretive by 5% in FY20. The company can unlock significant scale and synergy benefits on costs. Deutsche Bank has upgraded the share price target to Rs 2,100. HUL shares are trading at about Rs 1,813.10. Deutsche Bank’s target price implies an upside of more than 15% from the current market prices.
Phillip Capital too has raised the target price to Rs 2,160 saying that HUL has all the levers in place to make the acquisition work to its advantage. Jefferies said that while the deal with GSK Consumer is accretive, execution will be key. Accordingly, the firm has a hold rating on the stock with a target price of Rs 1,650. The current valuation leaves no room for error, the firm noted.
Emkay noted that Horlicks buy provides upside for the stock. The research firm estimates EPS accretion of 6% of the deal. Emkay has increased the target share price to Rs 1,900 from Rs 1,750 earlier. The firm sees higher growth from higher distribution and innovation capabilities, which can provide upside.
HUL will look to augment its product portfolio from this deal. “The acquisition is in line with the Hindustan Unilever strategy to build a sustainable and profitable Foods and Refreshment (F&R) business in India by leveraging the mega trend of health and wellness. GSK CH India is the market leader in the HFD category, with iconic brands such as Horlicks and Boost, and a product portfolio supported by strong nutritional claims,” said the statement.