Hindustan Unilever gains 2% as board approves formation of a new subsidiary

Hindustan Unilever (HUL) shares climbed over 2 per cent to Rs 2,279 on the BSE on Tuesday after the company's board approved the formation of a new wholly-owned subsidiary with an authorised share capital of Rs 2,000 crore. The stock was trading close to its lifetime high of Rs 2,307.20, hit on February 19, 2020

"This new subsidiary has been formed to leverage the growth opportunities in a fast-changing business environment and will help HUL in becoming more agile and customer-focused," the firm said in an exchange filing. 

The FMCG major's Chief Financial Officer Srinivas Pathak told Business Standard that the subsidiary was being set up for manufacturing purposes, with an aim at capitalising on the 15 per cent corporation tax available to new manufacturing firms. 

Finance Minister Nirmala Sitharaman had reduced the base corporation tax for existing companies to 22 per cent from 30 per cent, and to 15 per cent from 25 per cent for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023.

Pathak said HUL was setting aside Rs 500-800 crore for investment in new plants under the subsidiary. “We are yet to evaluate which categories will be manufactured by the subsidiary and where the new plants will be located. But we are working towards it,” he said.

The new unit would be set up in the next few months, he added, after which work on the new plants would start.

Meanwhile, earlier this month, foreign brokerage house JP Morgan upgraded HUL to ‘overweight’ with a March 2021 target price of Rs2,425.

Even as the broader demand environment remains subdued, we expect HUL’s revenue growth to fare better (vs home and personal care peers) on a relative basis given its market share growth agenda and participation in the categories/channels of the future. Further consistent beat on margin delivery (continued premiumisation and significant cost efficiencies) adds to confidence on healthy EPS growth, the brokerage firm said.

At 10:27 am, the stock was trading 1.89 per cent higher at Rs 2257.95 as compared to 0.17 per cent uptick in the benchmark S&P BSE Sensex. Almost 7.4 lakh shares have changed hands on the NSE and BSE combined so far.