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April 24, 2024

Global Investors Dump Hindustan Unilever Stock Amid Sluggish Sales Growth

Global investors are pulling back from Hindustan Unilever Ltd. as the company faces challenges with weak consumer demand and intensifying competition, resulting in a significant decline in its stock value.

According to data compiled by Bloomberg, foreign funds have reduced their holdings in India’s largest staples company to a four-year low of 12.7 per cent as of March, down from 14.5 per cent in June last year. Hindustan Unilever shares have plummeted more than 9 per cent in the past year, making it the second worst performer in the NSE Nifty 50 Index.

Investors are offloading Hindustan Unilever and similar consumer-giant peers due to their expensive valuations amid faltering sales growth. The company is grappling with competition from emerging brands while facing decreased demand from its rural customer base due to lower agricultural yields.

Abhay Agarwal, a fund manager at Piper Serica Advisors Pvt. in Mumbai, highlighted that overseas investors are turning cautious, considering the parent company is trading at less than half the valuation multiple. He noted that the stock’s three-year sideways movement during a rising market has also contributed to investor wariness.

Despite foreign divestment, domestic investors are increasing their stake in Hindustan Unilever, reaching a record 13.2 per cent, according to Bloomberg data. The parent company, Unilever Plc, and other group members own slightly over 60 per cent, while retail investors hold about 12 per cent.

Agarwal pointed out that local investors are compelled to hold the company due to its size and weighting in the benchmark index.

However, the decline in Hindustan Unilever shares this year has led to an improvement in its multiples. The stock is currently trading at 46 times its forward earnings, below its five-year average of about 54 times.

Souvik Saha, an investment strategist at DSP Asset Managers Pvt. in Mumbai, suggested that consumer stocks focusing on the rural economy could see positive momentum. He noted that commentary from some consumer companies indicates that the worst might be over, with key subsidies for rural areas set to continue.

Hindustan Unilever is expected to report a net income of 24.7 billion rupees ($296 million) for the three months through March, a decline of 0.9 per cent from a year earlier, according to the median estimate of analysts surveyed by Bloomberg ahead of its results announcement on Wednesday.

In summary, Hindustan Unilever’s struggles with sluggish sales growth have prompted global investors to reduce their holdings, though domestic investors remain committed, hoping for a turnaround in the company’s fortunes.

Jhumpa Lahiri

Jhumpa Lahiri

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