Amid all the turmoil in the market, the Hindustan Unilever (HUL) stock hit a 52-week high of ₹2,323.45 last week on April 1. While the stock did lose in the initial part of the meltdown beginning February 20, it has recovered smartly.

At close on Friday, the stock was just 4 per cent below the level as on February 20. The good show can be attributed to a few reasons.

 

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One, consumer non-durables are usually considered defensive bets in a falling market, and they are also essential goods during a lockdown.

HUL, being a bellwether FMCG player, has been a beneficiary of this.

Second, on March 23, the company announced the acquisition of intimate hygiene brand VWash from Glenmark Pharmaceuticals. While the financial details of the deal are not disclosed, the acquisition of the market leader in the underpenetrated female intimate hygiene category bodes well for HUL’s beauty and personal care vertical. Personal care is the biggest and most profitable segment for HUL, bringing in 40-50 per cent of the revenues and 50-60 per cent of the profit. It also brings over 20 per cent operating margins.

It being a premium product, VWash is expected to add to the profitability.

A third reason for the rally in the stock is the successful completion of the merger of GSK Consumer Healthcare on April 1. The buyout of GSK Consumer was first announced in December 2018. With products such as Horlicks, Boost, Viva and Maltova, GSK Consumer is the leader in the heath food drinks ,category and this buy extends the product line of HUL in its food and refreshments segment. HUL expects the buyout to drive margin expansion to the tune of 800-1,000 basis points over March 2018 financials.

HUL also announced on April 1 that it had bought the Horlicks brand for the Indian market for ₹3,045 crore from Horlicks Limited, a GSK group entity based in the UK.

The other brands were owned by GSK Consumer itself and hence, became a part of HUL by virtue of the merger.

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