Shares of Hindustan Unilever Ltd (HUL) on Friday cracked nearly 4 per cent as investors feared the higher royalty to its parent could crimp its margins.
The HUL share ended 3.84 per cent lower at Rs 2,548.35 on the BSE after dropping to an intra-day low of Rs 2,536.65 — a fall of almost 4.30 per cent.
While HUL was the top loser in the Sensex pack, it declined 3.76 per cent to end at Rs 2,550 on the NSE.
The company’s market valuation eroded Rs 23,941.91 crore to Rs 5.98 lakh crore on the BSE.
On Thursday, HUL announced its board has approved a new royalty and central services arrangement with Unilever Group. The payouts will increase 80 basis points to 3.45 per cent of turnover.
Market circles said they feared the higher payment could impact its margins. The company said they would implement the hikes in a staggered manner over a period of three years.
“In the absence of meaningful margin expansion beyond 2023-24, sales and PAT (profit after tax) growth will move in tandem which will prevent meaningful re-rating of the stock.. HUL royalty will impact EPS by Rs 1.1 and Rs 1.7 for 2023-24/2024-25’’ Prabhudas Lilladher said.
A Motilal Oswal report said that despite the increase in royalty from 2.65 per cent to 3.45 per cent, it is not ``particularly perturbed’’ if the company receives commensurate benefits from the parent.
The brokerage said HUL continued to exhibit remarkable dexterity, led by a cluster-based approach. It has maintained a buy rating on the stock with a target price of Rs 3,100 which denotes an upside of almost 22 per cent from the current levels.
