By Shares of Hindustan Unilever rose nearly 3% to Rs 2,691.95 on the BSE during Tuesday’s intraday trade, following the company’s announcement to sell its two-decade-old water purification business, Pureit, to AO Smith for Rs 601 crore.
The board approved the sale and divestment of the water purification business, which includes trademarks, copyrights, and other intellectual properties associated with Pureit. The business will be sold as a going concern on a slump sale basis to AO Smith India Water Products Private Limited for an enterprise value of $72 million (Rs 601 crore).
HUL, in its exchange filing post-market hours on Monday, stated that the transaction is subject to customary closing conditions. Until the deal is completed, HUL will continue to manage the Pureit business. For the financial year 2024 (FY24), the turnover from HUL’s water purification segment stood at Rs 293 crore, which accounts for less than 1% of the company’s total revenue. This sale is part of HUL’s broader strategy to streamline its focus on core areas, having previously sold non-core brands like Annapurna and Captain Cook last year.
The market responded positively to the news, as reflected in the nearly 3% rise in HUL’s share price. This uptick comes after the stock hit a 52-week high of Rs 2,723.90 on June 5, 2024. In the current financial year 2024-25 (FY25), HUL shares have outperformed the broader market, gaining 19% compared to the BSE Sensex’s 10% rise.
Analysts from Emkay Global Financial Services have highlighted the positive re-rating of the FMCG sector’s valuations post-Q4 results, fueled by optimistic management commentary on demand outlook and expectations from the pro-consumption Budget 2024. They noted that FMCG firms, including HUL, have enhanced execution by boosting distribution and brand communication. Emkay Global prefers HUL for its expected improvement in external settings.
Motilal Oswal Financial Services shares a similarly positive outlook on HUL. They believe that HUL’s volume growth has bottomed out and anticipate a gradual recovery in FY25. MOFSL attributes this optimism to HUL’s diverse product portfolio and presence across various price segments, which should support steady growth. Following the release of HUL’s annual report, MOFSL maintained a ‘Buy’ rating on the stock with a target price of Rs 2,900, valuing it at 55 times the P/E for FY26.
HUL has consistently reinforced the fundamental factors that have driven its success in India. The company embraces technology for data collection and informed decision-making, adopts the ‘Winning in Many Indias’ (WiMI) strategy to emphasize decentralization and tailored approaches, identifies emerging trends and proactively invests in them, reinvests cost savings back into the business, and demonstrates exceptional execution capabilities. These factors have contributed to consistent earnings growth, as highlighted by MOFSL.
The divestment of Pureit is part of HUL’s strategic shift to focus on its core businesses. This move not only helps streamline operations but also allows HUL to invest more in areas where it sees greater growth potential. The company’s ability to adapt and refocus on its core strengths continues to drive its performance in the market. With a strong outlook for the future and ongoing efforts to optimize its portfolio, HUL remains a key player in the FMCG sector. As the market responds to these strategic changes, investors are closely watching HUL’s next moves, which are expected to further solidify its market position.
