Thread by @blitzkreigm

I don’t think one person’s opinion matters on this, and least of all mine.

But for what it’s worth - I personally think it’s unfair on minority shareholders for Unilever to ask for a higher royalty. You’d rather increase the pie than increase your share of it.

1/n

https://twitter.com/SunDudez/status/1616090516097224704

I also think HUL delivers a lot of value to Unilever anyway.

They’re 11% of their global sales but 2/3rd of Global Market cap.

Unilever PLC trades at 18X forward earnings & HUL at 60X

HUL has aspirations to be the top contributor to Global sales as well

2/n

So for all the value, brand usage and technical expertise that Unilever provides to HUL, they get enough in return for their investment already.

Bigger absolute sales and higher valuation > increase in Royalty %

3/n

Having said that, both, Unilever & HUL have been invested in India and all stakeholders for long enough to not take any hasty or value destructive steps.

So I’d also give them some benefit of doubt and see how the business actually performs over the next few quarters

4/n

As far as tomorrow’s stock price move is concerned, HUL has given a glide path for royalty increase. Analysts will cut EBITDA estimates to that extent (~2% in year 1, ~4% over 3 years, is my guesstimate)

They’ll also add a provision of increasing royalty in their models

5/n

However,

Will be important to see if long term investors look beyond this 2% cut and continue to bet on the big Indian consumption story.

HUL did indicate likely improvement in demand and RM environment going ahead

6/n

HUL’s own growth triggers going forward include - scaling up recent acquisitions and premium categories.

An imminent change in leadership, later this year, will be another catalyst to watch.

D2C universe may also throw up some great acquisition opportunities

7/7
#FMCGisLife