In your interest.
Online Personal Finance Magazine
No beating about the bush.
The trading unit of the guar seed and guar gum is 1 metric tonne each and price quote for the contracts is ex-warehouse Jodhpur, inclusive of sales tax/VAT. The basic delivery centre for both the contracts is Jodhpur and additional delivery centres include Bikaner, Nokha, Sri Ganganagar, Hanumangarh and Barmer in Rajasthan, Deesa in Gujarat, and Adampur and Sirsa in Haryana
Shareholders holding on to the shares from now on will be living in hope that Unilever wants to delist HUL and will revise its buyback or open offer price from time to time
On 30 April 2013, Hindustan Unilever’s parent company, Unilever Plc, announced an open offer to buy roughly 487 million shares, or 22.52% of the share capital, of HUL, at 20% above the previous day’s closing market price (i.e. 29 April 2013). The open offer stipulates that Unilever Plc intends to buy back HUL shares, voluntarily, at a price of Rs600 per share. At the moment, Unilever Plc holds roughly 794 million shares in HUL, which forms 36.75% of the latter’s share capital. This means, if Unilever Plc intends acquire the 22.52% of the shares outstanding, it will take its total shareholding to 59.27%.
If you are a shareholder what should you do? Tender your shares? Or hold on for more gains?
Long-term shareholders will find it hard to make this decision. While HUL is a well-managed company with exceptional return on capital, Rs600 is way above the fair value currently. On the other hand, there is the possibility of Unilever Plc taking complete control (i.e. 100% ownership) in which case the price will head higher.
On the negative side, Unilever finds great value in HUL and mines it regularly. Recently, HUL and Unilever Plc signed a ‘New Agreement’ under which HUL will pay higher royalty costs at an increasing rate till 31 March 2018. It will be 0.5% of turnover till March 2014, and thereafter in a range of 0.3% to 0.7% of turnover in each financial year, leading up to a total estimated royalty cost increase of 1.75% of turnover compared to existing arrangement, till 31 March 2018. This means, HUL will have less to distribute to shareholders or reinvest from the pie.
Recently, Hindustan Unilever had announced good March quarter results. We had covered it over here (Hindustan Unilever reports robust results; net profit up 14.65%). Both its return on networth and return on capital employed are stupendous at 108% and 123% respectively. The valuations are at a premium though, with market capitalisation at 26.30 times operating profit.
In our view, investors are taking a gamble if they hold on to the shares. Three factors will decide the movement of shares: rising earnings, more and more extraction of value by Unilever and possibility of a higher buyback price. Of these three, a shareholder, as an outsider, has a sense of only the first factor. It is impossible to get a sense of the other two. And based on that first factor of earnings, HUL is currently overvalued. The price of Rs600 will act as a magnet and HUL shares will not fall but the upside looks limited. Shareholders holding on to the shares from now on will be living in hope that Unilever wants to delist HUL and will be interested in revising its buyback or open offer price from time to time. Meanwhile, if performance slows down even a little bit, the stock will stay flat or even fall.
Mis-selling is rampant in the financial services industry. While legislation may act as a shield in protecting the interests of investors, an investor can take care of the following aspects to minimize instances of mis-selling
I have come across many cases of mis-selling in the financial services industry but the Mangelal Sharma case came a shocker for me (Will this 79-year old’s protest move the government and the RBI to stop mis-selling by banks?, Mangelal Sharma gets his Rs7 lakh back—another Moneylife victory). This was a case in which even an old man was not spared. Banks and financial institutions claim that customers are king for them but in practice they rarely follow this. Why do we have so many cases of mis-selling of financial products? Is mis-selling happening because there is dearth of legislations? The answer to this question is both yes and no. Though there are legislations in place to prevent mis-selling, these legislations hardly help investors. Also investors in many cases are not aware about how to take benefit of existing laws when they have become victim of wrong financial products sold to them.
Whatever is the reason, there are instances of mis-selling in which people lose their hard-earned money and repent thereafter. While legislation may act as a shield in protecting interest of investors, is there any alternate way in which an investor can prevent himself/herself from becoming victim of mis-selling? Though there is no magic wand to help an investor, s/he can take care of following aspects to minimize instances of mis-selling:
Never buy a product aggressively pitched by agents: It is very obvious that an agent or a representative of financial service provider pitches a product based on the commission or fee that he earns. So it is better not to get carried away by what he suggests. You need to understand your investment requirements and select product based on that. One more important point, even if the agent happens to be a family friend, ask him questions. You cannot leave your investments in other’s hand. Products like life insurance are often mis-sold by agents as investment products. Please remember insurance is a product having potential to cover risks.
Never buy a product you do not understand: The golden rule to prevent mis-selling is not to buy a product unless you have understood the product fully. New products keep on hitting the market from time to time. The most recent example was the Rajiv Gandhi Equity Savings Scheme (RGESS). Many investors bought this product because of the fact that this is a good tax saving option, without realizing the risk factors. In past, there have been many instances when Unit Linked Insurance Plans (ULIPs) were sold to investors. The main reason of this mis-selling was lack of understanding of products by investors.
If you are financially illiterate, there are two options. Acquire necessary skills to understand a product or approach a financial advisor. To me the first option looks better. In India, most of the financial products are plain vanilla products which an ordinary investor can understand. The problem with financial advisors is that most of them offer generic suggestions.
Have a check list ready: In order to understand the product, you need to look at facts such as the risk and return aspects of the product. In order to understand product, you can check out some of the details which are as follows:
Keep greed aside: Mis-selling is easy if greed overshadows rational thinking. Many people invest their money in unknown financial products without understanding the product at all, as the greed of handsome return simply overwhelms them. So it is important that you never invest in products which give unbelievable returns.
Never buy financial products when the deadline approaches: If you are in hurry, you will have many worries later on. Never buy a financial product when the deadline approaches, especially the tax saving deadline. Think and plan in advance. Even if you have to buy any such product, buy conventional time-tested product such as PPF, NSC, etc.
Please note that you can mitigate the instances of mis-selling by becoming more vigilant and careful. Take care to ensure that you never buy what you don’t need. Preventive measures against mis-selling need to be inculcated over a period of time.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)