Hindustan Unilever Falls on Higher Royalty Payment: Mumbai Mover

Hindustan Unilever Ltd., the Indian unit of the world’s second-biggest consumer-goods company, fell to the lowest level in more than five months in Mumbai trading after saying royalty payments to parent Unilever will increase.

Hindustan Unilever fell 3.3 percent to close at 480.90 rupees, the lowest level since Aug. 8. India’s benchmark BSE India Sensitive Index fell 0.6 percent.

This will be the second Unilever unit in Asia that in the past two months has said it will increase royalty payments to the parent as they add more products and get new technology. Some investors aren’t convinced higher royalty payments will help the Mumbai-based local unit, according to Sachin Bobade, an analyst at Brics Securities Ltd.

“This is a big negative for the stock,” said Bobade, who has a reduce rating on Hindustan Unilever. “I don’t buy the argument that just by giving new royalty they will get access to new products.”

The royalty Hindustan Unilever pays will increase to 3.15 percent of revenue in phases through the year ending March 2018 from 1.4 percent, the company said in a statement today. The new agreement will be take effect Feb. 1 and the increase in royalty payment in the period through March 2014 is estimated to be 0.5 percent of revenue, it said.

The company today reported third-quarter profit that missed analysts’ estimates. Net income rose to 8.71 billion rupees ($162 million) in the three months ended December from 7.54 billion rupees a year earlier, the Mumbai-based company said in a statement today. That lagged behind the 8.8-billion rupee median of 31 analysts’ estimates compiled by Bloomberg.

Sales at Hindustan Unilever, a unit of Unilever based in London and Rotterdam, increased to 64.3 billion rupees in the third quarter from 58.4 billion rupees. That was lower than the 65.9 billion rupee median of 31 analysts’ estimates compiled by Bloomberg.

PT Unilever Indonesia on Dec. 12 said that total royalties to Unilever would increase to 5 percent of its revenue beginning 2013, compared with 3.5 percent last year.

Before it's here, it's on the Bloomberg Terminal.