Hindustan Unilever : JQ’23 Earnings Call Transcript

"June Quarter 2023

Earnings Call of

Hindustan Unilever Limited"

July 20, 2023

Speakers:

Mr. Rohit Jawa, Chief Executive Officer and Managing Director

Mr. Ritesh Tiwari, CFO and Executive Director, Finance and IT

Mr. A Ravishankar, Group Finance Controller and Head of Investor Relations

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June Quarter 2023 Earnings call of Hindustan Unilever Limited

Moderator: Ladies and gentlemen, good day, and welcome to Hindustan Unilever Limited Conference Call for the results for June quarter ended 30th June 2023. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. A. Ravishankar, Group Controller and

Head of Investor Relations. Thank you, and over to you, sir.

A. Ravishankar: Thank you, Yashashri. Good evening everyone, and welcome to the conference call of Hindustan Unilever Limited. We will be covering today the results for the quarter ended 30th June 2023. On the call with me is Rohit Jawa, CEO and Managing Director; and Ritesh Tiwari, CFO.

We will start with prepared remarks from Rohit and Ritesh, which I expect to take around 20 minutes, leaving us about an hour for our Q&A session at the end. Before we get started with the presentation, I would like to draw your attention to the Safe Harbor statement included in the presentation for good order sake. With that, over to you, Rohit.

Rohit Jawa: Thanks, Ravi. Good evening, everyone. I'm delighted to be here for my first earnings call as the CEO and Managing Director of this great company. I look forward to engaging with all of you.

Since I have come onboard in April as CEO designate, I have been spending time reconnecting with the business and meeting our people, consumers and customers. It has helped me to better understand our purpose-ledfuture-fit business, our winning strategy and our distinctive capabilities. While so much has changed in the business over the years, what remains constant is our values, our belief that what is good for India is good for HUL and the high-quality talent that we have in the company.

I have had the opportunity to also witness first-hand the on-ground impact that we have created through our working communities across the country, I'm very proud of that. We have delivered this quarter a resilient and competitive performance, which was again marked by challenging operating environment.

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Let me now hand over to Ritesh to cover our results in detail. I will then come back to share my perspectives about the operating environment and our outlook. Ritesh, over to you.

Ritesh Tiwari: Thank you, Rohit, and good evening, everyone. I will begin with FMCG market context and then cover our quarter performance in detail. Starting with market growth for HUL relevant categories, we are seeing a gradual recovery in market volumes with aggregate volume growth now at mid-single digit. Urban markets continue to lead the growth for FMCG. Rural market volume, which at one point was declining in double digit has just turned positive in this quarter. Having said that, we need to be cognizant that these growths have come on back of volume decline in June quarter 2022.

If we were to look at market growth on a 2-year CAGR basis, total volume growth is still marginally negative, with rural volumes declining at 4%. With most commodities remaining stable, the year-on-year inflation continued to moderate. There are however 2 call-outs that I would like to highlight:

• First, within our portfolio, we do see some divergence in commodity trends, input materials for Home Care and BPC, like crude and palm derivatives remained benign, whilst F&R commodities like coffee, cereal and skimmed milk powder continue to witness high levels of inflation year-on-year.
• Second, as we said earlier, we need to be mindful that most commodities continue to be at levels higher than their historical averages.

With this moderation in year-on-year inflation, we have seen more players passing on benefits of lower input cost to consumers. This is reflected in a sequential reduction in the price growth that we see in the market, albeit it being in high single digits. In anticipation of lower prices, we are seeing trade reducing the stock levels by 1 to 3 days.

As we highlighted earlier, there's a time lag between companies taking price reductions and consumers experiencing the benefit of lower prices due to trade pipeline stocks. This is seen in the Nielsen offtake data where price growth is in high single digit.

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Volumes will recover gradually due to high levels of cumulative inflation that consumers are facing and the fact that consumption habits typically recover with a lag.

With softening in input cost, we are witnessing increased competitive intensity in the market. If you look at media deployment, which saw a steep reduction during high inflationary period has started normalizing and is now at 95% of June quarter 2019. With increasing share of digital spend in A&P, one can anticipate that the overall media deployment is now very similar to pre-Covid levels.

We are also seeing resurgence of small and regional players in select categories and price points, many of whom had vacated the market during peak of inflation.

In this backdrop, HUL delivered a resilient all-round performance. Our underlying sales grew 7% with an underlying volume growth of 3%. Both these measures strip out the impact of disposal of our salt and atta business.

Talking about our bottom-line performance, EBITDA margin at 23.6% remained healthy and improved 40 bps year-on-year. I will cover the details of EBITDA movement in a subsequent slide.

Profit after tax before exceptional items (PAT bei) at Rs. 2,500 crores was up 9%. Net profit at Rs. 2,472 crores increased 8% year-on-year. Slightly higher levels of restructuring cost explains the difference between Net Profit and PAT bei growth.

Talking about our market share performance. Our growth was competitive with more than 75% of our business winning market shares, both value and volume.

Premium portfolio continues to lead growth for us, and this reflects in higher share gain in this part of the portfolio.

As I said earlier, we are seeing resurgence of small and regional players due to moderating commodity prices. Consequently, there are certain pockets of our portfolio, primarily in mass segment and specific regions where we have seen a dip in our market shares. However, on an aggregate basis, our shares are ahead of what it was pre-inflation.

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On a 2-year basis, we continue to significantly outperform the market with our sales CAGR at 13% and our UVG CAGR of 5%.

Moving on to performance across our 3 segments.

Home Care delivered yet another quarter of robust performance and grew 10% on a very strong base. Beauty & Personal Care delivered a volume-led growth of 4%. Foods & Refreshment grew 5%.

Margins in all 3 segments remained healthy with Home Care at 18%, BPC at 26% and F&R at 18%.

This time, we have included information on segment and category level UVG, which we normally do not disclose. We have done this to help you better appreciate our volume performance, especially with the divergence in the operating context of each division. Both Home Care and BPC delivered a mid- single-digit UVG while F&R had a near flat UVG.

Let me give you some more color on our UVG performance across the various categories.

As you can see, all categories in Home Care continue to have strong volume growth. Household Care had a double-digit volume growth where Laundry grew in mid-single digit.

Moving on to BPC, Skin Care and Color cosmetics had a high single-digit volume growth driven by Ponds, Lakme and Vaseline. Hair and Oral Care had a mid-single-digit volume growth. Skin Cleansing UVG was in low single digit.

When it comes to F&R, Tea continue to grow volume ahead of the market, volumes in Foods, HFD and Coffee was impacted due to price increases taken to cover the input cost inflation. Ice cream had a very high base last year and was also impacted by the unseasonal rains in April.

In summary, Home Care and BPC which constitutes 75% of our business is growing volumes in mid-to high single-digit range.

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