Hindustan Unilever : MQ’24 Earnings Call Transcript

"March Quarter and Financial Year 2024

Earnings Call of

Hindustan Unilever Limited"

April 24, 2024

Speakers:

Mr. Rohit Jawa, Chief Executive Officer and Managing Director Mr. Ritesh Tiwari, CFO and Executive Director, Finance and IT Mr. A Ravishankar, VP - Finance

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Moderator: Ladies and gentlemen, good day, and welcome to Hindustan Unilever Limited Conference Call for the Results of March Quarter and Financial Year Ended 31st March 2024. 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 your touch-tone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. A. Ravishankar, Vice

President, Finance. 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. This evening, we will cover the results of March Quarter and Financial Year Ended 31st March 2024. 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, where we will cover an overview of our performance in the financial year and in March quarter and our future outlook.

We expect this to take around 30 minutes, which will leave us with an hour for the Q&A session. 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: Thank you, Ravi. Good evening, everyone. Thank you for joining us on the call today. It's always a pleasure to interact with all of you.

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Let me first start with an overview of the operating context for financial year '24. With softening in prices of key commodities, especially those with Home Care and Personal Care, we passed on this benefit to consumers. Consequently, there was a nominal to no price growth in the year. Volume recovery remained gradual due to high levels of cumulative inflation over the past few years, coupled with a weak monsoon affecting rural demand. Urban, organized trade and premium portfolio stayed resilient and led growth for FMCG overall.

Given this context, we delivered a resilient performance for the year with an underlying sales growth of 3% and an underlying volume growth of 2%. EBITDA margin was up 40 bps year-on- year. We continue to focus on operational excellence and built back our gross margins, with a substantial part of this being reinvested behind brands and capabilities. Net profit crossed the milestone of 10,000 crores in this fiscal. PAT before exceptional items and EPS grew 4% and 2%, respectively.

Moving on to our competitive performance. It's important to look at corporate market shares and MAT business winning metric over a longer period, to fully appreciate the impact of the inflation, deflation cycle on these metrics. Compared to 2021, we have improved our corporate market share by almost 200 bps. As we said previously, we have seen resurgence of small and regional players, who had vacated the market during peak inflation.

Consequently, in recency, we have seen a marginal dip in our market shares. But it's important to note, we are holding on to almost all of the gains made in 2021 and 2022. Last quarter, we discussed how we expect our MAT business winning metric

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to be impacted as we lap the high base. While the metric has dipped below 60% this quarter, we are confident that it will come back towards the second half of calendar year 2024.

Our business fundamentals continue to remain strong, as can be evidenced by healthy penetration gains and business with growing or stable brand power as we continue to expand our physical and mental reach.

I had first spoken to you about key thrust areas for HUL in our October Earnings Call. A lot of what we have already been doing has strengthened our business, and we continue to build on it. However, it's equally critical for us to transform our business to serve the changing consumer aspirations to ensure we outperform in the years to come.

Let me delve into the progress we've made against each one of these thrusts during the fiscal. Our first thrust is to grow the core through unmissable brand superiority. This chart is evidence that we are a powerhouse of big purposeful brands. We have a total of 19 brands clocking over INR 1,000 crores each in annual turnover. Put together, these 19 brands account for over 80% of our turnover. Clinics Plus is now an INR 2,000 crores brand for us, having moved up the table in the fiscal. Boost, Sunsilk and Vaseline are the next three brands that are moving towards the INR 1,000 core mark.

Consumers are increasingly discerning and are making well- informed holistic buying decisions. We started on our product superiority journey to provide best-in-class products and over the years have made very good progress in this space. With evolving consumer needs, we are now broadening the way we

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measure and deliver superiority. Under the framework of unmissable brand superiority, we will measure our products against six tangible and distinct drivers, namely the 6Ps, all of which are proven drivers of consumer preference.

We have already embarked on this journey of making our brand unmissably superior, and I will take you through two examples to bring this concept alive. Starting with Vim liquids. During the year, we have driven multiple initiatives across each of the 6Ps to land an unmissably superior product in the market. From improving formulation to sharpening proposition and modifying the packaging to be more aspirational and ergonomical, specific actions were taken to address each driver of consumer preference. The result of these actions has been promising, Vim liquids has seen a double-digit volume growth in FY '24 with highest penetration gains in over a decade and continued market leadership.

Horlicks is another example of a brand that has pivoted its actions around the 6Ps to deliver an unmissably superior brand. We have sharpened and fortified the proposition of taller, stronger and sharper through precise and focused communications, packaging redesign and promotions. We have dialed up nutrition science information at the face of the pack, providing consumers with crucial information about the product. As a result of these actions, the brand has significantly strengthened its position in the market. Penetration, market share and brand power have all seen improvement year-on-year. We are confident that our journey from product superiority to unmissable brand superiority will

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take our brands from strength to strength and solidify our market leadership.

Moving on to market making and premiumization. Given the context of increasing affluence and under-indexed FMCG consumption, we have a huge opportunity to build categories of the future through market making and premiumization. We are doing this through persuasive communications via the right medium, innovating in new demand spaces and formats of the future and educating consumers at scale.

During the year, we've used these levers disproportionately to invest in market making and premium cells. For instance, more than 75% of incremental media investment was spent on market making, premium cells. Similarly, more than 70% of our innovation turnover also came from these cells. We continue to lean in on home-to-home connects to drive trial and usage. As a result of the sustained investments in market making and premiumization, we now have a very robust portfolio that is leading growth for us. We have not only seeded categories and formats but have successfully built them to scale. The portfolio you see on the slide contributes to more than 25% of our business and has grown double digits this financial year.

I had previously spoken about the job we have to do to continue transforming parts of our portfolio to on-trend demand spaces, especially in Beauty and Foods. Let me give you an update on the Beauty segment today.

We are the largest beauty company in India with a history of creating categories across skincare, hair care and color cosmetics, making us the distant number one in these

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segments. In our journey of transforming our Beauty business, we are focusing on, A, contemporizing our current master brands, B, investing behind identified high-growth demand spaces, and C, embedding capabilities across supply chain, mental reach, media models, and thought leadership.

We have led significant transformation across our key master brands, and results of a few are here for you to see. We've revamped our brands by refreshing product, packaging, communication and innovating them into new demand spaces and formats.

The Indian beauty market is rapidly shifting with changing lifestyles, increased disposable income, exposure to global trends and a growing emphasis on self-care and wellness. We've identified six key demand spaces, big bets, which we believe will grow disproportionately over the next few years. We already have a strong INR 2,000 crores portfolio across these big bets, and we continue to invest to scale them up. This portfolio delivered a double-digit growth in this fiscal with a c. 50% growth in e-commerce.

To build and bring our vision of creating a world-class beauty company to life, we are embedding core capabilities into our present processes. Let's talk about three critical capabilities: make for beauty. Our focus is to enhance desirability of products using superior technology, premium packaging solutions and formats. To continue to innovate with speed, we will invest and expand our footprint of nano factories and the supply chain for smalls. Reach for beauty. Consumer journeys have increasingly become non-linear and on digital mediums.

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And hence, we are pivoting our mental reach model towards more digital media and influencer marketing.

Authority for beauty. Building on our 20-plus years of experience in creating India's most iconic beauty moments through the Lakme Fashion Week, we are creating a beauty council with key opinion leaders from the fashion and the beauty Industry. In January this year, we unveiled our first addition of the beauty collective, through which we aim to strengthen Beauty partnerships with e-commerce and modern trade customers.

Through these actions, we aim to build a future-fit portfolio and capabilities that will enable us to meet the evolving needs of Indian beauty consumers.

Our fourth thrust of leadership in Channels of the future is about brilliant execution and curating a tailored portfolio and leveraging our design for channel approach.

In general trade, we are focusing on expanding and fortifying our distribution moat. Our effective coverage and assortment both have seen a steady rise, standing at 1.2x and 1.25x of FY'20 levels respectively. Our e-B2B app, Shikhar, continues to be a strong point of differentiation for us, and we have successfully onboarded 1.3 million stores in Shikhar till now. We have enhanced Shikhar's functionalities to include loyalty programs, innovative marketing campaigns, and best-in-class app features. These are yielding good results for us. For instance, stores onboarded on Shikhar are growing faster than the other stores.

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We have elevated our execution excellence by amplifying our in-store activation through strong partnerships with customers in modern trade and e-commerce. As a result of our focussed actions, we have increased our on-shelf availability by 200 bps in modern trade and online availability by 500 bpsin e- commerce.

These strategic thrusts are underpinned by our distinctive capabilities that we continue to strengthen. Let me speak briefly on each. Winning in many India's is a capability that we continue to embed deeply across our organization, allowing us to cater to differentiated needs of Indian consumers. Our net productivity program is crucial for generating fuel for growth to invest behind our brand and capabilities. We will continue to generate efficiency across all lines of the P&L through this program. Re-imagine HUL has given us a head start in our digital transformation agenda. Shikhar is a tangible example of the success of this program. We are now focusing our digital agenda of superior consumer and customer experience with an objective to sell more, save more, and manage better.

Speaking about sustainability, sustainability can future-proof the company and create new opportunities. It safeguards our operations, de-risks our supply chain, helps us attract and retain great talent, and shapes our response to the most pressing and relevant global challenges we face.

Going forward, we will accelerate our sustainable agenda around four key priorities that have the biggest material impact on the business, notably climate, nature, plastics, and livelihood. By focusing our efforts and resources, we will make

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stronger, tangible progress on these complex challenges while creating opportunities for our business.

Our distinctive and meritocratic culture has helped us attract and retain the best talent in the country. During the year, we've invested in building a future-ready organization. We have separated beauty and personal care into two segments, appointed a Chief Digital Officer and a Chief Sustainability Officer to bring greater focus and speed and execution in these areas. We've also set up a customer strategy vertical for each business unit to operationalize and execute business unit relevant actions across channels.

I am a big believer of the India story and the FMCG opportunity. Our journey of transform to outperform will take HUL to the next phase of growth by enabling us to continue serving the evolving aspiration of Indian consumers and win in the market. Now let me hand over to Ritesh, who will cover our results in detail.

Ritesh, over to you

Ritesh Tiwari: Thank you, Rohit, and good evening, everyone. I will now walk you through our in-quarter and financial year performance in more detail and also then cover our outlook. In the quarter, demand trends remained broadly similar to what we have seen in DQ'23. In this context, we delivered a resilient performance with underlying volume growth of 2%. Pricing remained marginally negative, leading to an underlying sales growth of 1%.

Moving on to bottom line performance, EBITDA margin remained healthy at 23.4%. I will cover EBITDA construct in

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