Hindustan Unilever Limited analyst Q&A

Thank you very much. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press ‘*’ and ‘1’ on their touchtone telephone. If you wish to remove yourself from the question queue, you may press ‘*’ and ‘2’. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press ‘*’ and ‘1’ to ask a question. The first question is from the line of Abneesh Roy from Nuvama. Please go ahead.

Yeah, thanks for the opportunity and congrats on good recovery in many of your categories. My first question is on the beverage portfolio. You have made a very interesting comment which we have not heard earlier very regularly - Pricing in Tea based on replacement cost. Now, tea buying is a multi-month phenomenon. So, deciding in Q1 on a multi- month buying which will say happen one month down the line, what are the risks involved there? And do you use this kind of a strategy buying on replacement cost in many of your other categories or this was a one-time usage in tea? Similarly, if you see coffee cost has also crashed 30%. Is there a similar strategy there also? And coming back to tea, is next one year taken care of in terms of raw material? Because in Q1, if you are not taking the desired price hike, is that a measure, is that proof of your higher aggression or next one year is taken care of in terms of the tea RM? That is first question.

Yes, thanks Abneesh . So, let me pick this up. So, B everage, as you know the tea buying season is typically between June and September -October. This is when we end up buying bulk of the commodit y that we end up using to making our tea. And of course, the different kind of teas have different peaking in terms of when season comes in, but the premium tea, which we are over -indexed, that is the key buying season. So, typically when you are operating in December quarter, March quarter, you by and large know the price levels at which you bought the tea and then you also see sequentially prices, if at all they come off, which is what happened this time between December quarter and March quarter of the te a pricing. Now, we had two choices. We could have priced our June quarter product price portfolio at consumption cost, which we bought between June and September or from September onwards, as the prices came down, we price to replacement ; which we made a choice of pricing to replacement to ensure that we are competitive. Tea is a category, as an exception, we had mentioned quite a few times is going through a downgradation cycle, where we have seen consumers downgrading and hence it is a very price sensitive category at this point in time, which is why our decision to price at replacement cost. Now, to your point, sitting today would we know where the season and the price levels of the season would be? Now, there is a pretty good understanding sitting today that this is a crop, the new crop, which has started as we speak last month. The crop is a good production cr op and all things points now that sequentially prices will come off. So, that is the length that we have taken in terms of holding our current pricing levels. Now, nothing stops us for us to titrate our pricing one quarter down the line, up or down as required to respond to commodity. It is a little different scenario when we talk about other commodity driven categories that you spoke about. And let me give two different examples, Coffee which you asked and Home Care I want to add in. Now, Home Care, for example, is exposed to crude oil and with the pricing agility that we have in H ome Care, our decision making depends upon what happens to crude oil and the basket of commodities that go into laundry business. With a shorter pricing horizon, which means an increased pricing agility, because you keep buying material for H ome Care, unlike tea, all across the year, you are able to take your pricing decision at a different agility compared to what you do for a tea category. But coming to coffee, remember the conversation that we had, over a couple of years, coffee has seen 70%-80% cumulative inflation. And we had pointed out we never price to the peak of inflation, which is why we were sitting on a price versus cost gap and hence gross margin dilution in coffee. And like every other category when the inflation is too high compared to what we would want to take meaningful small bite chunks of price increase, we remain with that price versus cost gap. As commodity price reduces, first we allow for the price versus cost gap to start getting normalized. That is exactly what we are doing for coffee now. As and when required, we will of course pass on the benefit of lower consumption costs and on coffee as well to consumers. So, a little different play, but I hope you get an understanding how we are trying to deal with prici ng out here. For us, the bottom-line principle, Abneesh, always remain , competitive right price- value equation.

Understood. Very helpful. Thanks. My second question is on the two acquisitions, recent acquisitions. So generally, we see first year post the acquisition is generally tough. We have seen many cases where in fact the revenue goes down. In your case, Minimalist has done a good start with double- digit sales growth. So, what is the confidence level on the balance three quarters? Second on OZiva tripling in one year, very, very good numbers. Marico is also seeing very good growth in almost similar category. So, if you could talk about OZiva now in terms of distribution scale up, how much has been done in terms of Kirana, what kind of number is now coming from there? That will be my second question.

Yeah. So, talking about OZiva and Minimalist, both put together now, it's a Rs. 1,000 crore portfolio. This gets added , Abneesh, to already existing Rs. 2,000 crore portfolio that we have in Beauty & Wellbeing across the six big bet demand spaces. If I add all three put together now, the Rs. 2,000 crore existing portfolio, Rs. 1,000 crore from OZiva and Minimalist put together the Rs. 3,000 crore portfolio, which is digital first, organized trade index ed is growing at more than 25%. OZiva, as you mentioned, is almost three times the business now what we had a year ago. The innovations that we have done in the business has driven the growth that we have seen. So, a better job in terms of crafting the brand - more precise and sharp, innovation intensity dialed up, continuous engagement on social media and performance marketing has yielded the results. OZiva's footprint even now is still by -and-large digital and digital first. Offline expansion will be done at a later point in time when we start seeing more traction and more penetration for such business and categories across the country. Minimalist is the first quarter since we acquired and completed acquisitions on 21st of April. So almost a quarter of numbers get added to our reported total turnover. Of course, from a USG, U nderlying Sales Growth perspective, you will not see the impact. Once the business la ps 12 months, you will start seeing the growth coming in. But of course, Uprising Limited that we bought has its own base. The business has grown strong double-digit in the quarter. The job that we have to do out here is first expand the portfolio beyond skin. And which is what in last quarter the business has done, has launched business more in hair care and body care. We're seeing early, very encouraging signals with that performance. Overall, there are four elements of synergy that we want to unlock. Number one, R&D and innovation. Number two, supply chain synergy, because we have amazing amount of supply chain systems and processes and structure that will help us to drive more synergy on cost front for Minimalist. Third, offline distribution. As and when it becomes relevant, we will start leveraging our offline distribution, including Beauty P RO, which Rohit was talking about as part of our capabilities. And last but not least, leveraging the network of Unilever for international expansion as needed. So those are the four elements. We remain very confident. It's a very sharp brand with a very good momentum. And we do believe that with the synergies that I just talked about, we should be able to create more value with this business.

Thanks. I'll ask a very quick question. I know I'm going beyond my two questions, but this is a very small one. One very interesting development is across even modern trade players, private labels in liquid detergents are happening, you and other large powder players have come out with very affordable options in the liquid detergent. So good, consumer up-trading from powder to liquid detergent will happen because of the pricing. Now we are seeing Rs. 170 to Rs. 200, 2 liter kind of liquid detergent offerings have also come. Premium are also there. My quick question here is, yes, the shift of consumer behavior happens, but what happens in terms of your pricing growth? For example, 1 kg powder detergent versus 1 liter liquid detergent, is the time of usage similar because pricing has almost converged? So that’s my quick question.

What we are really saying is basically, we started building liquid detergents almost more than a decade back. They were driven by the thesis that as people moved to washing machines, they needed specialists and liquids were a modern format that started to gain momentum. We b uilt close to almost Rs. 3,000 crore portfolio in H ome Care liquids, extending that also to D ishwash liquids. What really is happening now is that it's getting democratized, particularly in the South, where the washing machin e penetration is high, but also now expanding to general trade channels and also to the rest of the region s. What we are now really seeing is that, like in many other markets, as the cost per wash gets closer to powder, the transformation to or upgradation from powders to liquids starts to accelerate. We are seeing Surf excel as a brand getting new users in and brands like Rin, our second-tier liquid, getting people to essentially increase the share of requirements. We also have, in some cases, an opportunity to bring Sunlight in as well. We have done that also in the case of d ishwash with a Sun brand. Basically, we're paying all the price tiers, but it's really Surf excel and Rin that's driving the conversion for us and t he game has just started. Liquids contribute to only under 10% , and we expect many, many more years of conversion from powders to liquids. As people move from bars to powders, powders to liquids, and eventually to capsules, that's the journey of upgradation we have seen many times in other parts of the world, and we're essentially driving that in this country, as we should as market leaders in Home Care.

Sure. Thanks for the opportunity, and thanks to Rohit for his insights, time, and best wishes to him. Thank you.

Thanks, Abneesh, for being always the first. We like that very much. Thank you very much.

Thank you. Next question is from Arnab Mitra from Goldman Sachs. Please go ahead.

Hi. My first question actually is on the F oods business, where you've seen the largest swing in the UVG from negative mid-single-digit to a positive mid-single- digit. I just wanted to understand, is it the T ea or the N utrition business which is driving this mid-single-digit growth, or are there other parts of the business which have grown strongly, which we don't normally talk about, which has driven this growth? Why I'm asking this question is from your commentary. It seems the Nutrition and the T ea business is still maybe flattish to low growth. So, I just wanted to understand where it is coming from, and is it sustainable, you think, in the coming quarters?

Yeah. So if I just segment the foods business into its component, so T ea has seen a high single-digit growth, driven both by volume and, of course, supported by price. Coffee has seen double-digit growth. If I add Tea and Coffee put together, total Beverages have seen a double- digit growth in the quarter. So that is one driver which is different, especially Tea, compared to the growth levels we have spoken about in the last few quarters. You see a step -up in the T ea overall growth, and that has helped the Foods growth overall. Packaged Foods, which is our Kissan, Knorr portfolio, and the space that we are innovating continuously, we spoke about mid-single-digit growth performance there as well. So that has also helped growth. Horlicks and Boost, which comprises our L ifestyle Nutrition business; Boost is a brand which is strong and has given good growth in the quarter, which again helps overall growth. Horlicks, we had spoken about the job that we have to do in terms of turning around the business of Horlicks and start to make the business grow. Now, Horlicks never had a challenge on competitiveness. It was always a business which we have gained shares, we have spoken consistently. But the job that we had in Horlicks to do is to increase consumption. We are market leaders there and we want to create market, and hence driving consumption is a top priority for us. And we have called out in the past that few quarters that business had declined. Now, we have seen improvement compared to that position. The business is still declining in the quarter, but lesser, but we have seen improvements sequentially in the business for Horlicks. The job going forward for us, we had called out, we are relaunching Horlicks with a more sharper proposition and product. And in times to come, that's a space you should watch out for. So that's indeed the composition of total growth, which adds up to 5% growth for Foods business, the right balance between volume and price.

If I may add that we have seen broad -based growth in foods this time. We have seen volume growth in Tea because we priced all our brands across the portfolio in the sweet spots. We have seen Coffee growing also quite handsomely despite the price inflation. Kissan and packaged foods , is a mid single-digit, we are gaining market shares in ketchups. And on Boost as well, we have grown by mid- single digits, a little bit above that. And Horlicks decline has reduced. In fact, if you take away the L ifestyle Nutrition drinks out, we are actually close to double- digits. So, we are very excited about the future of this business. And our brands are very strong. And we expect good work in this space to essentially create that momentum that will help us basically drive the entire business forward. So, on the whole, a good quarter for Foods, but only beginning of our change agenda.

Got it. Thanks for that answer. My second question was o n the overall growth outlook. So, I think that the catalysts are all there, but your own data or the Nielsen data doesn't show a significant growth acceleration in the industry. But you, of course, have access to other sources of data, household panel, and those kinds of things. So, are you getting a sense that there is actually some pickup starting to happen on the ground? Or is it still that catalysts are there and we hope that a pickup would happen at a macro level? And also in that light, just wanted to understand in the outlook slide, last time you had a comment saying that gradual improvement as the year goes ahead. This time, you don't ha ve that comment. Anything to read into that in terms of your confidence on how this growth could shape up from this decently good 4% number that you had this quarter?

Let me paint the picture of the market and request Ritesh to talk about the future. Basically, what we see is gradual recovery led by rural that is sustaining. We see urban growth coming back in the market. More recently, it's still below rural, which is indeed how it was before we went through those few years of demand compression. So that's quite expected. The growth uptick is coming from small cities and e- commerce, especially quick commerce. So, on the whole, we see gradual recovery that is sustaining. Its volume led in most categories except Foods, where generally we see price being the driver. Not in our category, it's more generally the food market. But by and large, it's a volume -led with low pricing. And that's basically what we see in the market. This actually reflects somewhat to the improvement in the ec onomy when it comes to the informal urban and informal rural sectors of the economy, driven by, as you know, things like Agri economy being stronger, monsoons, low food inflation, and in the future, of course, also incentivized by the fact that we have fiscal and monetary impulses that are positive. So given all of this, we expect this kind of growth to stick. There's no magic shift that's likely to take place, but we do expect sustained and gradual recovery to remain in place. And for us as a company, our job is to essentially keep moving our portfolio to the faster growth parts of that market, of which there are many. And as naturally our portfolio gets more and more indexed towards faster growth spaces, our growth will get easier and more organically in the larger turnover-weighted growth parts of the market. So that's basically our read of the market and what we're doing about that. And over to Ritesh on our guidance for the future.

Yes. So, as Rohit mentioned that if I look at the overall FMCG market, we have seen on a MAT level trends being stable. And we have seen gradual improvement in the latest three months. Given all the context Rohit mentioned about the macro, we do expect this gradual recovery to sustain as far as FMCG consumption demand is concerned. And hence when it comes to Hindustan Unilever, both because of the work that we have done internally in the portfolio, and we called out as part of the prepared remarks, how we have now shifted more 500 bps of our portfolio towards Future Core and Market Makers. And that's the area which is where the market is also growing. So, we are getting more in the spaces where market is growing. So, because of the factors of portfolio transformation supported by overall macro outlook of FMCG industry, we do expect that the recovery that we have spoken about that our own results in this quarter, June quarter have improved compared to what we had reported in March quarter. We expect this improvement t o be sustained. So that's the HUL outlook. And in summary, we have spoken last quarter that first half of this fiscal year will be better than the second half of the previous fiscal year. It's the same basically commentary and outlook is what we maintain in our outlook for this quarter as well.

Thanks. That's it from my side. All the best , Rohit for your future journey and thanks for all the insights over the last couple of years. And best of luck to Priya for the next coming years.

Thank you.

Thank you very much. Next question is from Latika Chopra from JP Morgan. Please go ahead.

Hi Team, Thank you for the opportunity. First of all, thank you, Rohit, for all the engagements and insights over the last two years. And Priya, welcome back to India. And wish you the best in the new role. I have two questions. First one is on Skin Care. This quarter, we saw a positive low-single digit growth after two quarters of muted growth. Clearly, your premium portfolios are doing better, but I wanted to get some flavor on, how the mass portfolio is doing. Is it still a negative? Is it still in the negative territory or has it started to turn flattish ? And with multiple interventions that you're in, what is the confidence in driving growth in skin care to move more towards the high-single digit range? The second piece within this segment of Beauty & Wellbeing is on margins. You know, this segment has seen margin decline. Just wanted to understand, is it just higher A&P spends or is there a channel mix impact as well as you've gained market shares on quick commerce and e-commerce?

Let me just address the first question on our confidence in skin growth part of the story and then margin, I'll hand over to Ritesh and anything else you want to compliment on that. Firstly, this quarter, we're beginning to see the benefit of shifting our portfolio to faster growth spaces in modern , e-commerce channels in more premium areas. Our masstige portfolio represented by brands like Love, beauty and planet, Simple, parts of Lakmé, even Pond's more , Future Core type portfolios have done well. Pond's has don e very well. It's been a double- digit quarter for Pond's again. It's a really big brand for us. We have gained market share in e- commerce and in modern trade, in the toughest of competitive hotspots. And that part is going well. And of course, as we spoke, Wellbeing part of the portfolio, OZ iva, Minimalist is also doing quite well. Where we do have more work to do, which is a multi -quarter work, is Glow & Lovely. The relaunch in Glow & Lovely is also a significant part of our portfolio. Glow & Lovely was relaunched, as you know, earlier this y ear. We also have a new variant in place, Glass Bright. We see clear sequential improvement. We can see that, in fact, we are near flat this quarter with all considered. There's more work to be done. And we expect this to continue improving. Excluding Glow & Lovely, we, in fact, have a near double-digit quarter for Beauty & Wellbeing. So, as Glow & Lovely starts to get normalized, and we start to increase more scale, the variant that's doing quite well, and the core brand renewal lands in the market, we should expect to see Glow & Lovely becoming less of a drag, and also, in fact, if at all, add to the growth. So, ye s, that's on the growth equation. And now, move to the second question you had was in the margins?

So, let me pick it up. So, overall, Laitka the margin that we made in this quarter for Beauty & Wellbeing is 28%. It's a pretty healthy margin when you compare to the overall EBITDA margin or EBIT margin for HUL. So, it's a business which is accretive to overall margin for the company. And we had maintained this. In fact, we spoke about it in the Capital Markets Day as well, that the role of B& W is to be growth accretive to Hindustan Unilever. So, this quarter, when you see B&W 7% growth, HUL 5% growth, that's the exact equation that you want to do. And which means, if at all, we have to invest more in B&W, we will invest more. And when we had called out that we will end up making investments in the business, we had alluded that Beauty & Wellbeing is one important space, we will end up dialing up more investments. And these investments across multiple lines of the P&L. It's on e-commerce, it's on modern trade in terms of platform channel investments, and investment by working with the customer. We have increased the amount of innovation intensity in the business. So, that also leads to more amount of investment in product, in market research, in capabilities. And working through different lines of the P&L, including A&P, we spoke about in our presentation prepared remarks, how we're dialing up more in terms of digital media. In fact, digital media, this year, last 12 months now, is more than 50%. And this quart er, in fact, is more than 60%. So, there's disproportionate investment that's going behind B&W. And you will see, let me say, medium to long term, some amount of dilution in Beauty & Wellbeing margin, but we're completely okay with it, because it will always be accretive to HUL. And if at all, we continue to get growth ahead of average HUL, it will be overall mix accretive to us. This quarter, we spoke about our A&P investments, which went up by 40 bps and 150 crore plus. And B&W, of course, gets a lion's share of that increase that happens. So, all in all, it's a winning investment case for us.

Understood. The second question that I had was on S kin Cleansing. There was a revenue growth improvement to mid- single digits. I think it could possibly be because of pricing. But I wanted to understand better on the volume growth trends here. Do you concur that, you know, in the coming quarters, the base actually eases out, maybe the price value equation is looking better? If you can comment on that. And also, any comments on the market share trends, in this category for you? That was the last question. Thank you.

So, we're very happy with our S kin Cleansing performance. We have had an all- round strong quarter. It's, of course, driven by price because the input costs have been quite high, as with our any other competitors in the market. What we are happy about is the fact that we have seen very good robust growth on the premium part of the portfolio, Dove and Pears, and on the liquids where we continue to sort of grow very handsomely. Our Lux brand that's heart of our business is quite strong and robust and is gaining market shares. We do have work to do on Lifebuoy. Excluding Lifebuoy, Skin Cleansing business would have been close to double-digit. Lifebuoy agreed, and we have done changes on the core, relaunched it with new formulation, with a new packaging, refreshed core proposition. Early this year, we have had a successful entry with our freshness variant or re -entry that's doing well. But admittedly, there's a lot of work to be done on Lifebuoy. it's not an easy fix, but we are quite clear and we have very exciting plans on modernizing the brand, expanding its range, getting into other formats too. So, we are quite certain that Lifebuoy will see an improvement, but it's going to take a few more q uarters. On the whole, I would say that S kin Cleansing, good topline growth, good margins, competitive and in the right shape, meaning premium and premium formats going faster than the rest. So, we want to remain consistent. This is a very important catego ry for price -quality, sweet spot. So, we must keep it right as we have done with Tea and Laundry. We will not let that go. As long as that stays on the core, we know that the premium will grow with better marketing, which is indeed the case as we have done with relaunches on Dove and action on Pears, to name a couple. So, that's pretty much the story in Skin Cleansing.

Thank you, Latika.

Thank you. Next question is from Manoj Menon from ICICI Securities. Please, go ahead.

Hi, team. Just continuing with the question or clarification which Arnab had on the macros. Now, looking at your data, if you could help us understand, let's say, texture, color in whichever form of, let's say, the volume part and the mix part of UVG? So, that might, let's say, give us some cues or clues about what's already happening, which may or may not be forecastable.

Yes. So, when you ask, Manoj, volume and mix part, are you talking HUL, are you talking industry macro?

HUL. Let's say, what your portfolio is telling, because you are a large player. So, some way, we can, at least in some categories, we can actually use it for a larger picture.

Yes. So, if I talk about HUL numbers to start with. So, this quarter, for example, we have spoken about 4% UVG growth and 5% total growth, alluding to, let me say, 1% pricing. In this 4% UVG growth, our volume growth, which is tonnage growth is ahead of the UVG growth we spoke about. We have spoken about the mix being negative, and we also spoke a few quarters ago that the number was material, and we spoke that that is transitory in nature, and over the next few quarters, that gap will reduce. That's exactly what has happened. So, there's a convergence happening as we speak between UVG growth and tonnage growth in the business. So, overall, when we see from a macro perspective, then having a tell to HUL, the only thing which is different compared to what you see for the last 5- 10 years is the pricing growth component to the total growth of the business. Growth continues to be volume led, and price remains a small component. All of us know that over the last 10 -20 years, 4% -5% is typically the growth of FMCG industry that comes from pricing, which, as you know, is more like 1% now. So, that's one element which is different. Otherwise, the volume recovery, which we have seen has been pretty comfortable, and we expect that this gradual recovery should sustain, both for the macro industry and equally for HUL outlook, as I spoke earlier, the gradual recovery to be sustained.

Very clear. Ritesh, just a quick follow -up on this link to the S kin Cleansing category. I understand that the reasons for the volume decline have been therefore, I know you have explained earlier. But let's say, example of Rs. 10 price point, where there is a grammage price interplay, would the volumes would have grown on the non-Rs 10 price point off soap bars.

Skin Cleansing, Manoj, remember, I've spoken sometime back as well. It is one of the categories which is sensitive to price increases and is elastic. We have seen not now, but multiple times in the past as well. When you have such material inflation overall for commodity, which leads to price increase, it always impacts overall volume - And in different formats, volumes of single packs, multi- packs, and of course, the grammage changes that we end up doing, it does impact. And consequently, whenever the deflation happens, you've seen tonnage to volume picks up. So, that's the impact which you see in this quarter as well. Now, of course, as we keep lapping, the price changes, the impact of volume declines for the category and hence for us as well keeps reducing. This quarter, it's a growth that we have overall at mid-single digit, which is price-led and the overall, let me say, decline in volume is much smaller compared to what we saw at the peak of inflation for us or for that matter for the industry.

Understood. Just second and last question is, you did speak a lot about the interventions which you are making in many of the Core categories. One request would be if you could talk a little more about, let's say, the actions that are already there in the market, obviously, it is a bit sensitive. Let's say for Horlicks and Glow & Lovely. Specifically on Glow & Lovely, what I'm trying to understand is, look, it's a product which we see as a product which doesn't really have a substitute. Let us say I discussed with the company about a hair oil portfolio because hair oiling is meant for conditioning. So, where is the consumer gone? Is it just a case of titrating consumption which is linked to macros or anything else which we are unaware of? So, some more color on, let's say, actions which have gone into the market about Horlicks and Glow & Lovely, both.

On Glow & Lovely, which is an iconic brand used by more than half the consumers, speaking that loosely, critical brand for us, has two parts, the Core and now the Future Core . The Future Core launched with modern sensorials called Glass Bright, doing extremely well. In fact, we will be scaling it aggressively going forwards. That is helping us grow the brand, making it available for people looking at modern versions of it, modern benefit spaces , modern format and sensorials. The core Glow & Lovely has been relaunched with a renovated promise of renewing cells with a communication that's more engaging and a new pack design and some product upgrade in parts of the country which is appropriate to the new consumer preference for lighter sensorials than what traditionally Glow & Lovely has offered. We have tested this exhaustively because it's a big brand and we find that consumers like it and we have already started to see some bends towards an impro ving trend on brand and usership penetration, particularly in more urban areas. But it will take time as the brand reaches more rural and consumers start to see the improvement. We expect to see the improvement also come through in the rural areas. So, we are at it. We are going to scale up the Future Core premium version that I believe is a slam dunk idea to grow the brand and that's helping the brand reduce its decline and keep the Core more contemporary. All of this is seeing sequential improvment over the last few quarters but it will take a few more quarters of hard work for the brand to basically get to an even keel but we are on it. That's on Glow & Lovely. Very important for us as you mentioned. When it comes to Horlicks, we have seen again in this case, basically we have two core actions. One is to improve the relevance of the core product because consumers have more options as we have spoken about it before for their children for that breakfast moment and the snacking moment in the day and also address the fact that consumers were dropping consumption as discretionary consumption came under stress. What we are now doing is working on a relaunch on Horlicks which we can't of course give you more details on but I tell you that we have, for a brand that's very popular and used quite deeply in South and East, it's very important that we don't alienate the consumers. So, we again have to be doubly sure. We have a product that will be better. We have a proposition, we will not be able to tell you more details on that but that is compelling and modern and improves relevance and all of this will come together somewhere towards the end of the year. It's a long haul and therefore we're not in a hurry by months, but to make sure that we have the right mix in the market that improves the relevance of the core Horlicks for our consumers. In the meantime, tactically we also want to make sure that we promote the large pack usage particularly in the South where consumers were titrating to smaller packs. That action is in play, and we start to see that already making a big difference especially Boost that has grown mid-single digits this quarter and our pack-price architecture is broadly stabilizing and that should over a period of time also settle down. So, I think that's really what we need sequentially to bring back the core Horlicks back to growth and we have a few more quarters of work left there. So, in summary sequential improvement in Glow & Lovely led by its premium Future Core brand but on the way and Horlicks more work to be done but Boost already showing signs of promise this quarter.

Thank you, Rohit and Ritesh for the comprehensive response and good luck to Rohit and Priya for your future endeavors and one observation if I may maybe bordering trivia, is there a particular reason why Liril is up there in the first slide itself?

It's there because it's done very well in the summers and it's really a summer focus and since we're covering summer, we put it up there. Isn't it beautiful?

Sure, absolutely. I can't agree more because we have not seen it in a long time. Thank you.

Thank you.

Thank you very much. Next question is from line of Vivek from Jefferies India. Please go ahead.

Hi good evening team. So, one more question on your slide #4 which is operating context. Ritesh, you have explained it you know a few times on this call but when we look at rural numbers actually at least the industry trends seems to be going down in terms of growth whereas urban is picking up. So, what exactly is and I understand that you may have gained market shares but other than in your outlook other than a low base do you genuinely think things are picking up on the ground, at least industry ch art doesn't show that and especially I'm more worried about the rural bit over here.

Yeah, so rural to start with, Vivek, first of all as a context is one third of the business that we have. So, I know the two -third population lives in rural but one third FMCG consumption and also one third of our business comes from rural. What we have seen basis Nielsen data and our own internal read we have seen an uptick in rural and even when I take urban data and I add e- commerce to it and then look at the number rural is still ahead of urban. Rural we know had got impacted and this overall macro of rural should do better than urban is a secular trend that should happen in the country when in fact $ 25-$30 is per capita consumption in rural vis-à-vis $ 80-$85 per capita consumption in urban. Now disposable income purge is what had really hurt the rural population where cumulative inflation was nowhere getting compensated by the income level increase which we had seen. Now with substantial amount of easing on inflation including food inflation, continued government support on schemes, good agriculture last year and a promising monsoon this year as well. All put together we have seen improvement in income levels in the rural areas including the non- farm income which is typically one-third of the rural economy. So, the signs that we are seeing is that overall there is recovery in the industry and we see that coming from rural as well. So, we are not picking up a concern for rural I think given the improvement in disposable income it only augurs well for rural area.

And the growth is sustaining . It's not that we are suddenly seeing a massive change in trend by the way. There was a Kumbh effect in the middle but generally the growth is sustaining at reasonably strong levels.

And hence to Rohit's point the operating word I will add to it is gradual recovery to be sustained, if I have to give outlook as well on that.

Got it. It's just that the chart shows the trend drifting down starting December last year. So that was the reason, but I get it.

The chart, Vivek, just to clarify it's an MAT trend as we called out and if you see the subtext on the chart, it calls out that L3M improved gradually. So, we are seeing last three months better than the MAT trends which you see in the chart. We always put the charts on MAT trend because we know a quarter can go up and down but within that MAT trend which is stable, we do see uptick in the latest quarter market numbers.

Okay, got it. So, exit is better. Got it. The second thing , Ritesh, you mentioned about, also on the acquisition couple of things I wanted to ask. On the Minimalist bit you have explained and articulated very well on how the portfolio will be run and how will it benefit from HUL, how do you think about how HUL portfolio - the online one particularly can benefit from Minimalist or you think that that that there is no much upside for your base portfolio by acquiring these Digital-first or D2C brands?

Yes, so overall if I look, Vivek, we have a Rs. 2,000 crore portfolio I had mentioned a little while ago i n the six big bets within B eauty & Wellbeing and this Rs. 2,000 crore portfolio is by and large organized trade heavy and more e-commerce and Digital-first. That Rs. 2,000 crore business now becomes Rs. 3,000 crore with OZiva and Minimalist. Definitely, both OZiva and Minimalist are a fabulous addition to business. Put together this Rs. 3,000 crore portfolio, like-for-like ,is today growing at more than 25%. I was speaking about it when we spoke in the Capital Market s Day that there are both things important out here. Growth portfolio is important but equally business model is important for it to remain sustainable. Now this Rs. 3,000 crore business that we have makes double- digit margins and it has a sustainable business model because of all the work that we have done in supply chain, supply chain for smalls, the entire nano factory concept that we have spoken about, so there are many things that HUL adds in terms of scale, capability to these businesses. Equally there is reverse learning as well from both OZiva and Minimalist and OZiva more because we have been running that business for last more than two years now along with the founders and Minimalist has just gotten added. We do believe that the equal learning of how these businesses are being run in a v ery agile and successful manner, s o the team will co -create many of these learning together and overall portfolio of Hindustan Unilever will benefit from this ecosystem.

But just to specifically talk about say OZiva, in fact just a few weeks back we had the OZiva team come and talk to our top 100 people. They spoke about how they built the brand, what they do in digital, the metrics they focus on, the importance of social, building credibility by talking about the science behind products , the kind of metrics that really drive the right return on advertising spend etc. So, we are creating a very active way of osmosis of learning from Minimalist and Oziva. They happen to be in the same business unit that also helps. So, there is an active intentional cross transfer of learning both ways to absolutely reinforce the point that HUL mainline can also learn a lot as can these companies or units by leveraging the skills synergies of supply chain media etc. from HUL.

Got it and the last one on the same theme, with platforms becoming more and more demanding do you think there is a case of going let's say a ggressive and buy out some more, D2C given such a good experience you have had with OZiva and Minimalist hopefully will also do well and that's just sheerly because the smaller brands are complaining about higher take rates so when you have such a large sizable portfolio you can actually negotiate the terms far better against the platforms versus smaller brands. What are your thoughts on that?

We look at it more as a portfolio play, so we have as we have said before we have 4 levers of building a portfolio to cover the demand spaces , acquisitions which Minimalist is one, build a new brand like Novology which is our homegrown with Unilever Tech, to actually launch a global Unilever brand like Simple or Love , Beauty and Planet in the market or to extend our co re brand. So, we have done all of that which is why Ritesh's Rs. 3,000 crore, let's call it digital-first portfolio has been sourced from exactly these four levers which is now growing at 25% and I'm making up some rough numbers that this Rs. 3,000 crore if this was a company would probably have 40%-50%-60% of their throughput of sales through modern channels including e-commerce, so we don't always have to go ahead and buy a brand to create scale , we can always build or borrow from Unilever to create exactly that kind of coverage. We have also brought Liquid I.V. as well as Nexxus. So, we have many more levers than acquisition to create that portfolio play in these markets for especially the higher income consumers where actually these brands have high relevance. But that doesn't take away from our openness to constantly scout the market as we do and to evaluate new brands for fit this is how we found Minimalist as an exciting target and it's now part of our family.

Got it. Thank you very much. And Rohit and Priya, wishing you all the very best.

Thank you, Vivek.

Thank you. The next question is from line of Amit from UBS G roup. Please go ahead.

Hi, Thank you so much for taking my question. So , my question is on Minimalist and you clearly shared that the equity in skin that has been built very well, brand has scaled up and is going strong double-digit. Now you plan to also take the skin equity to hair and body, and which is a very interesting perhaps direction in that sense of the brand is already growing in 25% this portfolio. What I want to ask is that is this a possibility and is this the right direction to see that the brand could actually double by say FY'27 if not this year because it has not yet seen the might of distribution or channel mix or it is an online brand run differently, but is there something that the ambition should be much larger than what it has and you clearly see that potential how can we see that kind of largely within a year or two times that's our question number one and I'll follow up with that.

Yes, so just to clarify when we quoted the number of more than 25% growth, we spoke about the entire 3 ,000 crores portfolio put together . We did call out that Minimalist has grown strongly in doub le digit growth without specifying a number for Minimalist. That's one. And second, of course Minimalist is a brand in beauty space and focused and anchored in skin and we will do selective portfolio expansion of that as we speak , leveraging all the four synergies . We have a very clear business case which is what the board approved as we acquired the business and our job now will be as a team . Remember we just acquired the business on 21 st of April, so it's been like a quarter since we are now running the business with the founder and all the four synergies that we spoke about be it R&D innovation , be it offline expansion selectively , be it leveraging the network of Unilever for international expansion or for that matter the supply chain benefit that Minimalist should get. We are focused on realizing a ll these synergies to drive topline growth and profitability and invest back in the business. So yes we are committed to ensure that the business grows very well and we had called out when we had acquired the business it's a brand that is pretty well crafted and built up in four years' time, since launch it had a scale and reached a Rs. 500 crore ARR business. So that's the scale at which Minimalist has grown, and we want to keep supporting and ensure that we will be able to use the full opportunity that the brand presents itself with by leveraging scale and benefit of Hindustan Unilever.

Got it. That's very helpful and let me just stretch it a little bit on , because I think the skin is fragmenting because of the large benefit spaces are emerging and so maybe the one brand or new two brands even the architecture needs maybe more plethora of brands to capture all the benefit spaces and one way to acquire, one way to build one way to borrow from Unilever as you rightly say , but do you see any U nilever brand which you kind of think that could come to India or is it possible that you acquire a brand outside with an intention to bring to India specifically all these options are possible for sitting in your portfolio because I believe that skin needs a lot more brand and given the fragmentation is on the rise to play rather than playing through 3 or 4 major brands. Well I don't know, want to get your thoughts on how organically or inorganically this business could be beefed up from what it is today?

We acknowledge that you need more than just a few big core brands, which is why we have Core, Future Core and Market Makers mindset especially for B&W which is why you've seen us doing exactly those things. We have built brands for the market say Novology. W e have brought brands like Simple from Global Unilever into India, expanding fast with more than a Rs. 100 crore ARR and Love, beauty & Planet, also more than Rs. 100 crore ARR. We have brought in the global brand Liquid I.V. and N exxus just this year . Both of these are serving very niche segments in Well being and the B eauty market respectively . We have full intentions of bringing the p restige brands from the global stable into I ndia and the work is well on the way to do that. So there will be a few core big brand equities, let's call it to the center of our plate like Pond’s , Lakmé, Glow & Lovely, Dove to name four , and then there'll be satellites serving several small need spaces in this area such as Minimalist on Active Science or Simple on Clean Beauty and so on so forth. So, there's basically every intention we have of us to serve all of segments with this kind of portfolio play.

That's very helpful, Rohit. Thank you so much for that and can I ask just one small bit on Glow & Lovely. You said the Glow & Lovely sequentially has done better and it's kind of largely flattish but a lot of this portfolio action has happened in early part of the year and do you see portfolio reshaping is complete and its other actions on promotion and distribution and building r eaching out to more consumers that's a path pending for kind of turning into growth or how in second half this portfolio could jump to positive territory from where it is today ? What could you specify what would take it there?

So, we are doing three main actions. First of all, we are not yet above water fully and there's work to be done, but it is sequentially improving from last year. T hat is definitely helping us and like I said even that decreased decline so to speak we take it out, the rest of the business is g rowing near double digits but Glow & Lovely is an important part , profitable part of our business and we are fully focused on making that grow . So 3 main actions; one is to renovate the C ore to make it contemporary and we have done that early this year, so that started with new proposition of renewing cells , a new pack which is more modern , even sensorial, very important change by the way , because we're finding that as weather conditions have changed as consumers reference points of what is good moisturization or brightening has changed or sensorials have changed. We have also had to change the way the product feels on skin, less sticky, less heavy, etc. but it's not a straightforward call , it's quite nuanced because our consumers for tubes and sachets are different. The weather conditions in North, Central and South are different, so we have done a lot of work to optimize the product now and that's also go ne into the market. We have of course new advertising . So, on the core, we are addressing all levers, all six P’s to get the usership of the core to grow. What's already working for us is our extension to a lighter sensorial Glass Bright product with a jar. That extension is doing quite well in fact we were supply short now, we are actually scaling it and we expect to make it a significant part of the of the total brand and that could also drive our growth on the total , going forwards. And that is basically a modernized G low & L ovely for consumers looking at a modern premium type proposition but not at a very high cost and I think only Glow & Lovely with its reach and brand name recall can offer that. We are also entering new formats like serums and sunscreens . Those are relatively small at this point but that basically makes sure that Glow & Lovely offers consumers there for every type of benefit and format that they seek without shelling out a huge amount from their pocket and I think our distribution reach of both media and availability are under our spotlight and those are also being driven. So, we are very focused on this Core business and are making sequential progress.

Okay. Thanks so much, Rohit. Thanks for the details this time. Wish you all the best. Thanks a lot.

Thank you. Next question is from the line of P ercy Panthaki from IIFL Securities. Please go ahead.

Hi, good evening, everyone. My first question is on the detergent’s portfolio. So, you had mentioned this last quarter also and it's going according to that only that there is a sort of going to be further investments in detergents and we have also seen an average selling price kind of a decline there. Just wanted to understand how much of this decline in ASP is driven by the price competitiveness in the liquids portfolio? I mean liquids is maybe let's say 10 %-15% of whatever of the business. So would you say that it has its fair share of the decline or it's lower than the fair share, higher than the fair share, that is one. And secondly you mentioned that this is also in response to higher competitive intensity in the overall detergent space, I'm assuming this is including powders not just liquids. And if that is the case in powders who's driving this competitive intensity ? Is it the other large MNC or any other large sort of national player or is it some sort of small and regional players who are driving this? So, this is my first question on Home Care please.

So overall on Home Care as you rightly alluded, Percy, that we have grown high- single digit in terms of volume and you saw that our reported growth , our Underlying Sales Growth was 4% which means we had negative pricing. Now all the pricing actions that we had to do for two reasons , A) because of deflation in commodity, the entire crude basket and many of the commodities like soda ash had seen deflation - Those we had already passed on to consumers. The second area and reason why we had done a price decrease was competitive reason and I'll click down since your question is more focused on that. So, both put together the pricing actions have got deployed in the previous quarters. In this quarter no further new action happened. It is basically the play out of decisions that we have done previous to this . So, year-on-year hence you see a decline in terms of pricing in the business. Now when it comes to what part of the portfolio to your question has been commodity linked and what part of the portfolio is competition linked, of course very difficult to let me say give a number to each of them but let me still help you with some color on it . The area which has seen more commodity decline is crude oil and crude basket , that impacts more on laundry powders and detergent bars. When it comes to liquids, remember liquids are basically by and large, there are many materials in it but again that's palm oil and palm oil derivative linked active detergent in it . So, there we have seen inflation. So, for competitive reasons when we have reacted to price we reacted to price in liquids and in laundry bars . By and large , powders have been more commodity linked. So, I hope that gives your understanding which portion has been driven with what.

And the competitive action more by MNC or national players or more by small regional players?

What happens for liquids you see it's still a concentrated market with few players. When it comes to detergent bar, it's pretty well spread out with multiple players, global players , local players , regional players . So, it's a pretty spread out competition on the detergent bar. Liquids is more concentrated to few players.

So, on powders whatever price cuts have happened, have happened mainly on account of commodity only and not any competitive action?

You can never say it only on account of A or only on account of B.

But very largely?

As I mentioned largely is on account of reason of commodity for powders largely.

Sure. My second question is on Glow & Lovely again , of course a lot of it has already been discussed but see right now the brand is in decline and of course it's improving but it's still in decline. So, this is my thought process and let me know whether it's a fair way to look at it. That a combination of whatever little bit of demand revival on a macro basis plus the actions you are putting in place will bring the brand back to sort of even keel , it will not decline. But we should not have too much of a growth expectation from this brand even if it remains sort of flat it should be okay . The reason is that we should probably be looking at whether we are serving the customer in some way or the other . Now if the customer is upg rading and we catch that upgrading in some other brand that should also be okay so would this be a fair thing to say that over the next, let's say 3 to 5 years if Glow & Lovely sort of remains flat that's a more realistic expectation and we will catch those customers in some of the other brands?

Firstly, we play a portfolio, high level for Skin Care as we just said we have to go where the growth is . Growth is more premium , more new formats and spaces more modern channels . So clearly we're going to go where the growth is and clearly consumers are upgrading, and we want to be the one driving those upgradations. So high level what you suggested is the right allocation of resources that's exactly what we are doing. We call it ASPIRE but it's pretty much that. That said each and every brand manager who handle a particular brand, their job is to grow the brand and the Glow & Lovely brand manager has got that mission - is to grow the brand as if it was a company. It's already close to Rs. 2,000 crores, so it could be a company and the mission to that particular brand manager is please grow this brand, get more users , more usage, more benefits and that's what they're going to do. Obviously given it's already at a big scale and many of the consumers are upgrading, could be users of Glow & Lovely, there will be that pressure but we have so many more brands like Pond’s, Lakmé and others that we just spoke about to really take those consumers to those new brands. That's what we have done in Home Care with Surf excel and with Taj and Lipton in Tea. So that's the story of the Indian market upgradation.

Sure and with the actions you've taken , how long do you think it will be before this brand comes back to a YOY growth?

I think it would be difficult to put a number , specific precise number to that . We do see sequential improvement. So, if that continues to be the case in the future which is what our plans are , then it should be a few quarters at which time this should be in that position . I think that is as much of precision as I can give at this point.

And very quickly last question would be that in S kin Cleansing, for the last few quarters we have seen Lux doing much better and sort of Lifebuoy lagging. There are certain issues with L ifebuoy. I think you did a relaunch as well . So, can you give some idea as to whether now L ifebuoy is more or less growing in line with your category growth or not yet?

Lifebuoy is clearly not yet growing in line with the total business, but our intention there is for it to gain share of the hygiene segment because what we can't do is go against the consumer shifts . Consumer shifts are going more and more towards upgrading to new formats , more beauty, more skincare etc. where we have absolutely the right brands to catch those consumers through Dove, Pears and liquids agenda. The hygiene segment is clearly , after COVID, under more pressure and within that we want Lifebuoy to gain market share. It is doing better than its peers in that segment , but there's more work to be done and we are on the journey.

Thank you. Next question is from the line of Mihir Shah from Nomura. Please go ahead.

Thank you for taking my question. Firstly on Gross Margin, the gap between NMI and UPG has widened this quarter also if I see the palm oil prices recently they've started to become inflationary again, how should one triangulate your comment on sequential improvement in G ross Margin with low pricing led growth going forward and this GPM improvement that you are expecting will it largely be driven by cost efficiencies and better mix, so that's my first question?

Overall as you saw that there's a price versus cost gap that we have this point in time and we label that that gap is more transitory in nature and we called out three different reasons for that as part of the prepared remarks . Tea, we are pricing to replace not to consumption so there is a price versus cost gap. It sorts itself out as we move forward number one. N umber two for H ome Care all that we had to do we have done in terms of passing on the benefit of commodity and also competitive reason for taking price decrease and that's second reason why we have seen the price versus cost hurt and third is in the space of overall Horlicks where the pack -price architecture correction that we did to drive consumption. Now good news is all three actions are yielding results in terms of growth and we had anticipated this, which is why in our prepared remarks in the previous quarter we had called out that you will see gross margin moderation in quarter to come . That's exactly what the quarter has played out. Now going forward we believe that from next quarter onwards we should start seeing improvement in G ross Margin levels compared to where we are now and this improvement will come from a better let me say a smaller price versus cost gap, number one. Number two, improved mix as we're driving more sales or Beauty & Wellbeing ahead and other parts of the premium portfolio - We spoke about 500 bps is the amount of change which is happening towards Future Core and Market Makers portfolio. And third by driving net productivity across all lines of the P&L. So all those three actions put together we will be able to improve G ross Margin compared to where it is today but as I mentioned earlier that we will invest back this improvement of Gross Margin into other lines of the P&L to drive growth and hence our EBITDA margin, our outlook doesn't change , it remains what we gave in the previous quarter which is the range of 22 % to 23 % is what we want to operate for next few quarters.

Understood. Thanks for that. Secondly, on your comment on your ad spends again, so basically if you see your low er raw material prices usually also lead to higher competitive intensity. Are you sensing any competitive intensity to go up and hence the higher ad spends budgeting apart from the investment that you want to do in the brands and also with the economy opening up or getting better, how should one think about the new digital brands again to mushroom and start growing faster and know probably some way hurt the g rowth of other legacy brands. So, your comments on competitive intensity on this?

So, coming to A&P and the intensity there, a year back in the period of deflation, we had seen heightened intensity and which is why our A&P levels were different. R egardless, in a time where there's a higher heat or lower heat , our principle is very clear. Share of voice ahead of share of market and that's how we operate - that's principle number one. And of course then you always do A&P for the objective of reach and frequency depending upon the activity that we have on innovation in the quarter. That is what determines the absolute amount of A&P that you want to spend in the business . This quarter as we spoke we spent sequentially 40 bps more - Rs. 150 crores more because this is exactly what we had to do to deliver on our objectives of the way we allocate media. The second big thing which is changing there is , of course, the composition of how much is traditional media how much is digital media . If I look at last 12 months ' time now we have crossed more than 50%, now 50% of media investment goes into digital compared to traditional , in fact in the latest quarter the number is even higher . So, as intensity happens, we are very clear that for us driving competitive volume led growth is first priority and we will do investments in the business as required and that's also the reason I called out earlier that the improvement of G ross Margin we will invest in the business . We have a large agenda of portfolio transformation and dialing up more growth in the demand spaces which is where consumers are going and spending money in the M arket Makers portfolio and Future Core and we will continue to dial up and reallocate our resources to that space. So, you will see this happening going forward as well.

Understood. Thank you very much. Mr. Jawa, it was a pleasure interacting with you and wishing you all the very best and also P riya best of luck for your new role. Looking forward to interacting with you.

Thank you so much.

Thank you very much. Ladies and gentlemen , I'll now hand the conference over to Mr. Yogesh Mulgaonkar for closing comments.

With that we now come to the end of the Q &A session. Before we end, let me remind you that the playback of this event will be available on the I nvestor Relations website in a short while. Thank you everyone for your participation and have a great evening.

Thank you all.

Thank you.

Thank you very much. On behalf of H industan Unilever Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.

This transcript has been edited to remove any grammatical inaccuracies or inconsistencies of English language that might have occurred inadvertently while speaking