Hindustan Unilever Limited analyst Q&A

First question is from the line of Vivek from Jefferies.

Hi, team. Priya, first question to you. You articulated your four-pillar strategy, let's say from a company standpoint. When you look at it from a product segment perspective, can you just talk about areas that you think need attention based on your assessment?

Yes. Thank you, Vivek. I will go category-by-category to just talk a little bit about our performance. Let me start with Home Care. We have an extremely competitive performance in Home Care overall with mid-single-digit UVG. Our job in Home Care has always been to continue to premiumize the market and this is a continued job to be done, and we are on a good trajectory on Home Care overall. Of course, our revenue growth given the deflationary commodity is flat, but overall a good solid competitive performance in our Home Care business. In Household Care, we have a double-digit UVG led out of dishwash, and again, we need to continue to drive dishwash liquid, and therefore develop the markets in Home Care. So really, that's our job in Home Care. This is 40% of our business. We continue to drive premiumization and market development in a ubiquitous category in the country. Let's now come to Personal Care. In Pers onal Care, we are seeing a quarter-on- quarter improvement in our performance and our competitiveness. Of course, this quarter, as Ritesh mentioned, it is impacted by GST, but what augurs well for HUL is the double-digit growth of premiu m soaps, and this is an area, again, we will continue to focus. Here again, liquids and body wash is under 2% penetration in India, and our job as the market leaders of soaps is to grow and develop the markets towards liquids, and that is where we will double down and focus. Coming to Beauty & Wellbeing, we have grown at 5% this quarter. This is made up of a good performance of single-digit growth on Skin Care. We have had very good winter loading into September quar ter. OZiva has delivered triple-digit growth this quarter, and you heard Ritesh talking about Minimalist, which also continues to deliver. In Hair Care, we are the market leaders. Again, here our job is to continue to premiumize the catego ry and grow the market from just hair cleansing into Hair Care, and really develop the market. So that, in summary, is on Beauty & Wellbeing. Looking at Foods and our Nutrition business. In Beverages, we have, again, grown double-digit. Here our focus, once again, is on premiumization, given the nature of the category. Again, the commodity today is deflationary, and we will do the right things to ensure we stay competitive in the Beverages segment. In Horlicks, we have seen some early gree n shoots. There's sti ll work to do here on the brand, but it's in an excellent s pace of wellness and nutrition, which is extremely important in India. It's a growing demand space and we will double down here. We've already launched our RTDs in Horlicks, and as Ritesh mentioned, the pro-fitness range, and this is an area of work to do. There's still work to do on Horlicks, and we will continue to do this going forward. So that, in a nutshell, Vivek probably explains to you how I'm thinking across categories.

Got it. And Priya, slightly from a longer -- let’s say from a medium-term perspective, you mentioned about the quarterly trends and how things are shaping up, but the external world view is that, at least from our side, that Beauty and Foods will require -- should require more attention just sheerly because the performance had been somewhat okish over the last few quarters. Do you concur with that view? And a follow-up to that is, basically, from a premiumization perspective, you have done well, but how do you think about the di gital-first competition, as well as is there a case to focus much more at the, let's say, the mid of the pyramid and the bottom, probably? Not bottom, but, something below mid.

Yes. I think, let me break this down into multiple parts, Vivek, if I could. Let me start with where you ended, possibly, and actually, that was the first pillar of what I have talked about, which is the radical segmentation we would like to do of consumers. If you look at consumers in India today, we are seeing an opportunity to be more radical in our segmentation of consumers. Power Spenders at the top, these are about 60 to 80 million consumers at the top of the pyramid, Premiumizers in the middle, and the Democratizers at the bottom of the pyramid. With our price-brand pyramid, we have the opportunity to grow in each of these segments and tailor strategies - channel, brand, price and media strategies, to deliver against each of these consumer cohorts and that will be an area of work that we will do. So, really, our right to win in each of these, given how we straddle the pyramid, is extremely high. You're absolutely right in what you're referencing, Vivek, that it is not just in urban India, but also our rural markets, where we have the opportunity. There is a huge transformation taking place in rural areas in the country and we will double down behind growing across the price brand pyramid of the country. Ritesh, if you want to answer the second part of the question.

Yes, absolutely, it does. So, that was my first question with your permission. Second question for Ritesh and two parts. On GST bit, Ritesh, you have mentioned about October will continue to see the impact, but the destocking end second quarter and October should also unwind in the next quarter itself. Is that a fair assumption?

Yes. So, GST, as you mentioned, Vivek, that overall, as the change started to happen and our announcement happened, clarity emerged. September month and October both, A, because of what happened to trade in terms of destocking; B, consumers were very choiceful and they are hoping to see lower prices on the shelf before they start loading in their own pantry. And third, the fact is there will be a point of disturbance for a month or so because there will be more prices in the market, old MRP, albeit sold at new GST and new MRP, old grammage and new grammage. This is the disturbance that we spoke about will end up being in the trade and in the business till early November. Post that, we expect prices to stabilize and normal trading conditions to come back. Now what happens in terms of trade when they destock, we have known in the past, it takes time for them to go back to the normative stocking levels. It requires effort to do for that to happen, and we have put on full plans for that to get taken care of.

Okay. And as a follow-up to that, can you quantify, Ritesh, what was the impact on margins due to trade support in this quarter? And do you expect the same to continue in the third quarter as well?

Yes. So, we did lean in with trade support in the quarter. And overall, at a net level, you've seen very fact, we had improved our gross margin by 130 bps sequentially. That was one of the arsenal that we had deployed to support trade pipeline to be liquidated. Going forward, we don't expect further margin impact, Vivek, coming in from GST transition. Of course, the entire GST ra te reduction is cost neutral to us. It's something which Government has given change and hence, no cost implications on us. So, we don't expect any margin implications coming in. To the extent there was a net impact between overall price that we had given in the market, the improvement in Gross Margin more than took care of that in the quarter. And hence, at net level, when you saw EBITDA for the quarter declining by 90 bps, summary of summary, the 80 bp s increase year-on-year on A&P that we did is what ultimately flew in the bottom line on the P&L.

Got it. Thank you and wishing you all the very best, Priya, Ritesh as well as Niranjan.

Thank you, Vivek. Appreciate it.

Thank you.

Thank you. The next question is from the line of Abneesh Roy from Nuvama. Please go ahead.

Yeah. Thanks. My first question is on the demand side and the GST impact. So, we have seen in cars, for example, the GST-related cuts led to huge buying. Of course, that's a discretionary demand. My specific question is, once everything normalizes, say, start of November, ex of the grammage increase, which will, say, happen in the lower unit packs, do you see customers actually buying more FMCG in terms of volumes? And second is, when I see the populist programs running now in every state, Bihar is going into elections, Rs. 10,000, for example, being given to every woman. So, do you see actually that the FMCG consumption also benefits wherever this happens. Frankly, it is happening in almost every state where elections are happening. So, if you could comment, the Rs. 45,000 crores GST stimulus program, do you think eventually it will lead to uptick in terms of FMCG consumption ex of grammage increase? And second, the populist programs from the state government?

Thanks, Abneesh. So, let me pick these both questions. So first, GST. And you rightly mentioned that the short-term, there is impact and in month of September and October. And from early November, as prices stabilize, we should start seeing normal trading conditions. Now overall, we know that FMCG consumption has always benefited from two things. Net disposable income, number one; number two, improved consumer sentiment. Now both of these elemen ts will be supported by this GST transformation, which Government has done. So, in our view, this will absolutely au gur well for consumption. This will incentivize further our journey towards making the portfolio more premium. It will incentivize consumption. And hence, overall, it's in a positive territory. So, we are very clear that this will be one more parameter that will get added to everything else that we had. We had monetary easing. We had direct tax benefit earlier. We have seen inflation, including food inflation meaningfully coming down. And this GST change just adds to that to help us im proving the macro conditions and trading conditions. So, that's one positive and thumbs up on that. Second, elections, our reflection always has been these are transitory in nature where in a few states or even national election happens, we have seen that impact comes more from structural reforms that post-election Government brings in rather than some amount of, let me say, work which happens during election, and you quoted a couple of examples as part of that. So, any structural reform done is what typically helps consumption rather than any short-term measure during elections, which happens.

One follow-up question to the demand side only. So, in Q2, two large FMCG companies have come out in terms of results. So, Nestle has not called out GST impact in any of their communication, and they have actually shown the numbers of 10% plus kind of sales growth. So, my specific question here is, has th e GST-related destocking been more in rural areas for you and for the sector? Nestle is almost 75% urban. So, is that helping them? And is that something common to you and to the sector that urban, the GST destocking has been on the lesser side?

Yes. Let me help, Abneesh, answer this from a little different lens than urban rural only. I think you might appreciate better. 40% of the business benefited from GST transition. And hence, in short-term, it got impacted with the transition that I spoke about. And what are these businesses? Skin Cleansing, Hair Care, Packaged Foods. Now we know, for example, hair care. Hair Care had a pretty strong trajectory of growth in our business, and we consistently spoke about it. This quarter, the business declined because of the GST tran sition impact. Business is competitive, and we further gained shares. Personal Care over the last few quarters has gained momentum and has done competitively better and further gained shares. But Personal Care business in the quarter was impacted by GST transition. So, we have seen that this 40% business got impacted by the GST transition. And as I mentioned early November onwards, we expect normal trading conditions for this 40% of the business. Second, 20% business sits between Skin Care and Tea. Now, outside, there was no confusion. We know Tea already sits at 5 percentage. Skin Care was never spoken about as being benefited by GST. Now these businesses had no impact of GST. We grew both these businesses in high-single digit, including support from volume growth. The third component of the business, 40 percentage is Home Care. Now Home Care grew competitive mid-single digit volume on the back of high-single digit volume in the same period last year. So pretty strong volume growth has got delivered in the quarter. Now this volume growth of mid-single digit translated to a flat USG because of the price cuts that we have done, both in response to crude, which is year-on- year 10% down and in response to competitive pricing actions, and we spoke about it. So, we are virtually mid-single digit negative pricing in Home Care. Now of course, we will start to get this lapping in the base in a quarter or so, but that has an implication. And hence, to my point, every business is different. I just gave you this 40-20-40 to appreciate how the business has been run in the quarter and which parts of the business have seen impact and which parts of the business which are not impacted have grown very differently.

Ritesh, one quick follow-up on the restocking and destocking. So, when the normalcy comes back, say, in November, early November, do you expect a reasonable restocking also to benefit you? Or there is a lot of perishable demand stock out? So, the restocking benefit wi ll be much lesser than the destocking loss?

Yeah. See, this is what I was trying to explain to Vivek as well earlier. Now in FMCG, typically, we have 4 to 6 weeks, depending on the category, trade pipeline. And we have seen whenever trade pipeline comes down, and we experienced this at length, Abneesh, when inflationary period happened and when deflationary period happened, it does not automatically within a week or so come back. It takes effort for us to ensure that th e inventory levels, stock levels come back to its normal range of 4 to 6 weeks' time. So, the next couple of months, this is the exact focus that we will have. As the prices will stabilize early next mo nt h in N ov em ber , ou r f oc u s w ill be t o ensure that shelves are filling back, whic h is more easier in a Modern Trade and e-commerce and more amount of work to be done at the length and breadth of the country, when we sell to more than 9 million outlets, it's a job to be done to reinstall that 4 to 6 weeks of trade pipeline. And this job takes a couple of months' time, the point I was answering to Vivek earlier.

Sure. My second question is on the margins. So, one is you had given the guidance of 22% to 23%. In the first half, you have met the higher end of that guidance. So, is there an upside risk in H2, given th e cost has corrected? And PFAD also, there could be some lag benefit. It is quite volatile. I understand that. But is there an upside risk? Second, media channels were carrying that the margin guidance for HUL has been upgraded. You clarified on that bit that there was an Ice Cream impact of 50, 60 bps. But if you could clarify becau se –Ice Cream demerger is going to be at the year end. So, when does that benefit happen? That happens in FY'27 essentially, 50-60 bps?

So yes, currently, where we are with the Ice Cream plans, Abneesh, we expect the demerger to happen in December quarter. And when I say demerger, which means if everything goes as per plan and with all regulatory approvals, when we declare our results for December quarter, it will be excluding Ice Cream and Ice Cream business will be shown as a discontinued business. And hence, margins excluding Ice Cream will start getting reflected in our December quarter results. Now this is where we are with our timelines assuming nothing changes with all the approvals in place. We expect this to be the course of the day. Second, in March quarter at the end of the financial year, we'll end up listing the company. So, this is two-step process, demerger, reporting discontinued business for December quarter and then listing the business in March quarter. Again, as I mentioned, subject to all necessary regulatory approvals. And as we speak, we are on track on this timeline. Now once this happens, when we report our results for December quarter, it will be excluding Ice Cream business. Ice Cream, as we had called out even earlier, it's roughly 3-odd percentage of our business. and the business makes low single- digit margin. And I had called out even earl ier that this year, given the impact of monsoons, given the impact of investment s, in fact, we have a little lower compared to that margins. And hence, we expect once we have re sults declared and reported excluding Ice Cream, on an average annually, we should see 50 to 60 bps improvement in our reported EBITDA margin, which is why we clarified that we are not changing our margin guidance. It remains 22 to 23% . And you're right, within that margin guidance this quarter we operated at higher end. Some other quarter, it could be a diffe rent part of the range we'll end up operating. But the point is on top of this range of 22 to 23%, we will see a 50 to 60 bps increase in our reported margin once Ice Cream demerger happens from December quarter onwards.

Sure, understood. Thanks, that’s all from my side. Thank you.

Thanks Abneesh.

Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.

Hi team. Thanks for taking my question. So, my first question actually is to Priya. I mean you mentioned about your reflections in the first 90 days. Any thoughts on -- is there a trade-off between growth and margins, as HUL looks into the next few years, in the sense that to get to a strong levels of volume growth, do you feel there is a need to invest more in the business, which would take actually your operating margins down in the interim? Or do you feel the business is at a situation where there is no trade-off to be made and growth can be achieved along with stable to expanding margins in the medium term?

Yes. Thanks, Arnab. Arnab, firstly, our focus, obsession is going to be on volume- led revenue growth. So very simply, if I had to tell you how we will look at the business, it will be unblinkingly looking at growth first. When we do that, we have the right financial leverage to deliver the operating margin of the business. So, for me, that is simply how we will run this business. And I've mentioned already the four pillars that we have. But hopefully, this answers the question with clarity, Arnab.

Yeah, Understood. Just a follow-up on that. I mean, what I meant was that ultimately, operating leverage does translate into margins also but in the past, HUL has had this range of margins, which they have -- the company held at 22% to 23%. Do you feel that is a defendabl e range or that depends on the growth environment and therefore, as you focus only on growth, there could be a situation where margins could be lower or below that range?

So let me come in Arnab, about here. So , as we mentioned that our outlook for margin and guidance is a range of 22 to 23. As we do the demerger of Ice Cream, everything else equal, 50 to 60 bps ge ts added to this number once we start reporting ex Ice Cream results. And we're very clear that as Priya mentioned that, when a choice comes between top line an d bottom line, it's always competitive volume growth. That's always the first protocol. And if at all we have to invest more in the business like we have done. You know, today, we operate at almost 200 bps lower than our peak margin. And that is a conscious call that we took because we knew that, to drive growth, especially in the tepid consumption atmosphere that we have been the last couple of years, we have to invest on portfolio on capabilities and hence, across different lines of the P&L to ensure that we are able to drive competitive volume growth. So, this is exactly what we will do going forward as well. Currently, where commodities are, where our investment plans are, where our innovations and portfolio is placed, we do believe that at a range of 22% to 23%, excluding the Ice Cream impact and on top of that, as I ment ioned, 50, 60 bps of ice cream, at this level, we'll be able to support the investments which is required. But we are very clear that if at all a time comes, we ever have to come back with a revised change in our outlook, because commodities change, because operating environment change, we'll always come back and share. The guidance that we have given today and, in the past, as well as for next couple of quarters, read that as 2 to 3 quarters. And if so mething changes, we'll always come back on top of that.

Thanks. My second question actually was on - three specific areas where I think in the last few quarters, you've highlighte d a lot of changes, your initiatives for Nutrition, Lifebuoy and Glow & Lovely these three areas. If you could give us an update on, how has been the feedback of your initiatives? Which are the areas which are looking encouraging? Where do you think there's more time or more work to be required for seeing growth come back?

Yes. Let me take that. Let me start with Nutrition. Like we mentioned, we are seeing early green shoots with low sing le-digit UVG on nutrition. We have launched into new formats and new SKUs, whether it's the RTDs or the Pro fitness range with the adult meal replacement product that we've entered. For me, Nutrition and Wellbeing is a huge future growth area in India with longevity and fitness being critical. So that's an area of work that we are on. More work to do in Nutrition, this is early days, but it is an area we will keep working. Let's come to Glow & Lovely. We launched Glow & Lovely Glass bright. It was to extend the Glow & Lovely brand beyond the Core and premiumize it with the new offering of lighter sensories, more relevant for modern youthful, young consumers, this range has performed well ahead of our expectations for us, and we are pleased with the performance there. Remember that in India, in Skin Care, wh at is happening is regimes are growing. So, it's growing from just a single brightness product to adding moisturizers, face washes and many other products. And the way we are competing is not just with Glow & Lovely, but we have added new products, including our latest launch of Vaseline Cloud Soft, which is a new range of moisturizers, which has entered the category and we have entered with Simple into face washes. So, we keep expanding our portfolio beyond Glow & Lovely. On Lifebuoy, we have seen competitivene ss improve. Having said that, we have work to do, and it was impacted this quarter with GST. As a result, as Ritesh mentioned, the entire category, while competitively improving, has struggled on account of GST. So, a more radical and bold transformation is what you can expect on all three brands, to make them more modern, youthful and contemporary.

Thanks so much. That’s it from my side and all the best Ritesh for your next stint.

Arnab, I appreciate, thank you so much.

Thank you. The next question is from the line of Latika from JPMorgan. Please go ahead.

Hi, thanks for the opportunity. My first question was on specific consumption trends at a macro level. I understand the last quarter was fairly noisy. But starting this year, we have been witnessing multiple positive catalysts and hoping that these will translate into a material pickup in FMCG demand and things have been a little more gradual. The chart that you showed at the beginning of the deck kind of shows a bit of tapering for rural volume growth and a bit of pickup in urban. So, I wanted to get a sense of view on what are you picking up on the ground beyond the Nielsen data? And any specific changes that you may want to flag on urban or rural side? Initially, in your comments, you also talked about you also want to monitor what is the weather impact on our demand in ge neral. So, any potential risk also that we need to be mindful of at a category growth level? And a similar question here is, is there a way for you to gauge give us a rough guess on what could have been the underlying volume growth if it was not for the GST transition impact? That's the first question.

Yeah, Latika, thank you. Let me just pick this up. So, we all know that urban has two-third of FMCG consumption but rural has two-third of Indians living and earning livelihood. So, both of the urban and rural markets are equally important for us to drive results. At this stage where we see the FMCG market, both are contributing. Urban is growing and so is rural growing. And we have used the word where we do see this now demand trends to be stable, which we are not seeing big ups and big downs when I look at moving annual to tal for the last 12 months' time, we're seeing both urban and rural contributing. You alluded to the economical impact of the monetary easing, which will help mortgage, interest cost, the direct tax benefit, GST benefit across multiple categories, inflation, especially food inflation, which is meaningfully lower, good monsoon last year. Though it's a prolonged monsoon this year. We know that the overall water tables will be much better. It will do well for the rabi crop. We just got to see how the harvesting happens with any rains in the last few weeks in this quarter. And hence, when I add all of this, it is absolutely in positive territory with both urban and rural contributing. Yes, there are risk factors, as you called out. As I mentioned earlier, monsoon let's see, with kharif output with some amount of intermittent rain as monsoon has prol onged. And winter, we will know, we loaded pretty well in the trade. So, it's all there now to sell. And if at all we have a decent winter, we should have a good outcome but if winter is shorter or less severe, we know it will always impact sales. But those two items we will see when it comes. But on top of Latika, of all of this, the work that we have done all our portfolio, on our innovation pipeline that is further supporting our growth trajectory. The Rs. 8,000 crore Market Makers portfolio we spoke about earlier, or a Rs. 3,000 crores digital-first business that we have in Beauty & Wellbeing. These businesses have strong legs of growth. Acquisition of OZiva, a couple of years back, that's helping us grow and contribute very meaningfully. Minimalist, it will not come in USG, but it is contributing to overall, let's say the scale of the company. So, all those things are coming together, so it is helping and benefiting us. Now coming to your question on the GST impact. We estimate that this quarter, we saw overall at an aggregate HUL level, up to 2% impact, largely volume of GST transition. So that's what our rough approximation is, what was the impact of GST on the total aggregate HUL business.

Sure. This is very helpful. The second qu estion was clearly the four key priorities that have been stated. You want to double down on high-growth demand spaces and also align towards Channels of Future. Quick commerce has been cited multiple times by the parent also as a key focus channel for your company. I think salience for this channel is obvious is mid-to-high-single digit, if you would clarify. And if you could share, is there any change in your approach going forward, for this channel in terms to grab more market share? And also, probably target new categories, which can be built up further here?

As Priya mentioned earlier, overall radica l segmentation of the market from all three lenses, consumer lens, channel le ns and media lens, is one of the top priorities we'll have as a business. Toda y, our business is 70% GT, roughly 20% modern trade, 8-odd percentage e-co mmerce and a couple of percentage other channels. That's the rough estimate that we have. For our business to grow, we will, of course, ensure that all channels are growing. It's a segmented approach of the portfolio deployment and activation is what we referred to earlier. So, take an example of Quick commerce. We have again, like last quarter, we doubled the busin ess year-on-year on Quick commerce because we know this is where consumers are today more leaning in, in terms of their preferred choice of channel. The overall growth of e-commerce and digital - it has allowed us to do both at one stage, our GT business has got more Shikhar executed. And at the same time, it has helped us to create within Be auty & Wellbeing a Rs.3,000 crores plus business growing at strong double-digit, which is focused on digital-first brand. So, we will always keep doing that as always A and B. It's always an and. It's urban and rural, it's general trade and organized trade. It's premium consumers and, let me say, mid bucket consumers. So, it's important for us to have this ‘and’ mentality across the business. That's the only way end-to-end as an organization will end up growing.

Thank you so much and wish you both the best.

Thank you Latika, appreciate.

Thank you. The next question is from the line of Mihir P Shah from Nomura. Please go ahead.

Hi, Thank you for taking my question. First question is to Priya. Priya, actually, if you can talk a bit more on the reimagining or modernizing the core portfolio that you mentioned. What should one expect? Should one expect a near complete overhaul of the core with new packaging, new communication, etcetera. I just wanted to understand what does that reimagining modernizing bring in. And secondly, you mentioned fewer big bets. Can you share something on what you're thinking about fewer big bets because in your opening remarks, we heard premiumization and market development spanning across categories? So, what does fewer big bets allude to, some ex amples, What does it include will be helpful? That's my first question. Thanks.

Yes. Thank you. Let me start with talkin g about how we will reimagine our core brands and what that entails. So, if you look at brands and let me give you an example from the Beauty category, just as an example. You know if you look at brands, brands no longer it's not just good enough to have higher brand equity, you need to have brands that are truly desired and desirable by consumers. Today, we have almost 400 million Gen Z consumers in India. And these consumers are indeed driving change and transformation in India. So, as we reimagine the brands, we need them to be more modern, more youthful. This means that we have to look across the brands, whether it is packaging, whether it is a proposition, whether it's the product, it will be a renovation on the core, but also very much premium innovation on our core brands and a mix of this but boldly transforming our brands is critical, as India is transforming and the consumers in India are changing what they're looking for. This is both in terms of marketing, more Social-first Demand Generation, so that consumers can discover brands more online, but also in terms of fulfillment. And as Ritesh mentioned, it's an ‘and’, not an ‘or’. When you think of the transformation of India, we often talk, and we think about the urban transformation taking place in India. I think what's exciting with what's happeni ng in India, is the rural transformation that is taking place, whether it's through more road infrastructure, through better electrification, tap water in every home or indeed digital, which is truly transforming how consumers get aware of new propositions, new brands and new products. And therefore, for HUL, it is very critical that we span across this price-product benefit pyramid, transforming our core br ands in line with these consumers. So that, in a sense, is what you can expect, bolder marketing transformation and channel transformation. The second question you asked was on fewer bigger bets. Here, the key point for us is to scale bets. When I was refe rencing fewer bigger bets, what I'm referencing is that we have the opportunity now to call out and scale a few of these bets to really develop markets. Th is will be based on market readiness, consumer readiness in the choices we will make of where we invest disproportionately for scale. And I can give you an example, just to take an example from the cleansing category. Today, the cleansing category in India is mostly a bars category. There's only 2% of the category, which is a liquids and body wash liquids. There's a huge opportunity for us to develop these markets and to scale body cleansing liquids. And that just is an example of the kind of work we will do to disproportionately invest behind a few segments. I hope that answers the question.

Great to hear that looking forward to all the bold launches and communications that you will be doing. Thanks for that. Second, is a bookkeeping question, Ritesh, I have a few on the transition, but I'll probably take it off-line because you've answered plenty. The question on other operating income and the employee cost. Any one-offs sitting out there? And how should one think about that going forward?

Yes. So first, the employee costs, and I would just like to add employee cost to other expenses. Both buckets put together, they operate at 18% to 18.5% range. And this quarter, as you saw, year-on-year, we have a little lesser employee cost and a little higher other expense. And there's always some phasing which is involved. Same period last year, we had a differ ent base of ESOP expenses. And hence, year-on-year, you see that impact coming in. But please add both of them, and we will be always in the range of 18% to 18.5% put together. There'll be some pluses and minuses in the quarter becaus e of the phasing, but it will start aggregating to that range approximately. So, nothing different, nothing substantial, I would say, but that range. Other operating income, we have PLI be nefits and which have been accrued lesser. Again, that's a typical reality, A, with the Ice Cream business now and with d e m e r g e r u p c o m i n g i n . S o , w e ' l l s t o p h a v i n g t h a t b e n e f i t c o m i n g i n t h e P & L directly and accruals have been lower on other business as well, given the impact which has happened on growth for this year. We'll end up accruing those when we are more certain that those accruals will come true. And hence, on a measured accounting basis, we chose no t to accrue in this quarter, those benefits. And once we know that we have met the criteria, we can go back to a later point in time. So, we'll revisit this at the end of the financial year when we have full year results.

Thank you Mihir, and any questions that you have offline, please we can pick it up. Yeah, thank you.

Thank you. We'll take the next question from the line of Sheela Rathi from Morgan Stanley. Please go ahead.

Thanks for taking my question. Priya, my first question was to you. You have articulated very well about the key priorities across the four points which you made. From your perspective, what do you think would be the fastest fix to kind of drive on that whole growth agenda on these four key priorities that you have?

Yes. I think all four are equally important. It's always the case in a company like HUL. What we will do is focus on the speed and agility to go behind these. A lot of the fundamentals are in place. So, whether it is the work that's been done on the brands, the more robust innovation pipeline or indeed the doubling down we have done behind the future fit channels. Our job now is to accelerate these and really be bolder. So that's where my head is.

I'm sorry, just a follow-up here. Do you think that on a quarter-to-quarter basis, we'll be able to track this in terms of how all these priorities are actually shaping up?

I think the priorities I've given to you ar e more on a long-term basis. But I'm sure as we go, we can look against these, and we will keep updating you on where we stand against this. I don't want to suggest that we should work quarterly update against each of these. But certainly, in the year as the year progresses, I will be happy to share where we stand against them.

Understood. My second question was we have been calling out that the second half of this financial year would be much better than the first half. And of course, we have had the GST-related impact in the short term, which Ritesh talked about the kind of what the growth could have been if this impact would not have been there. Just when you think about the second half, what is the kind of – and keeping aside the October phenomena because there also we are seeing a challenge in terms of delivering the growth. But if we think about the four months, which will be left for the financial year, what kind of growth delta are we kind of calling out from a volume perspective because there is a kind of a tailwind here and a lot of other participants also checked on that consumption should come back. But is there something in mind from a management perspective in terms of what is the kind of growth we could see?

Yes. See, Sheela, always our first baro meter is competitive growth. There is a market in which you operate. Our job is, of course, to create market and support market development. And our first stated goal is always to ensure that the outcome that we get, we judge it by has it been competitive, have we grown ahead of the market? As we have spoken that, even in current quarter, our growth has been competitive. And when you look at our la test share position for the last moving annual total, we spoke about that we have further gained turnover weighted corporate share. So that's first barometer. Second, the point I mentioned earlier is that there are more than one reasons now from a macroeconomic perspective, the trading atmosphere looks better and looks improved. So that should augur well for consumption. Equally, the work that we have done internally in the organization on innovation, on portfolio transformation, that's further supporting the grow th outcome and the third point we mentioned that we will be focusing on investing in th e business to drive growth. Now all these three things put together, we do expect to see volume growth to be better in second half of the financial year compared to first half. Now, price growth may or may not play a larger role if commodities are where we are today, we expect low-single digi t pricing unless we see some different outcome in commodities to come in. Now I can't quantify a number, but what I can tell you that, A, we will see better outcome of volume growth because that's a single- minded focus. B, we will continue to drive competitive outcome on our volume growth.

Understood. Thank you, Priya, thank you Ritesh.

Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.

Hi, Thanks for taking my question. And happy Diwali to all of you. My question, Priya is, the four priorities that you mentioned, they seem to be on the right track, but we've also seen similar priorities in the past as well. So just for my understanding, if you can call out, if any, is there any sort of change in the way that you're looking at the business versus what it was before you came in?

Yeah, Thank you, Percy. HUL has over the la st few quarters in the last couple of years, delivered competitive, profitable and consistent growth in a very, very challenging macroeconomic environment with subdued consumer demand overall. So, in that context, our job is to really accelerate our performance led out of volume-led revenue growth. That's where we're going to focus our efforts. And these four priorities is an acceleration of the journey we are on and a sharpening. What I want to bring in is more focus, speed and agility.

Understood. Just to dwell a little further into this. Before you came in, as you said, the growth was competitive in a situation where macros were weak. So, the growth was delivered at that time through some other priorities apart from these four?

I think HUL has called out the Aspire stra tegy, and I think that has been shared actively. The strategy was to unlock and was crafted to unlock a billion aspirations that continues to be relevant. And we are seeing progress against that. What I'm referencing is really doubling down to focus on these four areas of priority.

That's very helpful. Secondly, I wanted to understand Ritesh or maybe even Priya, in 2017, when GST was introduced and then some of the rates were cut, etcetera, we saw a fairly good demand response fo r about 6 to 7 quarters even adjusted for base effects. We saw a marked acceleration in sort of top line growth. Should we consider that experience and sort of at least partially extrapolated this time around? Or are there reasons why we should not do so?

So, Percy the way we will see this is one additional input, which adds to a few things which are going pretty good in terms of creating overall positive macroeconomic atmosphere for driving consumption. As I mentioned earlier, be it monetary easing earlier or the direct tax benefit or the inflation, including food inflation, which is meaningfully corrected and to add to all of that, now GST benefit coming in. All this put together will augur well for doing both, for improving the net disposable income and for improving consumer sentiment. And we all know that these two elements is what genuinely drives consumption. It supports our portfolio to be sold in more premium spaces, and it supports consumption. So, we do expect that these measures toge ther put together will augur well for consumption. I don't think so, GST reform on its own will be a silver bullet, in terms of driving consumption, but absolutely an important initiative by Government, which adds to overall demand atmosphere which has been tepid for the last couple of years, this will augur well. And the fact I mentioned earlier that this is a time where all these initiatives are helping both rural and urban, and it's glad to see that both urban and rural are contributing to overall market improvement.

Follow-up on this, Ritesh for your portfolio as a whole, what in your view is the price elasticity of demand in terms of supposing if the consumer price drops by 10% on an MRP level, what's the response is it 0.5%? Is it 0.3%, 0.7%. Any kind of rough ballpark that you would have in mind?

No, reality Percy is, life is a little more complex than that. I would love to give a straight answer to you, but I was still help you to explain this on two or three dimensions. Now what are the categories which we know are more elastic to price. Skin Cleansing and Tea. We have seen that in these categories when prices go up or commodities go up, it impacts volume. We have called out for Skin Cleansing. That where overall we've seen pretty high amount of oil baskets going up. It impacted category volume growth and also our volume growth. Tea, we spoke about, where we saw a pretty high amount of inflation at a point in time, we saw that consumers downgraded, not only down traded, but also downgrade rate and they went to a lower price point for consumption because that's another category we have seen pretty elastic. But take another example of Home Care. Even in the peak when we had more than 20% price growth, we still saw a mid-single digit volume growth because we have seen a category like Home Care more resilient to price changes. So, there are different, let’s just say categories with different experiences, and if I further scale it down, it's also a different experience for different consumer cohort. And hence, very difficult to put a number to it, but I just hope that gives you a good amount of sense between if thr ee large commodities, crude oil, which impacts Home Care, I would s ay, less elastic, Skin Cleansing and Tea, if at all, commodity changes, I would say, more elastic.

And where would you put Horlicks here?

So, Horlicks is a discretionary category. So, Horlicks, Skin Care and we've seen that overall when net disposable income improves, we've seen that it augurs well for consumption.

Got it. Thanks. Thanks, Ritesh and Priya. Thank you very much. That's all from me. All the best.

Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.

Good evening. I just had one clarification, firstly, on the grammage part. So, in the latter part of September, you have had to make all these price adjustments to GST, but now you can actually make the grammage adjustment for the price point packs. I just wanted to understand, when you mentioned early part of November, all this gets normalized, does your entire grammage increase bit for the price point packs also now get adjusted in the same timeline by November?

Yes. See, overall, Harit, in terms of changes, what we have done is for all non- price point packs, of course, we have done price changes. And as we speak, those products are reaching the market with new MRP. Even on old MRP stock, we've given GST benefit and trade is passing that benefit on to consumers. When it comes to price point pack, to your point, the Rs. 1, the Rs. 2, the Rs. 5, what we have done out here, we have improved and increased grammage or ml which means effectively there's lower price per gram or price per ml. Now these changes have also started la nding in the market. And as we speak across categories, this is now reaching the consumers. And we do expect that in early November it will be present across length and breadth of the country. There will always be some SKUs that will be a little up and down. But when we mentioned that early part of November, we should have normal trading conditions. What we meant was that bulk part of the business will be there with new price points in the market.

Fantastic. And my second question is to Priya. Given that you've recently come in and relooked at the portfolio as well as there's probably been a temporary kind of a blip because of GST, a lot of focus would have gone around executing that well. When one would have to judge in terms of the volume-led growth strategy, how well it has panned out. Do you think FY'27 would be the right barometer and not the near term as you start to put some of these plans in place, is that the right way to look at it for investors and us?

Yes. I think many of the things I mentioned are medium to long term in nature. So, I think our focus, as I said, is obsession on volume-led revenue growth, putting in place the right conditions across our busi ness. This is a continuous journey we have been on and will continue to be on for our business.

Thank you. The next question is from the line of Nihar Jham from HSBC. Please go ahead.

Hi, good evening. I had two questions from my si de. The first one on the Tea segment. Given the correction in prices of tea and the fact that we are looking at, say, marginally pricing in the commodity. Is it that in the Q3 quarter, we could see prices adjust before the cheaper raw materials, something you consume that could sort of impact our margins specifically for this segment?

Yeah, so tea now, as we speak, we are in season. Tea starts to come in May, June, and then we start seeing more production coming in. So, we have a good sense now of tea season. The prices that we have in the market now reflects the lower commodity purchase price that we have and the lower, let me say, spot price that we see in the market. As I mentioned earlier that this is one of the categories that always benefits when overall price table comes down. And we have shown and declared like last quarter, this quarter as well, high-single USG for the business. And this high-single digit growth is supported also by volume growth as well, apart from price growth. So, our strategy of pricing to replacement has been in place for this quarter, and we are seeing opportunity impact of that coming in.

That's very clear. My second question was to Priya on the Beauty & Wellbeing portfolio, specifically that if we look at current portfolio brands, it's mainly been, say, Vaseline, Ponds, where we've o bviously extended it to different subcategories and sort of driven the innovation. So, as you look at scaling this specific segment ahead, are these current portfolio brands sort of enough? And is it where the innovations will happen, or will we look at more bolt-on acquisitions similar to what happened with Minimalist, say, six to nine months back?

Yes. If you look at the beauty category, let me start with the key trends that drive the beauty category globally. That's important to understand. The first is that the beauty brands that grow in the category tend to be brands that are desirable. This is very critical in beauty. It's not just functionality, right? It's about aesthetics, sensories, and creating truly desirable brands. A lot of beauty discovery happens online, and you need to be social-first. So, these are two very important things in beauty. And the third is really robust innovation program because consumers in beauty always seek more, as they get more affluent regimes tend to grow. We are, as you know, the leaders in beauty, both in skin, hair and color cosmetics. Ou r job as HUL will be to keep reshaping beauty regimes as India gets more affluent, this has been our focus and will continue to be our focus. So, to add from very simple regimes to add more complex regimes and for us to be the people who shape beauty regimes in India. That has been our focus and will keep being our focus. The team ha s actually done an excellent job both organically, as you mentioned, in adding innovations across the brands, both in Hair Care and in Skin Care. And we'll continue to look at appropriate bolt-on acquisitions as relevant to keep adding to our portfolio.

Thanks so much.

Thank you. The next question is from the line of Siddharth from CWC. Please go ahead.

Hi, welcome back to HUL, Priya and Ritesh and thanks for taking my question. The first one was to understand, you mentioned e-com is broadly about 8% of your sales. So, I'm assuming about 12% of urba n sales considering two-third. As that grows, right, how does terms of trade change? And how does that sort of impact margins? That was question number one. And question number two was, if we had to look at the larger portfolio, right, there's a fairly large majority of the portfolio, which is 90% to 100% penetrated in the country where the Underlying Volume Growth is really population growth. And there as market leaders, obviously, you will probably grow at category or thereabouts. And in that, premiumization, be it from soaps to liquids, both on hand and body wash or be it from – soaps, powders to liquids in case of detergents or shampoos to conditioners in case of Hair Care, those have been slow. And how do you see that changing to accelerate that prem iumization-led growth in these very deeply penetrated categories? Those were my 2 questions.

Yes. So let me pick up Siddharth. So, first of all, coming to margins for e- commerce. We have maintained in the past as well that when modern trade came and became bigger and one of th e reasons why we, as modern trade has now become bigger, we have advantage with our portfolio there because we sell a more premium portfolio in modern trade. That's what has helped us to grow modern trade pretty well over the last couple of decades. E-commerce is no different. At this stage, there's much higher amount of fragmentation on the channel. These things will stabilize over a period of time. And our focus is now doing both, a, invest in the channel, but this is what the preference of consumers are, and we will always go where our consumers are. And as we invest in the channel, we're also really mindful that our portal is very sharply crafted. We use the term called design for channel. So, our packs that we sell on e-commerce they are designed for e-commerce, the pack that we sell in quick commerce, they are designed for quick commerce. This ensures two things. A, it ensures the right level of prof itability and B, it ensures that we have much lower channel conflict. And hence, all put together, at this stage, we know that we're in investment phase for e-commerce. And we know that it's the right thing to do to keep developing portfolio and keep bringing propositions that consumers demand in the channel today. But the point that Priya mentioned earlier, it's an ‘and’ story for growth for us. We have to grow general trade. We have to grow modern trade, and we have to grow e- commerce. Within that e-commerce we h ave to grow all pods of e-commerce. That's the only way we'll get total growth as Hindustan Unilever. Now coming to the second question on high penetrative categories. You're right, when you look at Skin Cleansing, when you look at hair, for that matter, driven by shampoo, sachets or detergents, these are highly penetrated categories. But equally, there are many categories like Lifestyle Nutrition or Skin Care, or for that matter, sun care, much lower amount of penetration. Many subcategories in skin care have single-digit penetration, massive headroom for growth. At an aggregate level with the $54 per capita consumption when I compare to Indonesia, which is twice the amount of GDP per capita, but four times FMCG consumption per capita. We know there's a long runway for growth in terms of FMCG. But even in large categories, let me quote an example of Home Care. Today, not every household has a washing machine and every household that has washing machine is still not using a liquid detergent. So, the amount of growth that we have from mass powders to premium po wders, premium powders to liquids, from liquid to what we just launched recently, liquids, which end up performing with a much faster cycle or for that matt er, going to shots later point in time, or for that matter, going from fabric wash to fabric conditioners, there's a long runway for us to ensure that we are able to make our portfolio continuously premium. Now in some spaces, we've seen more amount of, let's say, outcome like laundry liquids but a similar amount of adoption for body wash liquid has been slower. And today, bodywash liquid is more like 2-odd percentage for the category, wherein it's almost 7, 8 percentage when it comes to Home Care liquids. So, there are different level of trajectories but the job of developing market and making market is a full-time job. And as a market leader, this is always the first focus for us. With 85% of the business where we lead market, and in a country which has overall per capita consumption, long runway to growth, this is what our focus will always be.

Thanks, and just a follow-up on the e-commerce piece. So given the fact that you mentioned is an investment channel, how do you see the salience of top of the funnel spends today, brand awareness, brand consideration spends versus platform spends. What's the salience today? And how do you see that changing, say, over the next two years?

See, I won't be able to share hard numbers, but let me tell you that overall, CAC to LTV ratio, this is one of the single biggest important factors that we measure internally in the business. Today, we have more than 50% of the investment that happens digitally. And when we meas ure ROAS, there are a few parameters, including the CAC to LTV ratio is one of the parameters we always ensure that it is A, competitive and it is top of the pack in the industry. There are learnings. I'm saying what drives growth on e-commerce? What drives growth in quick commerce? What are the elements of investment within that, on the platform that we need to do to get far better ROI? This is exactly what our team does. So, we are a full-blown machinery which works on e-NRM. So, our Net revenue management, machinery, we deploy digital learning at scale to fine- tune our overall deployment. We have our own in-house system called Sangam that allows us to and helps us to allocate media far more effectively across the various demands it has. So that just gives you an example. Of course, I can't share more details of that, but I hope you've got a flavor the way we approach this area.

Sure, thanks. And all the best to you, Ritesh. And welcome back and all the best to you.

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. Yogesh Mulgaonkar for closing comments. Thank you, and over to you, sir.

Thank you, Michelle. With that, we no w 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 IR section of our website in a short while. Thank you, everyone, for your participation, and have a great evening.

Thank you.

Thank you, members of the management. On behalf of Hindustan Unilever Limited, that concludes this conference. We 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.