[Company Representative 4] (Hindustan Unilever): Lipton Night Time sleep. With chamomile and lavender. For a restful night's sleep, Lipton Night Time sleep. Dry bread नहीं चलेगी! Dry bread नहीं चलेगी! हमारा Hellmann's कैसा हो!
[Company Representative 6] (Hindustan Unilever): भी Hellmann's कैसा हो!
[Company Representative 4] (Hindustan Unilever): Dry bread gone. Creaminess on. Hellmann's Mayonnaise.
[Company Representative 6] (Hindustan Unilever): The skin on our body was made to be active.
[Company Representative 4] (Hindustan Unilever): But through many moods and movements, life leaves a mark. Rough patches, uneven tone, dryness. Active skin stays-
Operator: Ladies and gentlemen, good day and welcome to the Hindustan Unilever Limited conference call for the results of quarter ended 30 September 2026. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Yogesh Mulgaonkar, Head of Investor Relations and Vice President, Finance, Beauty and Wellbeing. Thank you, and over to you, sir.
Yogesh Mulgaonkar: Thank you, Darwin. Good afternoon, everyone. Welcome to the conference call of Hindustan Unilever Limited. Today we will be covering the results for quarter ended 30 September 2026. On the call with me is Priya Nair, CEO and Managing Director, and Niranjan Gupta, our CFO. We will start with prepared remarks from Priya and Niranjan. We expect this to take around 15 minutes, leaving us approximately 45 minutes for the Q&A session. We will look to end the call by 5:00 PM. Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation for good order sake. With that, over to you, Priya.
Priya Nair: Good afternoon, everyone. Thank you for joining us on the call today. Welcome to the September quarter earnings call of financial year 2027. Let me begin with an update on the operating context, followed by key performance highlights. Subsequently, Niranjan will take you through the quarter results and conclude with the outlook. During the quarter, the global geopolitical environment was volatile, and commodity prices remained elevated. The Indian economy continued to demonstrate resilience with growth GDP of 7.8% in the first quarter. High-frequency economic indicators remained healthy in September quarter, pointing to a sustained economic momentum. Demand conditions remained positive, supporting a favorable consumption environment. In this context, we delivered a turnover of INR 18,071 crores with a 15% underlying sales growth, our highest in the last 14 quarters. Underlying volume growth remained strong at 7%, underpinned by disciplined execution and ongoing portfolio transformation.
Priya Nair: Performance was broad-based across segments, with Home Care and Beauty and Wellbeing delivering strong double-digit USG, driven by strong double-digit UVG. Personal Care and Foods also saw a sequential step-up, delivering 9% USG each. Along with this momentum, we continue to strengthen our competitive position. This strong top-line performance also translated into a healthy profit growth, with profit after tax before exceptional items growing 9% to INR 2,795 crores. Looking at the first half as a whole, turnover reached INR 35,255 crores with 12% underlying sales growth and 6% underlying volume growth. PAT BEI grew 9%, reflecting consistent delivery across both the quarters. Together, sustained top-line momentum, strong volume performance, and robust profit delivery underscore the strength and resilience of our business model. The board approved an interim dividend of INR 19 per share for the financial year ending 31 March 2027.
Priya Nair: During the quarter, we unveiled our Winning in New India strategy at our Capital Markets Day. We believe that India presents an incredible opportunity for growth in the consumer products industry. New growth pools are emerging across channels, geographies, and consumer cohorts, each requiring differentiated capabilities and an approach to win. With our scale, portfolio breadth, and executional capabilities, we are uniquely positioned to capture these opportunities across the four growth pools of consumption, premiumization, market making, and new spaces. We will power this ambition by crafting desirable brands that consumers love, building a future-fit go-to-market, and leveraging AI as a distinctive competitive moat. Underpinning this strategy is our value creation model, focused on generating fuel and stepping up our investment for growth. Our talent, culture, and ESG remain the foundation of how we operate and win.
Priya Nair: Together, these strategic choices position us well to deliver on our ambition of competitive, volume-led profit growth. In line with the strategy, we executed several actions during the quarter. We continued to invest behind our brands to drive their desirability. A notable example of this is Simple Barrier Repair range, designed for consumers with sensitive skin. Powered by Pro-Ceramides, the range delivers proven efficacy by providing a superior sensorial experience, reinforcing Simple's expertise in sensitive skin. Many such examples across categories are helping us deepen our consumer engagement and unlock future growth opportunities. Similarly, we continued to build a future-fit go-to-market by tailoring our approach to the unique needs of each channel. In general trade, we expanded our coverage by adding 30,000 outlets this quarter while delivering healthy double-digit assortment growth.
Priya Nair: In modern trade, we stepped up investments behind category development, nearly doubling the asset deployment over the last two quarters. In e-commerce and quick commerce, our technology-led capabilities continue to drive sequential improvements in service levels. Our omnichannel strategy continues to be a powerful driver of competitive growth. New spaces are an important growth engine within our strategy. During the quarter, we extended Horlicks into the fast-growing protein segment with the launch of Horlicks Protein Powder. Leveraging Horlicks' nutrition credentials, the offering is designed to cater consumer everyday protein needs. We are encouraged by the early traction and see significant opportunity to build our presence in this category. Lastly, amid a volatile global geopolitical environment, our agile procurement and supply chain capabilities, combined with our financial resilience, proved to be a competitive advantage.
Priya Nair: Our global sourcing network ensured continuity in key input materials, while our manufacturing and distribution network responded swiftly to evolving market conditions. This agility, underpinned by technology and executional excellence, also earned external recognition, with HUL being named the top supply chain icon by the prestigious Institute of Supply Chain Management in its 2026 rankings. Taken together, these actions demonstrate how we are winning in new India and bringing the strategy to life, strengthening the business today while building capabilities and growth engines to win in the long term. With this, let me now hand over to Niranjan to take you through the results in detail.
Niranjan Gupta: Thank you, Priya, and good afternoon, everyone. I will start with quarter performance and then close with outlook. As Priya mentioned earlier, we delivered strong top-line performance this quarter with USG of 15% and UVG of 7%. The strong UVG despite price increases depict the strength of our brands and resilience of our portfolio. Moving on to profitability, we delivered EBITDA margin of 22.6%, well within our guided range. Absolute EBITDA grew 8% year-on-year to INR 4,089 crore, while PAT before exceptional item grew 9% to INR 2,795 crore. Reported PAT remained same as last year due to one-off tax-related gains of INR 273 crore in the base period. The combination of strong top-line growth, healthy margins, and consistent earnings growth reflect our disciplined approach of dynamic resource allocation, an important pillar of our value creation model in Winning Strategy. Let me elaborate on this further with reference to our H1 performance.
Niranjan Gupta: In the evolving input cost environment, we continued to manage pricing as a strategic investment lever. We took calibrated price increases only to cover the absolute impact of the higher costs. This helped us to protect our consumer franchise, sustain healthy volumes, and strengthen market position. Alongside this, we accelerated our savings agenda with a sharper focus on high-impact opportunities. This included the entire value chain costs and discretionary overheads, enabling us to improve cost efficiency while continuing to invest behind growth. We continued to drive productivity in A&P through scale-led buying efficiencies and AI-powered tools, such as Sangam, improving the effectiveness of our media investments. In Home Care, we selectively rationalized spend in line with category dynamics while increasing spend across rest of the portfolio. Overall, our current level of A&P investments continued to remain competitive.
Niranjan Gupta: Collectively, these dynamic interventions have strengthened our performance trajectory with double-digit revenue growth and high single-digit profit growth. Moving to segment performance for the quarter. Home Care continued strong performance with USG of 22% underpinned by double-digit UVG. Fabric Wash delivered strong double-digit broad-based growth across bars, powders, and liquids. All brands contributed to performance, reflecting resilience of our portfolio and strength of our execution. Our premiumization agenda continued to gain momentum with Surf Excel Easy Wash INR 99 powder scaling well and delivering double-digit growth. Household Care accelerated its performance with double-digit volume-led growth. During the quarter, we continued to invest behind market development actions in Home Care liquids. This helped in deepening the format penetration and supporting volume resilience, leading to competitive double-digit volume-led growth. Turning now to Beauty & Wellbeing. The segment delivered another quarter of double-digit growth with USG of 16% underpinned by double-digit UVG.
Niranjan Gupta: Hair Care accelerated its double-digit volume-led growth trajectory. Performance was broad-based across brands and formats. Premium hair care and innovation, such as TRESemmé Hydra Matrix, continued to perform well. We continue to develop new formats like hair mask and serums through increased sampling and sustained media investments, bringing more consumers into the category. Skincare and Color Cosmetics also delivered double-digit volume-led growth. Premium skincare maintained its growth direction, driven by double-digit growth in organized trade. Minimalist continued to build momentum, with growth accelerating sequentially as we expanded the brand's offline presence. We continued to advance our premiumization agenda with Dove, Vaseline, Simple, and Minimalist expanding into emerging demand spaces through differentiated innovation. Health and Wellbeing saw a subdued performance. The category fundamentals remain healthy, and we have a strong innovation funnel in place to drive growth as we move forward. Moving on to Personal Care.
Niranjan Gupta: This segment delivered underlying sales growth of 9%. Within the segment, skin cleansing delivered a double-digit growth. Importantly, our market development actions in Pears and Dove bars continued to do well, driving double-digit volume-led growth. Body wash continued to strengthen penetration and market leadership through step-up in sampling initiatives and in-store activations. Oral care reported low single-digit growth in the quarter, but premium innovations delivered double-digit growth, aiding consumer upgradation to higher order benefit spaces. Moving to foods, the segment delivered USG of 9% with low single-digit UVG. Coffee delivered high single-digit growth driven by volumes. Inflation moderated performance in tea, led by softer performance in mass tea. Premium tea innovations, however, such as Red Label Instant Tea continue to scale very well. Lifestyle nutrition delivered another quarter of double-digit growth, driven by continued focus on execution and market development. Horlicks biscuits and ready-to-drink formats continue to grow well.
Niranjan Gupta: During the quarter, Horlicks expanded into high-growth protein segments with the launch of Horlicks Protein Powder and is seeing encouraging early traction. Packaged foods as well delivered double-digit broad-based growth. We relaunched Kissan condiments with contemporary packaging and a sharper proposition, strengthening its relevance and appeal with consumers. Now coming to the midterm outlook, the underlying demand environment remains resilient, supported by healthy macro indicators. Backed by our Winning in New India strategy to drive portfolio and channel transformation, we remain confident of growing ahead of the market. Commodity inflation is expected to remain elevated. We expect medium-term EBITDA margin to be within the current guided range of 22% to 24%. Finally, our focus remains clear and unchanged, delivering competitive volume-led revenue and profit. With this, we conclude the remarks, and I will now hand back to Yogesh to commence the Q&A session.
Yogesh Mulgaonkar: Thank you, Priya and Niranjan. With this, we now move to the Q&A. We request you to kindly restrict the number of questions to a maximum of two at a time. In case you have any further questions, please join the queue again. In addition to the audio, our participants have an option to pose the questions through the web option on your screen. We will take those questions just before we end. With that, I would like to hand the call back to Darwin to manage the next session for us.
Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets when asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Latika Chopra with JP Morgan. Please go ahead.
Latika Chopra: Thank you for the opportunity. First question from me is on volume growth and demand outlook. This quarter, you had 7% volume growth, implying a 2-year CAGR of 3.5%. Given the inflation that we are witnessing and you also have taken meaningful price increases, which is reflecting in better pricing growth, do you worry about any moderation in volume growth momentum ahead? What are you witnessing on the ground? Particularly in rural, we are hearing from certain sections that this could be something at risk. If you could give some comments on what are you witnessing right now, and how should one think about demand outlook?
Priya Nair: Sure. Hi, Latika. Latika, I would say to you that two things. One is it is important to look at the momentum on volume, not just the absolute volume. Why I say this is because at the same time as you rightly mentioned, we have taken a meaningful price increase. We have actually seen a sequential improvement in volume momentum, and I am talking about the sequential momentum of volumes if you track over time. So, that augurs well overall. Therefore our focus will continue to be on volume-led revenue and profit growth. So that is simply how we see it, and therefore we remain confident of our outlook. The second thing is, in terms of the rural demand, we have actually seen a sequential increase in our rural growth and our rural demand is on the rise.
Priya Nair: We see both urban and rural growing at this moment, and our growth is quite broad-based, whether it is across categories, whether it is channels, urban, rural. At this moment, we are seeing a very broad-based growth. So that really hopefully answers your question.
Latika Chopra: Sure. The second question was around pricing and the margin pressures due to input cost inflation. Given the pricing that you have taken during the quarter, do you think gross margins have kind of bottomed out in this quarter? Or you think one should continue to see some more pressure on gross margin trajectory? Also in view of how you think about further pricing actions, if necessary.
Niranjan Gupta: Latika, the way we are using our pricing strategy during these inflationary times is to ensure that we pass on the absolute cost fully. That has been our strategy. That means that you are recovering the absolute cost and then leveraging all other lines of P&L to then look at the overall leverage. Like you saw us having A&P productivity, you saw leverage in overheads that was there during this quarter. That is exactly how the playbook will be there moving forward, because this is helping us get the volume growth. On top of the 8%, in spite of 8% price growth that we had UPG, we still delivered a 7% UVG. That has helped us deliver not just the top line, but absolute profit growth as well. This strategy that we have done actually augurs well.
Niranjan Gupta: The margin overall remained within the guided range of 22% to 24%. There is a cyclicity to the margins. Structurally, if you see, our portfolio is positioned towards the higher margins as you would have seen in our Capital Markets Day as we move forward on our strategy.
Priya Nair: Latika, to add to it, I would say to you that we must remember what are the categories that HUL plays in. In the end, we play in everyday essentials, whether it is laundry, whether it is dishwash, whether it is tea, whether it is soaps. Our categories in general in consumer products, I would argue that, the categories tend to be much less elastic compared to more discretionary high-value categories. Therefore, even when you go back in history, you see much less elasticity in our categories. In addition to that, given HUL straddles the pyramid from mass to premium, we have the portfolio spread, because I cannot predict what is the cyclicity, but we have the portfolio spread that goes across the pyramid from mass to premium.
Latika Chopra: Sure. No, that is definitely helpful. What I was trying to understand was if you look at your COGS mix today and the commodity price trends today, I am sure you would have taken some calls on some commodity covers, et cetera. Do you anticipate inflation to be meaningfully higher in the short term, hence it will necessitate more pricing? Any quantitative sense there?
Niranjan Gupta: Latika, as you know, it is very difficult to call out what will happen on the inflation moving forward. But when you look at the June quarter and September quarter, those two quarters have borne the brunt of the inflation increase that has happened. What we have done during that is to pass on pricing, which is equal to absolute cost. Therefore, when you see a margin reduction, if you look at sequentially, the margin is dropped by just 40 basis points on EBITDA margin level. As we move forward, the significant inflation that Q1 and Q2 faced, it is unlikely that you will have that kind of inflation moving forward. But we will continue to take calibrated price increases in measured steps, following the same strategy.
Latika Chopra: Sure. Thank you, Priya and Niranjan. Wish you the best.
Priya Nair: Thanks, Latika.
Operator: Thank you. Our next question comes from the line of Mihir Shah with Nomura. Please go ahead.
Mihir Shah: Hi. Thank you for taking my question. My question again is on gross margins. The contraction of close to 400 basis points that we are seeing this quarter is quite high. Just wanted to understand, the sharp price increase that you have taken up, about 8%, does that fully cover the cost inflation on an absolute basis, or there is more price hike that is left to fully cover on an absolute basis? For example, tea, one of the other players indicated that they have taken another 8% price increase on tea solely. Have you taken all of them, is what I wanted to understand. That is question number one.
Niranjan Gupta: Firstly, it depends on the category, is what I would say to you. Depending on the category, the situation is different. Tea, the inflation has been more in recency and we have taken much of the pricing that we need to on tea as well. Therefore, the simple answer to your question of have we covered cost, the answer is yes, we have covered cost.
Mihir Shah: Understood. Secondly, wanted to just understand, if you see the gross margin profile pre-COVID, it used to be around 53%, then it settled around 51% just about later on, and that is despite us taking in Horlicks, and now even ice cream is no longer there. But gross margin profile has, over a period of time, kept on going down. How should one think about the gross margin profile over the near to medium term? Do you think that we can go back to that? Or you can exit around 50% to 51% of sorts by around Q4 or early next year?
Niranjan Gupta: While I won't talk about a numeric, but in a medium term, if you look at it, as we said and we presented in Capital Markets Day also, when you look at a three to five-year horizon on medium term, the portfolio is structurally positioned for improvement in gross margin. That is how you will see it moving forward. In quarters, one or two quarters, there are cyclicals that come into play. But short answer to your question is that structurally, the portfolio is positioned to improve gross margin in the medium term.
Mihir Shah: Got it. Very clear. Lastly, what is your medium term outlook on ad spends ratio, sales ratio, ad spend to sales ratio, that you are thinking about, keeping in mind the benefits that you are getting from Sangam, et cetera. How should one think about that ratio?
Niranjan Gupta: So ad spend to sales ratio is not the right metric to look at. It is to look at the competitiveness of the A&P spends, and that we have many measurements, like on traditional media, we have the measurement of SOS, SOM ratios, which actually even in this quarter moved from 1 to 1.1. As you saw in the Capital Markets Day as well, there is a lot of productivity savings we will be getting in the A&P spend arising out of non-working media, arising out of use of AI tools, arising out of buying efficiency. So we see 10% of savings coming through that. So the way to actually are the spends competitive, number one, are your entire big bets fully funded, and are we doing full investment behind the brands? The investment behind the brand need not just be in the A&P line, as we explained.
Niranjan Gupta: It is in pricing, product, packaging, across the lines, including A&P, of course.
Mihir Shah: Understood. Thank you very much. Wishing you all the best.
Niranjan Gupta: Thank you.
Operator: Thank you. Our next question comes from the line of Amit Sachdeva with UBS. Please go ahead.
Amit Sachdeva: Hi. Good evening, everyone. Thank you for taking my question. First of all, congratulations on good revival on the BPC segment. If I look at go back one year, the growth was 2% and now it has consistently risen since then to 16%. I just want to ask whether the changes you have brought in, it seems to me more structural momentum, and just wanted to ask and whether it is sustainable in the similar fashion, because this seems more structural than bit of one-off benefit. I would probably recollect the Capital Markets Day initiatives as well, basically premiumizing and massifying the premium, all strategies were at play. Has some of that started to show that momentum we are seeing today or is it still to come? Just wanted to understand across the board, double-digit growth is very impressive and should this momentum be continuing?
Niranjan Gupta: Well, I would say to you that across categories, that is absolutely the case, that we are focusing on the portfolio transformation on our brand. I would say the way to think about it is the following. Firstly, even on our existing business, we have a huge headroom to grow. I go back to what we shared at the Capital Markets Day, which is with our existing brands, we have a large headroom to grow. You think about it in every category, whether you start with detergents, with Surf Excel, you start in Beauty & Wellbeing with Dove, Vaseline, Pears, you go into tea with Taj Mahal. I can just go on and on. The reality is that it is not just the size of the brands, it is the quality of the brands that is improving, and it is really the equity of the brands that is stepping up.
Niranjan Gupta: The first thing to think about is that really we are going behind, and this is what we shared, of stepping up the desirability of our brands. The first focus for us is to step up the desirability of our brands, and we believe that is starting to show up and it is very structural in that sense. When you think about structural actions, it is not just in terms of portfolio transformation which you are referencing, it is also in terms of just making our brands stronger.
Priya Nair: The second is in terms of execution and the work that we are doing on our channel transformation. One is in terms of brand portfolio, but the other is channel transformation, and the work that is happening, whether in general trade on more stores, more specialized stores, or in terms of organized trade, digital commerce. The work that is happening to step up our execution is showing, and I referenced two numbers in my starting comments, which is we have added in general trade 30,000 stores, and overall, we have grown our assortment, which is channel into SKU mix, double digits. Those are the two metrics we use amongst others, like distribution metrics, et cetera, to see how we are performing in terms of our execution in-store, including the addition of a lot of visibility assets.
Priya Nair: That is the third comment I made in my opening remarks in terms of the number of visibility assets we have added in-store. A mix of that along with all the actions we have taken to build our capabilities, whether it is in the work that is happening on R&D to really step up on the science in our products or the work that is happening to build efficiencies and agility in supply chain. All of these are structured actions. When you think about structural shift, I would just say, yes, absolutely, portfolio is a part of it, but it is more than portfolio. It is the brands itself and how they are strengthening the channels, the portfolio, and how we are bringing our brands to life in the market.
Amit Sachdeva: Yeah. Thanks so much. That is very helpful. Very encouraging to hear that the plan that you put in place is in the works, and I wish you all the best on that. My second question, because I am referring to Niranjan's comment about that passing on the cost increases just enough to sort of cover the cost and maximize the volume growth, which seems sensible. But I am just also thinking this is a year where pricing is large part of the equation. I would also reckon that in such environment, Unilever tends to benefit with market share gains and things like that. I probably see that the operating leverage that you should have kicked out or at least unlocked, that is not there.
Amit Sachdeva: You allowed the margins to fall a bit too much, it seems, and that is the reason despite such a good revenue growth and operating leverage that comes part of it, the earning growth seems to be a bit lackluster. Especially it is coming from home care and, if I may say, just soaps portfolio. Because other two businesses actually margins have risen or at least margins have flattish. How do we think about that?
Priya Nair: Niranjan, of course, will answer in more detail. I think you must think of it as the input cost comes fast and the price takes time to catch up. That is always the case when there is inflation in the market in the manner that we have seen inflation. Do not look at it just in a quarter. That is what I would say to you. Think about it as how input costs go up, and we rightly take the right time to put pricing into the market with consumers. The rest I leave Niranjan to.
Niranjan Gupta: Yeah, absolutely. Look, it is not correct that we have not got operating leverage. I mean, you look at a gross margin, which is 400 basis points year on year drop, while our EBITDA margin is up 140 basis points. So there is a 260 basis points that has been made up. It is not A&P cut actually, which you see.
Amit Sachdeva: Sure.
Niranjan Gupta: There is another expense operating leverage. Even within A&P, there is an operating leverage. Because we start getting operating leverage when we operate at this kind of scale of A&P when you look at it, because ideally, A&P should grow in line with just volumes. So you get the operating leverage automatically along with the efficiencies. I think as a combination, we do have it. The second point I would like to say is, again, I would have a point of difference of opinion on this, that the profit earnings growth is lackluster. This is a 9% profit growth that we have delivered this quarter after many quarters along with 15% top line growth. It is in line with our strategy of driving volume-led revenue and profit growth because you can recover margin in a hurry. You do not recover market share and growth in a hurry.
Amit Sachdeva: Fair enough. Then thanks so much. Very understood because I didn't mean to say it's lackluster. It just mean that such revenue growth could unlock a little bit surprising trajectory of earnings as well. But I take your point, and I wish you all the best. Thank you.
Niranjan Gupta: Thank you.
Priya Nair: Thank you.
Operator: Thank you. Our next question comes from the line of Arnab Mitra with Goldman Sachs. Please go ahead.
Arnab Mitra: Yeah. Hi, and congratulations on a strong momentum on the top line. Wanted to understand this big divergence between Home Care, B&W on one hand, and PC and Tea on the other hand. Is the market growth itself diverging in these categories, or are you seeing stronger market share gains in Home Care, B&W? A related question is, do you see therefore in the H2 or as you go ahead, actions you have taken on tea and personal care to see some improvement from the volume trends there?
Priya Nair: Firstly, on personal care, we feel happy with the momentum we are seeing quarter on quarter sequentially, Arnab, in our business. We are happy to see that sequential momentum. That is especially given, you are well aware, the 2-year palm inflation that we have seen leading to a much more subdued market environment. But we are happy to see the momentum we are beginning to see, especially in our soaps business. That is the first thing in terms of soaps. On tea, it has certainly been subdued this quarter because of, especially in mass teas, where inflation levels were high. We are seeing how that will even out as this settles in terms of tea inflation.
Arnab Mitra: Just on a related question on market share, the Home Care B&W growth, is it because of market share gains, or are you seeing industry growth itself being resilient in those two categories?
Priya Nair: Overall, we are seeing growth as resilient and positive across the board, whether it is, as I mentioned, across categories or across geography channel constructs. Overall, seeing consumer product momentum across our categories is positive. I think it is also the work, Arnab, we have begun to do on our brands, on our execution, and the fundamentals are very important, and there will always be a cyclicity that is involved. But the fundamentals are what you need to focus on.
Niranjan Gupta: Overall at a company level and home care level, we have improved our market shares as well.
Arnab Mitra: Got it. My second question, and sorry to again ask, this has been asked multiple times in the call. As we go ahead in the H2, I think there are concerns around the poor monsoon, the rising inflation. There is some elasticity of demand with the pricing. You also have a slightly higher base. With all this in mind, would you have to actually improve your momentum, sequential momentum, as you said, to sustain these kind of growth rates as you go forward? Or should we expect some moderation as there is a rebalancing between price and volume as you go ahead?
Niranjan Gupta: Arnab, first of all, our momentum has been sequentially improving over the last 3, 4 quarters, as you would have seen. Also like earlier, as we said in the call, really, the base comparison may not be like for like, just given that these volume growths are coming on the back of a high price growth as well. I think these two factors need to be kept in mind. As we keep moving forward, first of all, we do see demand still holding up and clearly being positive. The macro indicators continue to remain resilient. As we move forward, like any other thing, we will be tracking what happens as the impact of monsoon and the inflation. As inflation keeps, let us say, moving up or depending on that, we will continue to take calibrated price increase.
Niranjan Gupta: Some bit of our categories have far less elasticity, and we have been saying that 2 quarters back as well, and we have seen that now for 6 months that our categories face far less elasticity. Given our brand and portfolio, we are even less elastic as far as our portfolio is concerned. Having said that, some part of the rebalancing may happen.
Arnab Mitra: Got it. Thanks, that is it from my side. All the best.
Priya Nair: Thank you.
Operator: Thank you. Our next question comes from the line of Kunal Vora with BNP Paribas. Please go ahead.
Kunal Vora: Yeah, hi. Thanks. Question on quick commerce and its impact. Quick commerce is expanding rapidly in the tier 2, tier 3 markets now. Can you talk about whether you are seeing any changes in consumption patterns in your categories due to QC? Specifically, is it helping you expand your assortment? Is it helping your competitors make inroads, or is it hurting the kiranas? Any observations on this?
Priya Nair: I think when you look at quick commerce, quick commerce actually helps create a channel. For us, it is very beneficial because it helps create a channel for premium products targeted to affluent consumers. Therefore, given that we have a higher index in premium versus mass, as these channels expand, we are able to grow the assortment in these channels. Overall, it is very beneficial when a premium channel emerges. We are also working with all the players in quick commerce to ensure that we build together the categories, and given our scale and size, that is a big opportunity we have working jointly with the quick commerce players to grow the repertoire of consumers in those channels. That is the work that is happening. It is a great way to segregate and segment affluent consumers in the country today, and we see that as a huge opportunity.
Kunal Vora: Understood. Is that supply to quick commerce in smaller towns run by the local distributors, or is it centralized?
Priya Nair: Quick commerce players is mostly direct.
Kunal Vora: Understood. Just one last question. You answered a bit about it, but your ad spends to sales is around the lowest point in almost 20 years. Are we at the bottom or this can be optimized further without hurting volumes?
Priya Nair: I think Niranjan already covered it, but I think we need to understand the leverage of scale even in advertising. You do not just keep increasing absolute numbers when you grow at the scale of HUL at these numbers. Firstly, I think we need to understand there is a leverage of scale even in advertising numbers. The second, I think he covered in terms of the efficiencies, in terms of how we are calibrating. The other thing is that we have to look at it differently by different categories. In home care, we have been more calibrated because it was right, because we were faced with significant input costs. We have increased our spends in other categories where we believe we want passing on the same kind of pricing to consumers. You have to be calibrated about it.
Priya Nair: But the most important thing and point I want to leave you with is that you have got to think of the absolute benefit that we get with our scale when we grow at this manner as well.
Niranjan Gupta: No, absolutely. Just to give numbers also, for instance, in home care, we cut our A&P this quarter by INR 250 crores almost, while in all the other categories, we have increased the absolute spend. It is a very considered choice that one makes. Even while doing so, our ad spends have been competitive. That is the way to look at it.
Kunal Vora: Understood. Thanks for that color, and that is it from me. Thank you.
Operator: Thank you. Our next question comes from the line of Nihal Jham with HSBC. Please go ahead.
Nihal Jham: Yes, hi, team. Good evening. I have two questions. The first was on the Beauty & Wellbeing part. We have obviously seen the strong growth pickup. Just wanted to understand that, how is the drag from the mass portfolio, has that sort of normalized and say, even G&L has stopped reducing on a year-on-year basis, and that is also something that is helping growth improve?
Priya Nair: Yeah, I think, firstly, it is a very good outcome for us on beauty. We have seen a strong uptick in our demand in our beauty business. I go back to what I said. It is a mix of, firstly, all the work that has happened on our brands and strengthening our brands in our beauty business. The portfolio transformation that has been underway in our beauty business over the last two years, whether it is the addition of new brands, whether it is the acquisitions that we have made, all of it is starting to pay out. Combined with a lot of executional intensity in our beauty business on the ground, whether it is in the channels, specialist channels in general trade or in modern trade and digital, in which beauty has a large contribution. All of that is what we are starting to do.
Priya Nair: That is really the structural shift that we are making is what is paying off in our beauty business.
Nihal Jham: Sure, Priya. Got that. Generally for the mass portfolio, that is also seeing growth on a year-over-year basis?
Priya Nair: Yeah. Overall, across the board for HUL, as I said, the growths have been quite broad-based. Whether it is channels, brands, we are seeing broad-based growth. Of course, structurally, as in the market grows faster at some ends and some parts versus others. That is the nature of the market. I think it is important to see, given our portfolio, the total growth.
Nihal Jham: Got that. Priya, the second question was on home care. Here, I think you made the statement also that, I think ex-home care, the other parts of the business have seen an increase in advertising spend. So we have obviously moderated more in the home care segment.
Priya Nair: Yeah.
Nihal Jham: If I look at the EBIT growth in that segment for the last 2, 3 quarters, we have sort of seen a moderation, whereas the top line as well as the volume growth-
Priya Nair: Strong
Nihal Jham: has been extremely strong. What is the strategy here? Is it that we are completely focused on volume growth, that even at this point in time, margins are just a secondary consideration? Because the prima facie thought here would be that you could have let go of some volume growth and maintain margins. Just thinking aloud and your response to that.
Priya Nair: Yeah. I think, again, I will say two or three things and Niranjan Gupta can add. The first is when input costs go up steeply in a category like home care, there is always a lag in price versus cost. So that is the first thing, and that takes time. It has been rising, which we all have seen, because it is a petrochemical-based product. Therefore, in that sense, there is a price versus cost lag in home care. The second is that, you must look at absolute growth and absolute profit, especially in an inflationary time. These are all cyclicity, right? This is not structural. Structurally, our home care business is extremely well-placed. We are bigger in premium than we are in mass. We are the leaders of fabric conditioners. We are leaders in liquids. So structurally, our home care business is a more premium business.
Priya Nair: Therefore, it is not a structural change in our margin structure. It is really the cyclicity of inflation.
Niranjan Gupta: In fact, just to add to what Priya Nair is saying. If you look at your absolute EBIT margin of home care, it is 16% on a revenue base in the quarter of very close to INR 7,000 crores. So it is a sizable EBIT that we are generating on home care as a standalone profitability as well. Like Priya Nair said, it is more about the lag impact and the strategy of passing absolute cost, which protects the consumer franchise and then ensures that our competitiveness keeps on improving.
Nihal Jham: I just have one quick follow-up. Is there a case that you highlighted the margins that historically they have been in the 19%, 20% range, that with the price hike, this can sort of start aligning to that in the coming quarters for the home care segment?
Priya Nair: Yeah, I do not want to comment on specific guidance on a specific sub-segment. That is not something we would comment on. We will continue to focus on delivering volume-led revenue and profit growth.
Nihal Jham: Got that. Thank you so much. Wish you all the best.
Priya Nair: Thank you.
Operator: Thank you. Our next question comes from the line of Siddhesh Deshmukh with IIFL Capital. Please go ahead.
Percy Panthaki: Hi. This is Percy Panthaki here. Am I audible?
Niranjan Gupta: Yes.
Priya Nair: Yes, you are.
Percy Panthaki: Yeah. Hi, team. Two questions from my side. Firstly, in the soaps business, I understand that Lux is doing very well. Pears, Dove also is doing well. The weak point has been Lifebuoy, and this has been the case since many quarters now. It does not seem to be just that people are not gravitating towards the germ control platform because my understanding is that Dettol is doing exceedingly well. Just wanted to understand what steps are we taking. First of all, what is the sort of problem with Lifebuoy as to why it is not performing well? Secondly, what are the steps being taken to sort of remedy this situation? That is my first question.
Priya Nair: Yeah. Overall, if you look at our soaps business, actually, we mentioned that we are quite happy with the sequential performance of our soaps business, where there has been a step-up sequentially growing double-digit on cleansing is what we mentioned. We are very happy with that performance. The market overall moves from mass to premium, from hygiene to beauty, from this soap bar now to liquid soaps, and that is the nature of the trajectory. Our portfolio is very well-placed where the market is shifting. That is really the focus of our strategy in soaps, is to really go where consumers are going in the market. Lifebuoy is a mass brand in the category, and there is a lot of up-trading, and it is happening to our own brands, and it is in our favor.
Priya Nair: We are also doing lots of work to ensure that we stay competitive within the segment in which it operates. There is work happening, whether it was the launch of Lifebuoy Ice Bath or it is more work that you will start to see. Not all of it is in the market, but it is a very important brand for us, and it continues to enjoy a very strong consumer franchise.
Percy Panthaki: Got it. My second question is on margins. While you have been quite kind to provide a guidance of 22% to 24%, I believe that is for, let us say, the next few quarters. But if I were to look a little bit more into the future, let us say a three- to five-year kind of time horizon, do we have some kind of aspiration in mind for the margins? I mean, the peak margins that we reached pre-COVID has been 25%. Is that sort of a fair number for you as a company and us as equity market participants to aspire HUL to reach in the next three to five years?
Niranjan Gupta: Well, let me just answer it, rather than numeric terms. The reason we expanded the margin guidance, yeah, because earlier there was a margin guidance, we expanded it 50 bps on either side, was that there will be cyclicity at times, which take it to the lower end of the range. But structurally, our portfolio over the next three to five years is moving towards higher margin profile. When you look at, like Priya just said, you look at personal care, we are talking about Dove, Pears, all that growing. You look at even foods business, we talked about premium tea, premium innovations doing well. You look at across the portfolio, the structural move on the portfolio is towards higher margin. Which is where we said structurally, portfolio is positioned towards higher, but cyclically, that is where the lower end of the margin happens.
Percy Panthaki: Just to follow up on this, while structurally the gross margins of the portfolio will increase, a lot of these are sort of D2C launches, et cetera, which require huge amount of ad spend. At an EBITDA level also, do you think the structural sort of tailwind exists?
Niranjan Gupta: Actually, not for us. It is not that all our launches or white spaces are in D2C spaces. In a sense that our growth, like in our strategy we laid out, is coming to a four pillars of growth, which is consumption, premiumization, market-making, and white spaces. It is not true that this is about the white spaces launches. Yes, there will be big bets, there will be new entries which will get funded, and we will keep calibrating that how much do we fund for future growth and how much is the overall top line and bottom line growth.
Percy Panthaki: Okay, that is very helpful. Thanks and all the best.
Priya Nair: Thank you.
Operator: Thank you. Our next question comes from the line of Harit Kapoor with Investec. Please go ahead.
Harit Kapoor: Hi, good evening. Just had one question. If you could just reference your experience on periods of high inflation and how that kind of affects market and your growth. This is specifically on 2 or 3 counts. One is, do you see a situation where you as a company have gained share from smaller players during this period? Because that seems to be how it has played out historically. Secondly, do you see a slower rate of premiumization in periods of high inflation? Is that a point as well that one can expect, at least in the near to medium-term? Third is, does rural get a bit softer as compared to urban? On all these factors, maybe if you could just reference your experience and give an outlook on how do we expect this to play out this time around, from your perspective. Thank you.
Priya Nair: Yeah. Overall, when you look at inflation, I think inflationary periods, I think you need to think about 2 things when it comes to consumer products and especially in the categories in which HUL plays. Remember that most of the categories in which HUL plays are essentially everyday essentials and staples. I think these are very important. I mean, you are talking about detergents, dish wash, tea, coffee, soaps, shampoos. These are all everyday essential categories. The overall outlay in terms of percentage of the wallet of consumers is low versus other big discretionary or big spends that consumers have. So, in inflationary periods, first those spends are getting squeezed more than what soap or shampoo she buys. The benefit of HUL is our portfolio, right? The fact that we straddle the pyramid.
Priya Nair: If you think about our detergents business, we are by far the leaders in premium, but we are also now the leaders in mass with Wheel. So, there might be a cyclical nature of markets that happens. The question is how well our brands are placed. Do we have the portfolio that straddles the pyramid, and how you manage these cycles? I think this is really what we have been doing over the last few quarters and will continue to do.
Harit Kapoor: Yeah, I was asking from also the perspective of UVG, because UVG is a function of volume and mix for you. Is there any concern from your perspective that at least the mix part of the UVG could see a little bit of a slower rate of expansion, at least in the near to medium term? Or do you feel in periods of high inflation that has not been how it has played out for HUL?
Priya Nair: Yeah. Overall, I do not want to get into the mix of volume versus mix, et cetera. What I want to say structurally, I do not want to comment in near term, but structurally what we are doing is exactly what Niranjan Gupta said, is that our focus is to drive more premium, more market making, more new profitable spaces. These spaces are not low profit, and I think we explained at the Capital Markets Day, the choices we will make are where we see profit pools in the future. That is really how we are seeing our business. It is structurally moving towards these higher margin segments, and as the contribution of those brands, categories, formats increase, we are structurally in a better place on margins.
Harit Kapoor: Great. Wish you all the best. Thank you.
Priya Nair: Thank you.
Operator: Thank you. Ladies and gentlemen, I would now like to hand the conference over to Yogesh Mulgaonkar to take up questions from the web. Over to you, sir.
Yogesh Mulgaonkar: Yeah. Thank you, Darwin. There is one question from Tejas Shah from Avendus Spark. The question is on health and wellbeing, subdued performance. What are the factors behind the slowdown? Is it more market or market is positive? What actions you are driving for this and for the interventions?
Priya Nair: Yeah. Firstly, we are very excited about the market, the wellbeing and the wellness market. It is still a very small market and very niche in terms of the penetration. Consumer penetration, given that it is still in the hands of few and affluent consumers at the top end of the pyramid, it is a huge opportunity and headroom for growth for our brands. If you look at the CAGR and the size of OZiva since acquisition, it is extremely positive for us as a company. If you look at the 2-year CAGR of OZiva, it is strong, beyond strong double digits. Yes, in the short run, the performance has been more subdued, and these brands do not tend to be linear in growth. You will not see just linearity of growth.
Priya Nair: We feel very confident with the lineup of work we now have on the brands, the innovation funnel, that we will fix this in the quarters to come. It is only a matter of time.
Yogesh Mulgaonkar: Yeah. There is one more question from Ajay Thakur from Anand Rathi Securities. Can you share more detail on the current demand environment, specifically in rural India? Are there any signs of downgrading or downgrading considering there is potential food inflation?
Niranjan Gupta: So right now, as we have mentioned already, the demand remains positive. In fact, we are seeing our own growth coming from rural stepping up in the last four quarters sequentially. So that is what we are seeing today. When we are looking at also in terms of the overall economy growth or in terms of the macro indicators, the high frequency, they are all positive and trending in that direction. Yes, we may need to continue to monitor couple of developments, which is on the inflation side and on the monsoon-led impact on the crop. Having said that, the contribution of agricultural GDP has come down significantly to overall GDP in the last 20 years. Now it is just 15%. So the overall impact is minimal. Plus, it is also cushioned by various factors. One is MSP increases that happen, the MGNREGA benefits that goes there.
Niranjan Gupta: Overall, we have seen, if you see the data, that the source of income for people living in rural, actually now 30% to 35% is coming from non-agri sources. So that also insulates, coupled with the propensity to spend. So that is where we are. Having said that, we need to continue to monitor this as we move forward. As of now, it remains positive.
Yogesh Mulgaonkar: Thank you, Niranjan. With that, we now come to the end of Q&A session. Before we end, let me remind you that the playback of this event will be available on the investor relations section of our website in a short while. Thank you everyone for the participation, and have a great day. Thank you.
Priya Nair: Thank you.
Niranjan Gupta: Thank you.
Operator: Thank you. On behalf of Hindustan Unilever Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
