Hindustan Unilever Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Volume-led growth in a deflationary cycle: Revenue was flat as commodity deflation in Home Care and Personal Care was passed to consumers, while volume recovery stayed gradual. Gross margin rebuilt 350 bps YoY, funding a 200 bps A&P step-up.
• Mass skin cleansing is the open wound: Soaps and mass skin care volumes declined, driven by a grammage-value gap at key price points in two regions. Corrective pricing is now in market, and management expects recovery in a quarter or two.
• Premiumization bets are working: The Beauty big bets portfolio crossed ₹2,000 crores with double-digit growth and ~50% e-commerce surge; liquids, functional nutrition, and premium hair care all outperformed the mass portfolio.
• Margins held at 23.4% with reinvestment headroom intact: EBITDA margin dipped 30 bps YoY as 350 bps of gross margin expansion was reinvested into A&P and capability-building. Management wants to maintain this level near term, with modest improvement medium term.
• What to watch next quarter: Whether the soap volume U-turn materializes, the trajectory of rural demand after a forecast normal monsoon, and any clarity on the ice cream separation’s India implications.

Demand & Macro Environment

• FMCG demand improving gradually: Volume recovery remained slow, held back by high cumulative inflation and a weak monsoon’s effect on rural pockets. Urban, organized trade and premium segments stayed resilient and led growth.
• Rural consumption past the worst: Management believes the negative cycle is ending, citing three income sources: agri (weather-dependent, hopeful of better monsoon), urban repatriation (repairing post-COVID), and labor income (capex-driven).
• Pricing still marginally negative: Near-term price growth is expected to stay in low single-digit decline. If commodities hold, pricing should plateau midterm and turn positive in low single digits by the second half of FY25.
• Commodity split: Home Care and Personal Care baskets are in deflation; Foods & Refreshment remains inflationary, with coffee the only category where price increases have been taken.
• HUL is not waiting for the macro: The company is transforming to go where growth is, investing in innovation, market development, high-growth spaces and channels of the future rather than betting on a macro shift.

Rohit Jawa: "Most likely, the worst is past us and from here onwards we do see gradual recovery in rural consumption."

Portfolio Performance: The Two-Speed Story

Premium & performing

• Beauty big bets: ₹2,000 crore portfolio growing double digits, with e-commerce up ~50%. Six focus cells (sun care, face cleansing, masstige, serums) are leading.
• Hair Care: High single-digit volume-led growth, led by Dove and TRESemmé. Post-wash hair treatment is gaining consumer traction.
• Oral Care: Broad-based double-digit growth driven by pricing; market share is being gained.
• Functional nutrition drinks: High single-digit growth led by the Plus range; penetration and market share continue to build. Horlicks brand power, share and profitability all improved YoY.
• Liquids (fabric wash, dish wash, body wash): Secular consumer shift continues. HUL claims pioneer status across categories; body wash growing 50–60%+ off a sub-2% penetration base.
• Tea: Strengthened market leadership with value and volume gains, though overall business was muted as consumers downgraded. Green and functional teas performed well.

Mass & challenged

• Skin cleansing (soaps): Volumes declined at the mass end, especially Lifebuoy and Lux low-unit-price packs. The issue was a grammage shortfall versus benchmarks at ₹10 price points in two price-sensitive regions, not product quality. Corrective pricing is now in market; early signals are visible.
• Mass skin care: Decline driven by muted demand, not competitive pressure. Products and distribution are in place; no specific intervention is planned beyond waiting for demand recovery.
• Personal Care segment: Declined 10% overall, dragged entirely by the mass portfolio. Premium skin care continued double-digit growth.
• Skin cleansing recovery timeline: Management expects to see a change in trajectory, but full benefit will take a few quarters. Soap bar volumes have already shown a U-turn after correction.

Rohit Jawa: "We are quite certain it's not quality. In fact, quality is better. It is the few grammage short of the benchmark in ₹10 price points in 2 very specific price-sensitive regions, where we sell a lot."

Beauty & Personal Care Restructuring

• Organizational split: Beauty & Wellbeing and Personal Care have been separated into two segments, with a Chief Digital Officer and Chief Sustainability Officer appointed, and a customer strategy vertical created for each business unit.
• Segment disclosure begins: Underlying sales growth for the two segments was disclosed this quarter; detailed financial reporting starts from the June quarter.
• Beauty & Wellbeing is the higher-margin engine: It is on average more profitable than Personal Care, and growth is concentrated at the premium end where investment is flowing.
• Three-pronged beauty strategy: Stretch existing master brands (Ponds, Lakme) into new demand spaces; build specific equities where master brands cannot stretch (Simple, Love Beauty & Planet); actively pursue inorganic opportunities.
• New brand traction: Simple and Love Beauty & Planet together exceed ₹100 crores ARR; OZiva is well above ₹100 crores.
• Beauty ambition: Management’s job is to ensure Beauty & Wellbeing drives growth ahead of HUL’s overall average.

Distribution & Channel Shifts

• General trade coverage rising: Effective coverage and assortment stand at 1.2x and 1.25x of FY20 levels respectively. Shikhar e-B2B app onboarded stores are growing faster than others.
• Distributor margin changes working: Margins and service levels have risen in the top 100 cities where changes were made; management calls it a win-win. Attrition in smaller towns is not a concern and is watched programmatically.
• Channel salience: E-commerce is growing fastest, followed by modern trade, then general trade. Quick commerce is accelerating and growing much faster than overall e-commerce; HUL is gaining share in both.
• E-commerce margin equilibrium not yet reached: The industry is focused on growth; no settled margin framework exists yet for an informed discussion.

Rohit Jawa: "The industry is all focused on growth right now. And we haven't quite settled to any equilibrium, where we can have a very informed discussion on margins."

Margins & Reinvestment

• EBITDA margin at 23.4%: Down 30 bps YoY. Gross margin improved 350 bps YoY via better price coverage, mix and net productivity. This was largely reinvested: A&P up 200 bps (₹300 crore absolute), employee and other costs up 120 bps (including 30 bps from royalty increase and future-fit capability investments).
• Full-year margin up 40 bps to 23.8%: The year saw a transition from high commodity inflation to deflation in 75% of the portfolio.
• GSK distribution drag embedded: The 60 bps impact from discontinuing GSK product distribution is now in the base and will continue for four more quarters.
• Near-term margin stance: Management wants to maintain the current 23.4% level. Medium-to-long-term ambition is modest margin improvement, contingent on gradual market recovery, pricing recovery, operating leverage and continuous mix improvement.
• Gross margin rebuild strategy: During high inflation, HUL did not price to the full extent of commodity increases. With more benign commodities, it is rebuilding gross margin through net productivity, bridging the price-cost gap, and improved mix.

Ritesh Tiwari: "Medium to long term, we have always called out that our stated ambition is to do modest margin improvement. But if I just bring it back now for next some quarters, this is a level that we want to maintain the margin."

Competitive Position & Market Shares

• Corporate market share up ~200 bps vs 2021: Resurgence of small and regional players caused a marginal dip recently, but HUL is holding almost all gains made in 2021 and 2022.
• Volume shares leading, value catching up: Initial focus was on volume share recovery; pricing is now catching up. From 2021 to end-2023, HUL held the massive share gains made during inflation, unlike prior cycles where shares were donated back. Marginal share loss of 10–20 bps, but largely holding.
• MAT business winning metric dipped below 60%: This was expected as HUL laps a high base; management is confident it will return in the second half of calendar 2024.
• Liquids competition intensifying: In fabric wash liquids, more players (global and local) are entering at Tier 2 price points (~₹99) as the market becomes sizable. HUL’s response is a portfolio play with Rin at that price point and Surf Excel liquid at the premium end.

Rohit Jawa: "We have held the massive share gains that we made during the inflation period which is not typical of other cycles we've had, where we've actually donated back the shares. In this case, we've held and we lost a little bit marginal share and 10, 20 basis points, but we're still holding pretty much by largely holding share."

Strategic Initiatives & Portfolio Moves

• Ice cream separation: Unilever intends to separate the global ice cream business by the second half of calendar 2025. HUL’s Board and Unilever management will work through India implications; no conclusions yet.
• Food business coherence coming: Management will be more coherent on the packaged food and drink strategy in a few months, defining where HUL has the right to win. Scalable investments already exist in Hellmann’s mayo, Knorr Korean noodles and Kissan peanut butter. A small Boost RTD test is underway in the South.
• Health Food Drinks penetration runway: At roughly 30% penetration (mainly South and East), the category is a multiyear consumption-building job. Milk inflation has tapered, helping affordability.
• Laundry premiumization continues: The job remains upgrading consumers to high-performance liquids and other formats. Surf Excel Easy Wash is upgrading rural consumers. Powders continue volume growth; bars are returning to growth after price corrections.
• Sustainability agenda: Four priorities are climate, nature, plastics and livelihood.

Rohit Jawa: "We will, in all full transparency, be more coherent around the food business, our packaged food and drink business in a few more months than we have made up our mind and where we actually feel we have the right to win, and how we would like to grow that business."

Guidance & Commitments

Key Metrics