Hindustan Unilever Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Volume-led quarter, pricing still a drag: Revenue of INR 15,166 crores was driven by 4% underlying volume growth, but underlying sales growth was only 2% as negative pricing from commodity deflation persisted.
• Margins held despite heavy reinvestment: EBITDA margin rose 20 bps YoY to 23.8%, with 170 bps of gross margin gain largely ploughed back into brands and capabilities. Management intends to hold margins at current levels near-term.
• Market share resilience is the standout metric: HUL has held onto most of the ~200 bps market share gained during the inflationary cycle, a rare feat as deflation sets in. The recency dip is acknowledged, with a target to return the MAT winning metric to 60% by calendar year-end.
• Rural green shoots, but no breakout yet: Rural demand is recovering gradually, with 2-year CAGR rural growth now ahead of urban. Management is watchful on monsoon outcomes, employment levels, real wages and food inflation as the real catalysts.
• What to watch next quarter: Whether the MAT business winning metric climbs back toward 60%, the trajectory of tea inflation and its pricing response, and any volume recovery in Horlicks as weather normalizes.

Volume & Pricing Dynamics

• UVG composition: The 4% underlying volume growth came from both mix and tonnage contribution. Management declined to split the two, calling it undisclosed detail.
• Pricing trajectory: Near-zero price growth is expected in the short term, excluding a one-off lapping effect next quarter. Low single-digit positive pricing is anticipated by the second half of FY25, barring a dramatic commodity shift.
• Commodity tailwind fading: Most commodities remain broadly deflationary, but tea prices have turned inflationary with a ~15% sequential increase after two years of deflation, driven by a harsh summer impacting crop output.
• Palm oil overhang: On a 2-year basis, palm oil costs are down ~45%, creating a persistent overhang on the pricing table for skin cleansing. The new Stratos formulation reduces dependence on imported palm, giving more P&L control if palm volatility returns.
• Rural vs urban: Rural volume growth has moved ahead of urban on a 2-year CAGR basis over recent months, continuing a trend from the prior quarter. Urban channels are diverging: e-commerce and modern trade growing faster, general trade slower.

Rohit Jawa: "we've been able to hold by and the same level of corporate market share, which, of course, has been more represented by big categories like laundry, personal wash and hair and so on and so forth, which I think is commendable, and we intend to keep that going forward"

Segment Performance

• Premiumization engine intact: Premium segments are performing better than mass across FMCG. HUL's premium contribution has risen ~300 bps over 3 years, and the 6 Big Bets portfolio (INR 2,000+ crores) is growing at ~20% with ~50% e-commerce growth.
• Mass skin stress: The mass skin portfolio (Glow & Lovely) declined, over-indexed to rural and discretionary in nature. Premium skin continued its growth momentum. Management is investing in rural market development and urban-relevant variants.
• Tea market downgrading: Two years of deflation have driven downgrading at the mass end, muting volume growth despite market share gains over local players.
• HFD not structurally declining: The nutrition drinks market did not grow last quarter due to extreme weather, not a structural issue. Penetration is increasing, the adult science portfolio is growing high double digits, and brand power is at its highest ever.

Rohit Jawa: "The tea crop has been impacted by the hot summer... we have a tea excellence centre of many years of expertise in buying the right kind of price, the right blends. And we continue to sort of chase quality and make sure that we get the right quality, the best price available. But at this stage, I think we'll have to wait and watch with what happens with the next hope."

Skin Cleansing Turnaround & Stratos Technology

• Volume recovery achieved: Skin Cleansing returned to low single-digit volume growth from high single-digit volume decline, driven by four concrete actions: improved product quality via Stratos, pricing interventions at the mass end (March and through June quarter), increased innovation intensity, and stronger Channels of the Future presence. No one-off inventory fill-up.
• Stratos technology: A first-of-its-kind patented reformulation developed over 5 years with 20+ patents. It replaces some palm oil with plant-derived polysaccharides, vitamin blends and skin actives, reducing non-functional TFM. Tested with thousands of Indian consumers plus independent clinical and lab studies.
• Live at scale: Lux and Lifebuoy, the two largest brands, have gone live with the new formulation. Dove and Pears use a different chassis and do not require the change.
• Strategic benefits: 20% reduced greenhouse gases, reduced reliance on forex-dependent imported palm, more resilient financial model with locally sourced ingredients. If palm oil becomes super-inflationary, the formulation provides a hedge; otherwise, it is a competitive formulation with superior consumer test results.
• Market share impact: Management expects positive market share impact to become visible in a few quarters, not immediately.

Ritesh Tiwari: "The fact that overall, our dependence on imported palm supply chain in the country reduces, this gives more resilience to our financial growth model for skin cleansing, which means the volatility will be less felt in the business and we'll have more control of the P&L with locally sourced ingredients."

Market Share & Competitiveness

• Depth held: HUL has held onto ~200 bps of market share gained since March 2021, a unique outcome in this cycle as leaders typically give back shares when deflation arrives. The share is concentrated in large categories: laundry, personal wash and hair.
• Width recovering: The business winning metric (breadth of portfolio gaining share) had declined but is showing an encouraging trend. The last 3-month metric is at ~55%, with a target to return the MAT metric to 60% by end of calendar year 2024.
• Tea leadership: Gaining both value and volume share, including from local players, even as the overall market remains subdued by downgrading.
• Home Care momentum: Mass detergent bars have returned to pre-inflation-cycle scale and are gaining market share in the latest 12-week data. The portfolio was adjusted for quality and competitiveness across all price cells.
• Distribution edge: HUL reaches over 0.9 crore outlets with value-weighted distribution over 95%, an advantage management frames as central to both market-making and premiumization.

Rohit Jawa: "While there has been a slight in recency, this is in expected lines as we navigate the inflation-deflation we are experiencing our MAT business winning metric to be back to 60% levels by the end of this calendar year"

Margin Structure & Investment Logic

• Margin walk (YoY): Gross margin up 170 bps to 50.9% via savings, efficiencies and premiumization. A substantial portion was reinvested behind brands and capabilities, leaving EBITDA margin up 20 bps at 23.8%.
• Investment posture: Management is explicit that the savings program (Project Symphony) exists to generate fuel for reinvestment, not to deliver net margin expansion. The essential ambition is to keep investing behind growth drivers.
• Medium-term margin levers: Three drivers identified: (1) operating leverage from healthy market volume growth and pricing, (2) mix improvement as Beauty & Wellbeing grows ahead of HUL average, (3) the productivity program.
• Cost structure targets: Other expenses targeted at 13–13.5% of revenue, employee costs at 4.5–5%, for a combined ~17–18%. The June quarter employee cost decline (–7% YoY) reflects the annual ESOP true-up, not a sustainable run rate.
• Segment margins: All four segments are healthy. Beauty & Wellbeing carries structurally better margins given its portfolio and price points; as it grows ahead of the company average, it will be accretive to mix. Home Care has a resilient business model to hold its margin structure.

Ritesh Tiwari: "our current intention is to hold on to our margins. And of course, in moderate and medium term, we'll end up going for modest margin expansion"

Strategic Bets & Portfolio Transformation

• Segment reorganization: Beauty and Personal Care split into two independent business units (Beauty & Wellbeing and Personal Care) from April 2024, now reported as four segments.
• Pureit divestment: The water purification business is being sold, subject to customary closing conditions, to sharpen focus on core categories.
• Beauty & Wellbeing ambition: This segment is expected to grow ahead of the HUL average and be accretive to margins. The 6 Big Bets portfolio within it is already at INR 2,000+ crores, growing ~20%, with market leadership in each segment.
• Skin Care transformation: The portfolio is being steered toward faster-growing segments like premium face moisturizers, serums and suncare. Brands like Simple and Love Beauty and Planet have been launched; suncare had fabulous growth in the June quarter.
• HFD multiyear commitment: Management views Horlicks as a 3-to-5-year game built on three missions: more users (penetration rising), more usage, and more premium. The adult science portfolio is growing high double digits, and white space in North and West India remains unexploited.
• Laundry portfolio expansion: Rin liquids have been relaunched to democratize the liquid detergent category with a quality product at an attractive price point, including Tier 2 market traction.

Rohit Jawa: "I'm seeing this more as three-to-five-year game and that's what we committed on. And I feel the brands are very strong and we're in a place and we just have to sharply follow that path with strategic discipline."

Guidance & Commitments

Key Metrics