HUL's Q3 Results | Earnings Edge | NDTV Profit
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00:00 Net profit at rupees 2,519 crores increased 1% year on year.
00:05 Well, there have been near term macro challenges.
00:08 We have been focused on ensuring the fundamentals
00:11 of our business remains strong.
00:13 Circa 60% of the business is bringing value market share
00:16 on a Mac basis.
00:18 More than 75% of our business is gaining penetration
00:21 and more than 80% of our business is either growing
00:25 or maintaining brand power scores.
00:28 These gains are a result of significantly higher number
00:31 of superior products, increased A&P investments
00:34 and retail coverage expansion.
00:36 Since 2021, we have gained a substantial 200 DPS
00:41 of corporate market share and we continue to hold on
00:44 to almost all of these gains
00:46 despite heightened competitive intensity.
00:48 Moving on to performance across the three segments,
00:51 home care and duty and personal care,
00:54 which constitutes about 75% of our business
00:58 continues to see volume recovery
00:59 and had mid single digit underlying volume growth.
01:03 Consequent to price cuts taken during the year,
01:06 USG for home care declined marginally
01:08 and duty and personal care remained flat.
01:11 Foods and refreshment on the other hand,
01:12 saw a low single digit decline in GBG
01:15 primarily due to the pricing taken in the year
01:18 to offset impact of higher commodity cost.
01:21 Consequently, USG was 1%.
01:24 Margins in all three segments remain healthy
01:26 with home care at 18%, duty and personal care at 26%
01:30 and foods and refreshment at 19%.
01:33 We had a busy quarter with many innovations
01:35 going into the market.
01:37 Skin barrier care range from simple,
01:38 Sunsilk hair serum, closeups,
01:40 new natural range of toothpaste,
01:42 Kornos Korean K-pop noodles and Lakme's range
01:45 of makeup products were some of the key innovations
01:48 in the quarter.
01:48 Next, let me elaborate on EBITDA margin delivery
01:52 for the quarter.
01:53 At 23.7%, EBITDA has improved 10 BPS year on year.
01:58 Gross margin at 50.6% has improved by 400 BPS
02:03 from enhanced mixed to premium portfolio
02:06 and savings from our end-to-end net productivity program.
02:09 A&P investments at 10.7% is up 270 BPS.
02:15 We have deployed nearly 400 crores higher A&P
02:18 than December quarter 22,
02:19 as we continue to step up our investments
02:21 behind brands and innovations.
02:24 Employee benefit and other expenses at 16.3% is up 120 BPS.
02:29 This is on account of investments in capabilities,
02:31 royalty increase and absence of top line leverage.
02:34 Moving on to a nine month performance,
02:37 our turnover at rupees 44,886 crores grew 3% year on year.
02:42 EBITDA and profit after tax before exception items
02:46 was up 6% year on year, net profit was up 4%.
02:51 Looking ahead in the near term,
02:52 we remain cautiously optimistic.
02:54 We expect gradual recovery in market demand to continue
02:57 aided by increased government spending,
03:00 recovery in winter crop swing and better crop realization.
03:04 Rural income growth and winter crop yields are key factors
03:07 that will determine the pace of recovery.
03:10 If commodity prices continue to remain where they are,
03:13 we expect our price growth to be marginally negative.
03:16 Our focus remains on driving competitive volume growth,
03:19 stepping up investments behind our brands
03:21 and maintaining EBITDA margin in a healthy range.
03:24 We continue to manage our business with agility
03:27 and take actions to ensure long-term 4G growth,
03:30 growth which is consistent, competitive, profitable
03:32 and responsible.
03:33 With this, we complete our prepared remarks
03:35 and now we move to questions.
03:37 - Thank you, Ritesh.
03:38 Mangalam, would you like to ask the first question, please?
03:41 - Yes, I was looking at your numbers
03:46 and they're rather weak.
03:48 For the fourth quarter now, volumes are, you know,
03:51 in lower single digits here itself.
03:54 And this at a time when some of the competitors
03:56 are reporting stronger growth.
03:57 So I have a two-part question.
03:59 One, when do we see significant recovery in volume growth
04:04 and when does it, you know, become independent
04:06 of what the macro environment is?
04:09 And secondly, cross margins have expanded
04:11 by around 400 basis points,
04:13 but all of them have been plowed back into ad spends.
04:18 You are saying that you expect EBITDA margins
04:20 to be in a comfortable range.
04:22 If you could define that range for us.
04:24 One is when do we see significant volume recovery?
04:28 And secondly, what is the EBITDA margin
04:30 that you are comfortable with?
04:32 - So if I can, Mangalam, take the first two parts
04:36 and then maybe ask Ritesh to build on the margin
04:40 and the EBITDA, the gross margin reinvestment
04:42 and the EBITDA point.
04:43 So as to sort of respond to your four-part question,
04:46 is it okay?
04:48 - Yeah, sure.
04:49 - So if you look at, if you disaggregate our growth,
04:53 and as you said, it has been in low single digits
04:57 in the last couple of quarters.
04:59 The fact is that we're coming off
05:00 a inflation-deflation cycle,
05:02 where clearly the response to the investments and prices
05:05 taking some time to come,
05:07 on account of a few macro factors,
05:09 which we have to also accept as a part of the context,
05:12 we operate the FMCG business in.
05:14 For instance, the slow recovery in rural,
05:17 although of course, urban continues to be resilient.
05:19 So we operate within a certain context
05:21 where we are continuing to be competitive.
05:23 And as Ritesh mentioned, 60% or thereabouts of our business
05:27 is still winning market shares.
05:29 And we are coming off on a very, very high base
05:31 of market shares of the last two years.
05:33 So we remain strong, competitive,
05:35 even though the top line numbers are what they are optically.
05:38 As far as volumes are concerned,
05:40 if you disaggregate our volumes by our three businesses,
05:43 our home care, our beauty and personal care businesses
05:46 are growing in single digits, in mid single digits,
05:49 which is our second quarter in a row.
05:51 So where we have taken prices down,
05:53 we already start to see a price response to volume,
05:56 and volumes are coming back,
05:57 including of course being helped
05:58 by the slow recovery in rural.
06:01 On food and refreshment is where we have negative volumes,
06:04 that brings down the total number.
06:06 And that is largely because a lot of that,
06:08 the categories we operate in food and refreshments
06:11 still have faced high levels of inflation.
06:14 To name an example, coffee, even on HFD,
06:17 and in tea we are seeing some down gradations.
06:19 So it's still coming on the back of high prices,
06:22 although the increase in prices
06:24 is beginning to sort of narrow and stop.
06:25 So we do expect over a period of time, this will lap.
06:29 But as we speak, food and refreshments
06:31 where we do see the volume drag,
06:33 although the heartening fact is
06:35 that we remain very competitive on value share
06:38 across all our big categories in food and refreshment.
06:42 So that is something that gives me quite a lot of confidence
06:45 that what we're doing fundamentally
06:47 are absolutely the right things.
06:48 We are investing behind our brands,
06:50 our brand power is strong,
06:52 advertising which had come down
06:53 over the last several years of high inflation is back.
06:57 We had a very competitive levels of investment.
07:00 Our brands have good product quality,
07:02 and I feel that our distribution
07:04 and operational grip is tight.
07:06 So we are gonna come out stronger
07:07 from this inflation deficient cycle.
07:10 And all we're doing around building up business
07:12 for the future, such as investing in beauty care,
07:15 capability, and all of that
07:17 is gonna basically pay off in good stead.
07:19 So I feel quite optimistic
07:21 that all of these investments are in the right places,
07:24 and we will see as macros tend to improve
07:28 some turn in volumes as well.
07:30 I would ask Vitesh now to complete the question
07:32 on the margin and how exactly the shape of investments
07:35 that we are currently choosing.
07:36 - Sure.
07:37 And Mugib just to further build on a few more elements.
07:40 So as Rohit mentioned, the home and personal care
07:43 and beauty and entire business put together
07:45 has grown with single digit.
07:46 Remember, this is three fourth of our business.
07:49 So already 75% of the business has registered
07:53 mid single digit volume growth.
07:54 And it's the food and refreshment,
07:56 which is the core of the business,
07:57 which Rohit explained, given commodity inflation,
08:00 given a very different commodity cycle,
08:02 which is where we've seen low single digit volume decline.
08:05 And also I want to call out the premium categories.
08:08 If you look at beauty premium categories,
08:11 if I look at the plus range within Horlicks,
08:13 again, the premium part of HFT.
08:15 If I look at newer formats, mask, serum,
08:19 if I look at innovations like mayonnaise, peanut butter.
08:22 So these are these parts of the businesses
08:24 are already showing double digit volume momentum.
08:27 So there are parts of the business
08:28 which have shown momentum very different.
08:30 And of course, certain parts of the business
08:32 are dependent upon the realities of inflation,
08:35 which is different cycle
08:36 compared to the rest of the business.
08:38 On a two year basis, the point I was making earlier,
08:41 when markets are growing in volume now,
08:43 it was declining in the base period.
08:44 On a two year basis, FMCG is 2% CGR growth in this quarter.
08:48 Previous quarter, same number was 1%.
08:51 So we have seen the CAGR two year moving from one to two.
08:55 And what has changed is one to two.
08:57 It's rural, which same period in the previous quarter
09:00 on a two year CAGR was minus one, it's plus one.
09:03 So rural has added in last one quarter,
09:06 that momentum which has gone from 1% cumulative CAGR
09:09 to 2%.
09:10 And coming back to your margin question,
09:12 the point we have maintained
09:14 that our focus remains on driving gross margin.
09:17 First, we got the gross margin improved,
09:20 and we brought it to the levels of pre high inflation.
09:23 The second job that we have,
09:24 so remember pre inflation,
09:25 we had roughly 52% gross margin, which we brought back.
09:29 And our job now is to go back to pre COVID levels
09:32 where we had 54% gross margin.
09:34 And hence driving gross margin will continue
09:36 to be a tremendously important focus for us.
09:39 But equally as Mohit mentioned,
09:41 dialing up investments,
09:43 not only in advertising sales promotion,
09:45 but also in product superiority,
09:46 also in capability remains squarely important
09:49 and leaning in as required on price and promotion.
09:53 The way we have done in this quarter.
09:54 When you saw in this quarter,
09:55 our sequential margins for beauty and personal care
09:58 and home care declined a little bit
10:00 compared to the previous quarter.
10:01 Was we leaned in with product investments,
10:03 we leaned in with price and promotion
10:04 to ensure fuller volume recovery.
10:07 So there are those puts and takes always in the P&L
10:09 and where our margins are today at 23.7,
10:13 they are healthy margin.
10:14 And we have maintained that the levels of margin
10:16 that we have today, we are happy with this margin.
10:19 Our single minded focus is to ensure fuller volume recovery
10:22 and keep dialing up growth.
10:24 - What in your assessment would lead to,
10:27 growth in volumes once again,
10:30 from a macro standpoint,
10:31 by when do you see recovery in rural?
10:33 - Yeah, so there are two factors we called out,
10:36 which will really determine the pace of recovery.
10:38 Number one is a rural income growth.
10:40 And we know that that's an area which is important
10:43 for us to see those markers.
10:45 And second is a winter crop yield.
10:47 In our view, those two elements
10:48 should determine the pace of recovery
10:50 as far as rural is concerned.
10:52 And as you mentioned that overall,
10:53 there are categories like FNR,
10:55 which today we have lower single digit volume decline
10:58 because of commodity inflation.
11:00 Now, the good news again is where we are today,
11:02 we are seeing commodity inflation
11:03 in food categories also moderating.
11:05 (upbeat music)
11:10 (upbeat music)
11:13 you