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HINDUNILVR

Earnings Call Summary - Q2FY25

Hindustan Unilever Limited September Quarter 2024 Earnings Call Analysis

1. Summary of Quarterly Results

Key Financial Metrics

  • Turnover: INR 15,319 crores.
  • Underlying Sales Growth: 2%, driven by a 3% volume growth.
  • EBITDA Margin: Maintained at 23.8%.
  • Profit After Tax (PAT) Before Exceptional Items:
    • Reported Basis: Declined by 2%.
    • Intrinsic Basis: Grew by 2%.
  • Underlying Price Growth: Flat.
  • Gross Margin: 50.4%, declined by 150 basis points (bps) YoY due to increased commodity prices.
  • Dividends:
    • Interim Dividend: INR 19 per share.
    • Special Dividend: INR 10 per share.
    • Total Payout: INR 6,814 crores.

Segment Performance

  • Home Care:
    • Contribution: 37% of total revenue.
    • Underlying Sales Growth: 8%.
    • Volume Growth: High single digits.
  • Beauty & Wellbeing:
    • Contribution: 21% of total revenue.
    • Intrinsic Sales Growth: 7%.
  • Personal Care:
    • Contribution: 16% of total revenue.
    • Performance: Declined by 5% with low single-digit volume decline.
  • Foods & Refreshment:
    • Contribution: 25% of total revenue.
    • Performance: Revenue declined marginally due to downgradation in tea and muted consumption in nutrition drinks.

First Half FY25 Highlights

  • Underlying Sales Growth: 2% with a 3% volume growth.
  • Gross Margin: 50.7%, up by 40 bps YoY.
  • EBITDA Margin: Maintained at 23.8%, up by 10 bps YoY.
  • PAT:
    • Before Exceptional Items: Grew by 3%.
    • After Exceptional Items: Grew by 2%.
  • Effective Tax Rate: 26.1%, with full-year expectations marginally above 26%.

2. Management Guidance and Outlook

Future Outlook

  • Demand Trends: Expected to remain stable with no further acceleration in growth pace.
  • Macro Indicators to Watch:
    • Real rural wage growth.
    • Food inflation.
    • Employment levels.
  • Commodity Prices: If stable, management anticipates low single-digit price growth in the near term.
  • Strategic Focus:
    • Competitive Volume-Led Growth: Transforming the portfolio in high-growth areas.
    • Investment: Continuing investments behind brands and strategic priorities.
    • Margin Maintenance: Aiming to maintain EBITDA margins at current healthy levels of 23.8%.

Changes from Previous Guidance

  • No specific changes from prior guidance were highlighted in the transcript. Management reaffirmed their commitment to maintaining margins and focusing on volume-led growth amidst stable demand trends.

Delivery on Past Guidance

  • The transcript does not provide explicit information on whether management has previously met their guidance. However, the consistent performance metrics and strategic focus indicate alignment with past objectives.

3. Key Analyst Concerns

Separation of Ice Cream Business

  • Concern: Analysts questioned why HUL decided to separate the ice cream business now, especially given its strong growth, compared to the earlier decision to retain the tea business.
  • Management Response:
    • Rationale: Ice cream constitutes only 3% of turnover and is a high-growth, high-investment, low-margin business with limited synergies with HUL's core operations.
    • Future Plans: Exploring options to maximize shareholder value through either selling the business or demerging and listing it. A decision is expected by the end of the year.

Impact on Personal Wash and Tea Segments

  • Concern: High inflation in Personal Wash and Tea segments could present opportunities for market share gains, but analysts sought clarity on margin containment and initial signs of disruption.
  • Management Response:
    • Pricing Actions: Implementing calibrated price increases to offset commodity inflation while ensuring competitive value.
    • Personal Wash Initiatives: Upgrading product superiority, increasing innovation, and enhancing organized trade presence. Early signs of consumer traction are positive, but full impact expected over a couple of quarters.
    • Tea Segment: Delayed price increases due to initially unclear inflation signals, now implementing price hikes expected to stabilize the market.

Urban Growth Moderation

  • Concern: Analysts inquired about the unexpected moderation in urban growth and its implications on portfolio premiumization.
  • Management Response:
    • Observation: Urban growth has trended down in recent quarters, while rural areas continue to grow gradually.
    • Strategy: Allocating resources to high-growth areas, maintaining focus on premiumization, and ensuring portfolio alignment with evolving consumer needs.

Soap Formulation Changes

  • Concern: Questions were raised about consumer feedback on new soap formulations and their impact on gross margins.
  • Management Response:
    • Consumer Feedback: Early signals are positive across geographies, with improvements in skin feel, fragrance, and functionality.
    • Gross Margins: Increased formulation costs offset by strategic price adjustments. Management remains committed to maintaining strong EBITDA margins through volume growth and cost management.

E-commerce and Quick Commerce Impact

  • Concern: Analysts queried the impact of e-commerce channels, especially quick commerce, on market share and premiumization.
  • Management Response:
    • Channel Strategy: Maintaining distinct portfolios for different channels to avoid overlap. Quick commerce remains a small but growing part of e-commerce.
    • Market Share: Tracking and optimizing market share within each channel. Emphasis on competitive strength through brand superiority across all channels.

4. Management Tone Analysis

Overall Tone

  • Confident and Optimistic: Management conveyed confidence in navigating macroeconomic challenges through strategic initiatives and portfolio transformation.
  • Cautious Optimism: While optimistic about growth opportunities, there is a cautious approach towards realizing full impacts of recent initiatives, acknowledging the need for a few quarters to validate outcomes.
  • Proactive and Strategic: Emphasis on proactive measures to maintain margins, drive volume growth, and adapt to changing market dynamics showcases a strategic and forward-thinking approach.

Comparison to Previous Calls

  • Consistent Focus: The tone remains consistent with previous earnings calls, maintaining a balance between acknowledging challenges and highlighting strategic actions to address them.
  • Enhanced Clarity: There is a clear and transparent communication style, particularly in addressing analyst concerns and outlining future strategies.

Conclusion

Hindustan Unilever Limited demonstrated resilient financial performance in the September Quarter 2024 despite a challenging macroeconomic environment. The company's strategic initiatives in portfolio transformation, pricing adjustments, and channel-specific strategies position it well for sustained growth. Management's confident yet cautious tone reflects a balanced approach to navigating current market dynamics while laying the groundwork for future opportunities.