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HINDUNILVR

Earnings Call Summary - Q3FY24

Hindustan Unilever Limited Q4 2023 Earnings Call Analysis

1. Summary of Quarterly Results

Key Financial Metrics

| Metric | Q4 2023 | Change | |--------------------------------|--------------------|---------------------------------------------------| | Underlying Volume Growth | 2% | High single-digit YoY growth on a previously declining base | | Underlying Sales Growth | Flat | Driven by -2% Underlying Price Growth | | EBITDA Margin | 23.7% | Improved by 10 bps YoY | | Profit After Tax (PAT) Before Exceptional Items | Declined by 2% | - | | Net Profit | Grew by 1% | Positive YoY growth despite PAT decline | | A&P Spend | Increased by 33% YoY | Significant increase to support brand investments | | 9-Month Turnover | INR 44,886 crores | Grew by 3% YoY | | EBITDA (9 months) | Grew by 6% | Strong operational performance | | Net Profit (9 months) | INR 7,708 crores | Increased by 4% YoY |

Segment Performance

| Segment | Volume Growth | EBITDA Margin | |---------------------------|---------------------|--------------------| | Home Care | Mid-single-digit | 18% | | Beauty & Personal Care| Mid-single-digit | 26% | | Foods & Refreshment | Low single-digit decline | 19% |

  • Home Care and Beauty & Personal Care experienced robust volume recoveries.
  • Foods & Refreshment saw a low single-digit volume decline due to pricing strategies aimed at offsetting higher commodity costs.
  • Premium Segments continued to outperform, particularly in Modern Trade channels.

Market Share and Penetration

  • 60% of the business is winning value market share on a Moving Annual Total (MAT) basis.
  • 75% of the business is gaining penetration, indicating expansion of the consumer base ahead of the market.
  • 80% of the business is either growing or maintaining brand power scores.

2. Management Guidance and Outlook

Future Guidance

  • Price Growth: Expect marginally negative price growth in the March quarter due to ongoing commodity price challenges.
  • EBITDA Margin: Aiming to maintain EBITDA margins within a healthy range despite increased investments.
  • MAT Business Winning Metric: Anticipate a dip below 60% for a couple of quarters before rebounding in the second half of 2024.
  • Market Demand Recovery: Gradual recovery in market demand is expected, influenced by improved agricultural yields and rural income growth.
  • A&P Investments: Continued increase in Advertising & Promotion (A&P) spending to support brand growth and market development.
  • Gross Margin Improvement: Focus on net productivity programs to enhance gross margins over the medium term.

Organizational Changes

  • Beauty & Personal Care Split: From April 2024, the Beauty & Personal Care unit will split into Beauty & Wellbeing and Personal Care to better focus on divergent business models and competitive landscapes.
  • Chief Digital Officer Appointment: New CDO to lead digital transformation efforts, enhancing consumer and customer experience through digitization.

Long-Term Objectives

  • Sustainability: Continued focus on ESG initiatives, including strategic partnerships for renewable energy.
  • Product Innovation: Expansion of premium and innovative product lines to drive future growth.

3. Key Analyst Concerns

Premiumization in Rural Markets

Concern: How is premiumization shaping up in rural areas amidst overall rural slowdown?

Management Response:

  • Rural Portfolio Growth: Both premium and discretionary portfolios in rural markets are experiencing growth. For example, premium products with a price index above 120% are growing, alongside mass skin care products.
  • Market Share Improvement: Rural MAT business winning metric improved from -1% to +1% on a two-year basis.
  • Volume Dynamics: Winter portfolio decline attributed to weather patterns rather than rural slowdown, maintaining similar impacts across urban and rural areas.

Impact of Local Players During Deflation

Concern: Resurgence of small and regional players impacting market share during deflationary periods.

Management Response:

  • Detergent Bars: Expect stabilization from the March quarter as price corrections have been largely absorbed.
  • Tea Segment: Continued down-grading in tea volume due to persistent price issues and consumer preference shifts.
  • Long-Term Share Gain: Despite short-term challenges, maintaining a 200 bps increase in corporate market share over the past two years.

Advertising Spend Strategy

Concern: Whether the increased above-the-line (ATL) spending is effectively driving volume growth amidst tough macro conditions.

Management Response:

  • Balanced Approach: Utilized both ATL and below-the-line (BTL) strategies to drive brand growth, particularly in premium segments.
  • Investment Rationale: Increased A&P investments to support premiumization and innovation, leading to volume recovery in key segments.
  • Future Outlook: Expect continued investment to drive long-term growth despite short-term margin pressures.

Gross Margin Drivers

Concern: How gross margins can be improved to return to pre-COVID levels.

Management Response:

  • Key Levers:
    1. Product Mix Optimization: Emphasizing premium segments to enhance margin profiles.
    2. Net Revenue Management (NRM): Improving promotional effectiveness and price point optimization.
    3. Net Cost Competitiveness: Reducing production and distribution costs through supply chain efficiencies.
  • Outlook: Focus on mix and productivity programs to drive gross margin improvements over the medium term.

4. Management Tone Analysis

The overall tone of the management during the earnings call was cautiously optimistic. Despite acknowledging macroeconomic challenges such as uneven monsoon impact and rural income constraints, the management emphasized the company's resilient performance and strategic initiatives to drive future growth. The introduction of new organizational structures, increased investments in A&P, and focus on premiumization were presented with confidence, reflecting a belief in the company's ability to navigate current challenges and capitalize on long-term opportunities.

Key Tone Indicators:

  • Resilience: Emphasized stable FMCG demand and strong underlying volume growth.
  • Adaptability: Highlighted strategic splits and new digital leadership to enhance focus and innovation.
  • Commitment to Growth: Reinforced ongoing investments in brand development and market expansion despite short-term pressures.

Conclusion

Hindustan Unilever Limited demonstrated a resilient performance in Q4 2023, maintaining stable sales growth despite price pressures and macroeconomic challenges. Management remains focused on strategic investments in premium segments, digital transformation, and market development to drive future growth. While facing short-term margin pressures and competitive dynamics, the company's cautious optimism and robust operational strategies position it well for sustained long-term growth.