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HINDUNILVR

Earnings Call Summary - Q3FY25

Hindustan Unilever Limited Quarterly Earnings Call Analysis

1. Summary of Quarterly Results

Hindustan Unilever Limited (HUL) reported its financial results for the quarter ended December 31, 2024, showcasing resilient performance despite challenging macroeconomic conditions.

Key Financial Metrics:

  • Turnover: INR 15,195 crores

    • Underlying Sales Growth: 2% (Driven by pricing)
    • Year-over-Year (YoY) Change: Flat
    • Quarter-over-Quarter (QoQ) Change: Not explicitly stated

  • Underlying Volume Growth: Flat

  • Margins:

    • Gross Margin: 50%
    • EBITDA Margin: 23.5% (Within the target range of 23% to 24%)

  • Profit Metrics:

    • Profit After Tax Before Exceptional Items (PAT BEI): INR 2,540 crores (Flat YoY)
    • Earnings Per Share (EPS): Increased by 19% YoY (Attributed to profit from the disposal of the Pureit business)

Segment Performance:

  1. Home Care

    • Revenue Contribution: 37%
    • Margin: 18%
    • Performance:
      • Delivered 6% Underlying Sales Growth (USG) driven by high single-digit Upper Value Growth (UVG)
      • Strong performance in fabric wash and liquids portfolio with double-digit growth trajectory

  2. Beauty & Wellbeing

    • Revenue Contribution: 22%
    • Margin: 29%
    • Performance:
      • Modest growth of 1% YoY (Impacted by delayed winter)
      • Hair Care achieved mid-single-digit UVG with strong performance in premium shampoo sachets

  3. Personal Care

    • Revenue Contribution: 15%
    • Margin: 18%
    • Performance:
      • Revenue declined by 4% (Impacted by decline in hygiene segment of skin cleansing)
      • Bodywash strengthened market leadership with strong double-digit performance

  4. Foods

    • Revenue Contribution: 24%
    • Margin: 20%
    • Performance:
      • Revenue remained stable with mid-single-digit decline in UVG
      • Tea grew in low-single digits led by pricing actions
      • Coffee maintained double-digit growth trajectory

Year-to-Date Performance (First 9 Months of FY 2025):

  • Turnover: INR 45,680 crores (2% growth)
  • Gross Margin: 50.4% (Down 20 basis points YoY)
  • EBITDA Margin: 23.7%
  • Profit After Tax (PAT):
    • PAT BEI: INR 7,723 crores (Flat)
    • Overall PAT: Grew by 6% to INR 8,151 crores

2. Management Guidance and Outlook

HUL's management provided a cautious yet optimistic outlook for the upcoming quarters, focusing on strategic investments and portfolio transformations.

  • Demand Trends:

    • Expectation of continued moderation in demand trends in the near term.
    • Monitoring macroeconomic indicators such as real wage growth, food inflation, and employment levels to gauge the pace of recovery.

  • Strategic Initiatives:

    • Portfolio Transformation: Continued investment in core, future core, and market makers portfolios to drive growth.
    • Acquisitions and Demerger:
      • Minimalist Acquisition: Completion expected in Q1 FY25-26, aimed at enhancing the Beauty & Wellbeing portfolio.
      • Ice Cream Demerger: Scheme approved to demerge HUL's Ice Cream business into Kwality Walls’ (India) Limited, allowing focused strategies.

  • Pricing Strategy:

    • Anticipates low single-digit price growth in the near term.
    • Maintains EBITDA margin within the lower end of the 23-24% range amidst inflationary pressures.

  • Growth Drivers:

    • Focus on premiumization and leveraging synergies from acquisitions to fuel both top-line and bottom-line growth.

Change from Past Guidance: While specific changes from previous guidance are not detailed, the continued emphasis on portfolio transformation and strategic acquisitions indicates an ongoing evolution of business strategies to adapt to market conditions.

Delivery on Past Guidance: HUL successfully concluded the divestment of the Pureit business in the June quarter of FY24, contributing positively to the current quarter's EPS growth.

3. Key Analyst Concerns

During the Q&A session, analysts raised several concerns primarily focused on acquisitions, pricing strategies, and segment-specific performances. Key concerns and management's responses include:

Minimalist Acquisition:

  • Questions:

    • Impact on premium indexing and bridging the gap in the Beauty & Wellbeing portfolio.
    • Addressing pricing architecture and product portfolio gaps.
    • Sustainability of Minimalist's profitability post-acquisition.
    • Integration challenges and maintaining Minimalist’s agility and innovation.

  • Management's Response:

    • Alignment with Strategy: Acquisition aligns with HUL's focus on building a premium Beauty & Wellbeing portfolio.
    • Synergies: Leveraging global R&D, supply chain efficiencies, and expanding offline presence to scale Minimalist.
    • Profitability: Minimalist's efficient business model and successful innovation rate have contributed to sustained profitability.
    • Integration Approach: Maintaining Minimalist’s agility by operating it like a "speed boat," preserving its innovative culture while integrating HUL's scale and resources.

Segmental Margins:

  • Question:

    • Maintenance of expanded margins in Personal Care and Foods amidst high inflation.

  • Management's Response:

    • Personal Care: Maintained margins through disciplined cost management and strategic pricing.
    • Foods: Healthy margin profile driven by portfolio shifts and value-led growth strategies.

Demand Trends and Mix:

  • Questions:

    • Concerns about potential further moderation in urban demand and impact on volume growth.
    • Clarifications on mix dynamics, especially in categories like skin cleansing and Horlicks.

  • Management's Response:

    • Transitory Nature of Current Trends: Expecting moderation to normalize within a couple of quarters.
    • Premiumization: Continued focus on premium segments to drive positive mix trends.
    • Product Innovations: Ongoing efforts to revamp and innovate in key brands to enhance consumer engagement and volume growth.

4. Management Tone Analysis

HUL's management exhibited a confident yet cautious tone throughout the earnings call. Key observations include:

  • Confidence:

    • Assurance in strategic initiatives like portfolio transformation, acquisitions, and innovations driving future growth.
    • Positive outlook on the integration of Minimalist and realization of synergies from strategic investments.

  • Caution:

    • Acknowledgment of current macroeconomic headwinds affecting demand trends, especially in urban markets.
    • Realistic expectations about the time required for demand normalization and portfolio transformation to yield results.

  • Balanced Approach:

    • Emphasis on executing the right strategies despite uncertain market conditions.
    • Focus on operational excellence and competitive growth metrics to navigate through subdued demand environments.

There were no explicit comparisons to previous calls regarding tone shifts, but the overall demeanor blends optimism about strategic directions with prudence over market challenges.