Hindustan Unilever Limited (HINDUNILVR) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Hindustan Unilever Limited Conference Call for the Results of Quarter ended 30th September 2026. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Yogesh Mulgaonkar, Head of Investor Relations and Vice President of Finance, Beauty and Wellbeing. Thank you, and over to you, sir.

Thank you, Dorwin. Good afternoon, everyone. Welcome to the conference call of Hindustan Unilever Limited. Today, we will be covering the results for quarter ended 30th September 2026. On the call with me is Priya Nair, CEO and Managing Director; and Niranjan Gupta, our CFO. We will start with prepared remarks from Priya and Niranjan. We expect this to take around 15 minutes, leaving us approximately 45 minutes for the Q&A session. We will look to end the call by 5:00 p.m. Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation for good order's sake. With that, over to you, Priya.

Good afternoon, everyone. Thank you for joining us on the call today. Welcome to the September quarter earnings call of financial year 2027. Let me begin with an update on the operating context, followed by key performance highlights. Subsequently, Niranjan will take you through the quarter results and conclude with the outlook. During the quarter, the global geopolitical environment was volatile and commodity prices remained elevated. The Indian economy continued to demonstrate resilience with growth GDP of 7.8% in the first quarter. High frequency economic indicators remained healthy in September quarter, pointing to a sustained economic momentum. Demand conditions remain positive, supporting a favorable consumption environment. In this context, we delivered a turnover of INR 18,071 crores with a 15% underlying sales growth, our highest in the last 14 quarters. Underlying volume growth remained strong at 7%, underpinned by disciplined execution and ongoing portfolio transformation. Performance was broad-based across segments with home care and beauty & wellbeing delivering strong double-digit USG driven by strong double-digit UVG. Personal Care and Foods also saw a sequential step up, delivering 9% USG each. Along this momentum, we continue to strengthen our competitive position. This strong top line performance also translated into a healthy profit growth with profit after tax before exceptional items, growing 9% to INR 2,795 crores. Looking at the first half as a whole, turnover reached INR 35,255 crores with 12% underlying sales growth and 6% underlying volume growth. PAT bei grew 9%, reflecting consistent delivery across both the quarters. Together, sustained top line momentum, strong volume performance and robust profit delivery underscore the strength and resilience of our business model. The Board approved an interim dividend of INR 19 per share for the financial year ending 31st March '27. During the quarter, we unveiled our winning in new India strategy at our Capital Markets Day. We believe that India presents an incredible opportunity for growth in the consumer products industry. New growth pools are emerging across channels, geographies and consumer cohorts, each requiring differentiated capabilities and an approach to win. With our scale, portfolio breadth and executional capabilities we are uniquely positioned to capture these opportunities across the four growth pools of consumption, premiumization, market making and new spaces. We will power this ambition by crafting desirable brands that consumers love, building a future-fit go-to-market and leveraging AI as a distinctive competitive moat. Underpinning this strategy is our value creation model, focus on generating fuel and stepping up our investment for growth. Our talent, culture and ESG remains the foundation of how we operate and win. Together, these strategic choices position us well to deliver on our ambition of competitive volume-led profit growth. In line with the strategy, we executed several actions during the quarter. We continue to invest behind our brands to drive their desirability. A notable example of this is simple barrier repair range designed for consumers with sensitive skin, powered by proceramide, the range delivers proven efficacy by providing a superior sensorial experience, reinforcing simple expertise in sensitive skin. Many such examples across categories are helping us deepen our consumer engagement and unlock future growth opportunities. Similarly, we continue to build a future-fit go-to-market by tailoring our approach to the unique needs of each channel. In general trade, we expanded our coverage by adding 30,000 outlets this quarter while delivering healthy double-digit assortment growth. In modern trade, we stepped up investment behind category development, nearly doubling the asset deployment over the last 2 quarters. In e-commerce and quick commerce, our technology-led capabilities continue to drive sequential improvements in service levels. Our omnichannel strategy continues to be a powerful driver of competitive growth. New spaces are an important growth engine within our strategy. During the quarter, we extended Horlicks into the fast-growing protein segment with the launch of Horlicks Protein Powder. Leveraging Horlicks nutrition credentials, the offering is designed to cater consumer everyday protein needs. We are encouraged by the early traction and see significant opportunity to build our presence in this category. Lastly, amid a volatile global geopolitical environment our agile procurement and supply chain capabilities combined with our financial resilience proved to be a competitive advantage. Our global sourcing network ensured continuity in key input materials, while our manufacturing and distribution network responded swiftly to evolving market conditions. This agility underpinned by technology and execution of excellence also earned external recognition with HUL being named the Top Supply Chain Icon by the prestigious Institute of Supply Chain Management in its 2026 ranking. Taken together, these actions demonstrate how we are winning in new India and bringing the strategy to life, strengthening the business today by building capabilities and growth engines to win in the long term. With this, let me now hand over to Niranjan to take you through the results in detail.

Thank you, Priya, and good afternoon, everyone. I'll start with quarter performance and then close with outlook. As Priya mentioned earlier, we delivered strong top line performance this quarter with USG of 15% and UVG of 7%. The strong UVG despite price increases depict the strength of our brand and resilience of our portfolio. Moving on to profitability. We delivered EBITDA margin of 22.6%, well within our guided range. Absolute EBITDA grew 8% year-on-year to INR 4,089 crores, while PAT before exceptional item grew 9% to INR 2,795 crores. Reported PAT remained same as last year due to one-off tax-related gains of INR 273 crores in the base period. The combination of strong top line growth, healthy margins and consistent earnings growth reflect our disciplined approach of dynamic resource allocation, an important pillar of our value creation model in winning strategy. Let me elaborate on this further with reference to our first half performance. In the evolving input cost environment, we continue to manage pricing as a strategic investment lever. We took calibrated price increases only to cover the absolute impact of the higher cost. This helped us to protect our consumer franchise, sustain healthy volumes and strengthen market position. Alongside this, we accelerated our savings agenda with a sharper focus on high-impact opportunities. This included the entire value chain cost and discretionary overheads, enabling us to improve cost efficiency while continuing to invest behind growth. We continue to drive productivity in A&P through scale-led buying efficiencies and AI-powered tools such as Sangam, improving the effectiveness of our media investments. In Home Care, we selectively rationalize spend in line with category dynamics while increasing spend across the rest of the portfolio. Overall, our current level of A&P investments continued to remain competitive. Collectively, these dynamic interventions have strengthened our performance trajectory with double-digit revenue growth and high single-digit profit growth. Moving to segment performance for the quarter. Home Care continued strong performance with USG of 22%, underpinned by double-digit UVG. Fabric wash delivered strong double-digit broad-based growth across bars, powders and liquids. All brands contributed to performance, reflecting resilience of our portfolio and strength of our execution. Our premiumization agenda continued to gain momentum with Surf excel Easy Wash rupee 99 powder scaling well and delivering double-digit growth. Household Care accelerated its performance with double-digit volume-led growth. During the quarter, we continued to invest behind market development actions in home care liquids. This helped in deepening the format penetration and supporting volume resilience, leading to competitive double-digit volume-led growth. Turning now to Beauty & Wellbeing. The segment delivered another quarter of double-digit growth, with USG of 16%, underpinned by double-digit UVG. Hair Care accelerated its double-digit volume-led growth trajectory. Performance was broad-based across brands and formats. Premium hair care and innovation, such as TRESemme Hydra matrix continued to perform well. We continue to develop new formats like hair masks and serums, through increased sampling and sustained media investments, bringing more consumers into the category. Skin care and Color Cosmetics also delivered double-digit volume-led growth. Premium Skin Care maintained its growth direction driven by double-digit growth in organized trade. Minimalist continued to build momentum with growth accelerating sequentially as we expanded the brand's offline presence. We continue to advance our premiumization agenda with Dove, Vaseline, Simple and Minimalist expanding into emerging demand spaces through differentiated innovations. Health and Wellbeing saw a subdued performance. The category fundamentals remain healthy, and we have a strong innovation funnel in place to drive growth as we move forward. Moving on to Personal Care. This segment delivered underlying sales growth of 9%. Within the segment, skin cleansing delivered a double-digit growth. Importantly, our market development actions in Pears and Dove bars continue to do well, driving double-digit volume-led growth. Body wash continued to strengthen penetration and market leadership through step up in sampling initiatives and in-store activations. Oral Care reported low single-digit growth in the quarter, but premium innovations delivered double-digit growth, aiding consumer upgradation to higher order benefit basis. Moving to food. The segment delivered USG of 9% with low single-digit UVG. Coffee delivered high single-digit growth, driven by volumes. Inflation moderated performance in tea led by a softer performance in tea. Premium tea innovations, however, such as Red Label Instant Tea continue to scale very well. Lifestyle Nutrition delivered another quarter of double-digit growth, driven by continued focus on execution and market development. Horlicks biscuits and ready-to-drink formats continue to grow well. During the quarter, Horlicks expanded into high-growth protein segment with the launch of Horlicks Protein Powder and is seeing encouraging early traction. Packaged Foods as well delivered double-digit broad-based growth. We relaunched Kisan Condiment with contemporary packaging and a sharper proposition, strengthening its relevance and appeal with consumers. Now coming to the midterm outlook. The underlying demand environment remains resilient, supported by healthy macro indicators. Backed by our winning in new India strategy to drive portfolio and channel transformation, we remain confident of growing ahead of the market. Commodity inflection is expected to remain elevated. We expect medium-term EBITDA margin to be within the current guided range of 22% to 24%. Finally, our focus remains clear and unchanged, delivering competitive volume-led revenue and profit. With this, we conclude the remarks and I'll now hand back to Yogesh to commence the Q&A session.

Thank you, Priya and Niranjan. With this, we'll now move to the Q&A. We request you to kindly restrict the number of questions to a maximum of 2 at a time. In case you have any further questions, please join the queue again. In addition to the audio, our participants have an option to post the questions through the web option on your screen. We will take those questions just before we end. With that, I would like to hand the call back to Dorwin to manage the next session for us.

[Operator Instructions] Our first question comes from the line of Latika Chopra with JPMorgan.

First question from me is on volume growth and demand outlook. This quarter, you had 7% volume growth implying a 2-year CAGR of 3.5-odd percent. Given the inflation that we are witnessing and you also have taken meaningful price increases, which is reflecting in better pricing growth, how -- do you worry about any moderation in volume growth momentum ahead? And what are you witnessing on the ground, particularly in rural, we are hearing from certain sections that this could be something at risk. If you could give some comments on what are you witnessing right now? And how should one think about demand outlook?

Latika, I would say to you that there are 2 things. One is it's important to look at the momentum on volume not just the absolute volume. And why I say this is because at the same time, as you rightly mentioned, we have taken a meaningful price increase. We've actually seen a sequential improvement in volume momentum, and I'm talking about the sequential momentum of volumes if you track over time. So that augurs well overall. And therefore, our focus will continue to be on volume-led revenue and profit growth. So that's simply sort of how we see it. And therefore, we remain confident of our outlook. The second thing is in terms of the rural demand, we've actually seen a sequential increase in our rural growth and our rural demand is on the rise. We see both urban and rural growing at this moment. And our growth is quite broad-based, whether it is across categories, whether it is channels, urban, rural, at this moment, we're seeing a very broad-based growth. So that really hopefully answers your question.

Sure. The second question was around pricing and the margin pressure is due to input cost inflation. Given the pricing that you've taken during the quarter, do you think gross margins are kind of -- are now at -- have kind of bottomed out in this quarter. Do you think one should continue to see some more pressure on gross margin trajectory and also in view of how you think about further pricing actions, if necessary?

So Latika, the way we are using our pricing strategy during this inflationary times is to ensure that we pass on the absolute cost fully, and that's been our strategy. And that means that you are recovering the absolute cost and then leveraging all other lines of P&L to then look at the overall leverage, like you saw us having A&P productivity, you saw leverage in overheads that is there during this quarter. So that's exactly how the playbook will be there moving forward because this is helping us get the volume growth. So on top of the 8% in spite of 8% price growth that we had UVG, we still delivered a 7% UVG, and that's helped us deliver not just the top line but absolute profit growth as well. So this strategy that we have done actually augurs well. And then the margin overall remains within the guided range of 22% to 24%. So there is a cyclicity to the margins. But then structurally, if you see our portfolio is positioned towards the higher margins as you would have seen in our Capital Markets Day as we move forward on our strategy.

And Latika to add to it, I would say to you that you must remember what are the categories that HUL plays in. In the end, we play in everyday essentials. Whether it is laundry, whether it is dish wash, whether it is tea, whether it is soaps, our category in general in consumer products, I would argue that the categories tend to be much less elastic compared to more discretionary high-value categories. And therefore, even when you go back in history, you see much less elasticity in our categories. And in addition to that, given HUL straddles the pyramid from mass to premium, we have the portfolio spread because I cannot predict what is cyclicity, but we have the portfolio spread that goes across the pyramid from mass to premium.

Sure. No, that's definitely helpful. What I was trying to understand was if you look at your COGS mix today and commodity price trends today, and I'm sure you would have taken some calls and some commodity covers, et cetera. Do you anticipate inflation to be meaningfully higher in the short term? And hence, it will necessitate more pricing? Any qualitative sense there? Or...

So Latika, as you know, it's very difficult to call out what will happen on the inflation moving forward. But when you look at the June quarter and September quarter, those 2 quarters have borne the brunt of the inflation increase that has happened. And what we have done during that is to pass on pricing, which is equal to absolute cost. And therefore, when you see a margin reduction. If you look at sequentially, the margin has dropped by just 40 basis points on EBITDA margin level. So as we move forward, then the significant inflation that JQ and SQ faced, unlikely that you will have that kind of inflation moving forward. But we'll continue to take calibrated price increases in measured steps, following the same strategy.

Our next question comes from the line of Mihir Shah with Nomura.

My question again is on gross margins. The contraction on close to 400 basis points that we are seeing this quarter is quite high just wanted to understand the sharp price increase that you have taken up about 8%, does that fully cover the cost inflation on an absolute basis? Or there is more price hike that is left to fully cover on an absolute basis? Like, for example, one of the other players indicated that they have taken another 8% price increase on tea solely. So have you taken all of them is what I wanted to understand. So that's question number one.

Firstly, it depends on the category is what I would say to you, depending on the category, the situation is different. Tea, the inflation has been more in recent, and we have taken much of the pricing that we need to as well. But -- so therefore, the simple answer to your question of have we covered costs, the other is, yes, we have covered cost.

Understood. Secondly, I wanted to just understand if you see the gross margin profile pre-coat used to be around 53%, then it settled around 51% just about later on. And that is despite us taking in Horlicks and now even ice cream is no longer there. but gross margin profile has, over a period of time, kept on going down. How should one think about the gross margin profile over the near to medium term? Do you think that we can go back to that or you can exit around 50%, 51% of sorts by around 4Q or early next year?

So while I won't talk about a numeric, but in the medium term, if you look at it, and as we said and we present in Capital Markets Day also. So when you look at a 3- to 5-year horizon on medium term, the portfolio is structurally positioned for improvement in gross margin. And that is how you will see it moving forward. Now in quarters, 1 or 2 quarters, there are all cyclicals that come into play. But the short answer to your question is that structurally the portfolio is positioned to improve gross margin in the medium term.

Got it. Very clear. And lastly, what is your medium-term outlook on ad spend ratio, sales ratio, ad spend to sales ratio that you're thinking about, keeping in mind the benefits that you're getting from Sangam, et cetera, how should one think about that ratio?

So our ad spend to sales ratio is not the right metric to look at. It is to look at the competitiveness of the A&P spend, and that we have many measurements like on traditional media, we have the measurement of SOS, SOM ratios, which actually even in this quarter moved from 1 to 1.1, as you saw in the Capital Markets Day as well, that there is a lot of productivity savings we'll be getting in the A&P spend, arising out of nonworking media, arising out of use of AI tools, arising out of buying efficiency. So we see 10% of savings coming through that. So the way to actually are the spends competitive, number one, are you entire big bets fully funded. And are we doing full investment behind the brand. And the investment we have in the brand need not just be in the A&P line. As we explained, it is in pricing, product, packaging across the lines, including A&P, of course.

Our next question comes from the line of Amit Sachdeva with UBS.

First of all, congratulations on good revival on the BPC segment. If I look at go back 1 year, the growth was 2%. And now it has consistently risen since then to 16%. I just want to ask whether the changes you brought in, it seems to be more structural momentum. And I just wanted to ask whether it's sustainable in a similar fashion because this seems more structural than a bit of a one-off benefit. And I would probably recollect the Capital Markets Day initiatives as well like basically premiumizing and massifying the premium, all strategies were at play. Has that -- some of that started to show that momentum we are seeing today? Or is it still to come? Just wanted to understand across the board, the double-digit growth is very impressive. And should this momentum be continuing?

So I would say to you that across categories, that is absolutely the case that we are focusing on the portfolio transformation on our brands. So I would say the way to think about it is the following: Firstly, even in our existing business, we have a huge headroom to grow. And I go back to what we shared at the Capital Markets Day, which is with our existing brands, we have a large headroom to grow. You think about it in every category, whether you start with detergents with Surf Excel, you start in beauty and personal care with Dove, Vaseline, Pears, you go into tea with Tajmahal. I can just go on and on. The -- the reality is that it's not just the size of the brand, it's the quality of the brands that is improving and it's really the equity of the brands that's stepping up. So the first thing to think about is that really we are going behind and this is what we shared of stepping up the desirability of our brands. So the first focus for us is to step up the desirability of our brand that we believe that's starting to show up. it's very structural in that sense. So when you think about structural actions, it's not just in terms of portfolio transformation, which you are referencing, it's also in terms of just making our brands stronger. The second is in terms of execution and the work that we're doing on our channel transformation. So it's -- one is the brand portfolio, but the other is channel transformation, and the work that's happening whether in general trade on more stores, more specialized stores or in terms of organized trade digital commerce. And the work that's happening to step up our execution is showing, and I referenced 2 numbers in my starting comments. -- which was we've added in general trade 30,000 stores. And overall, we've grown an assortment, which is channel into SKU mix double-digit. So those are the 2 metrics we use amongst others, like distribution metrics, et cetera, to see how we are performing in terms of our execution in store, including the addition of a lot of visibility assets. And that's the third comment I made in my opening remarks in terms of the number of visibility assets we've added in store. So a mix of that along with all the actions we have taken to build our capabilities, whether it's the work that's happening on R&D to really step up on the signs in our products or the work that's happening to build efficiencies and agility in supply chain. All of these are the structured actions. So when I think -- when you think about structural shift, I would just say, yes, absolutely, portfolio is a part of it but it's more than portfolio, the brands itself and how they're strengthening the channel, the portfolio and how we are bringing our brands to life in the market.

That's very helpful. Very encouraging to hear that the plan that you put in place is in the works and wish you all the best on that. My second question, because I'm referring to Niranjan's comment about that passing on the cost increases just enough to sort of cover the cost and maximize the volume growth, which is seems sensible. But I'm just also thinking this is a year where pricing is large part of the equation. And I would also reckon that in such environment, Unilever tends to benefit with market share gains and things like that. I probably see that the operating leverage that you should have kicked out or at least unlock, that is not there you allow the margin to fall a bit too much. It seems, and that's the reason despite such a good revenue growth and operating leverage that comes part of it. The earning growth seems to be a bit lackluster. And especially it's coming from Home Care and if I may say, just the soaps portfolio because other 2 businesses actually margins have risen or at least margins are flattish. So how do we think about that?

So while Niranjan, of course, will answer in more detail. I think you must think of it as the input cost comes fast and the price takes time to catch up. That is also the case when there is inflation in the market in the manner that we have seen inflation. So don't look at it just in a quarter. That's what I would say to you. Think about it as how input costs go up and we rightly take the right time to put pricing into the market with consumers. And the rest, I'll leave to Niranjan.

Yes, absolutely. And look, it's not correct that we haven't got operating leverage. I mean you look at the gross margin, which is 400 bps year-on-year drop, while our EBITDA margin is up 140 basis points. So there is a 260 basis point that has been made up, and it's not A&P cut actually, yes, which you see there's another expense operating leverage. Within A&P, there is an operating leverage because we start getting operating leverage when we operate at this kind of scale of A&P when you look at it because ideally, A&P should grow in line with just volumes. So you get the operating leverage automatically along with the efficiencies. So I think as a combination, we do have it. And the second point I would like to say is, again, I would have a point of difference of opinion on this, that the profit earnings growth lackluster. This is a 9% profit growth that we have delivered this quarter after many quarters along with 15% top line. It's in line with our strategy of driving volume-led revenue and profit growth because you can recover margin in a hurry, you don't recover market share and growth in a hurry.

Fair enough. No, thanks so much, very understood. I didn't mean to say lackluster, just mean that such revenue growth could unlock a little bit surprising trajectory of earnings as well. But I take your point, and I wish you all the best.

Our next question comes from the line of Arnab Mitra with Goldman Sachs.

Congratulations on a strong momentum on the top line. I wanted to understand this big divergence between Home Care, B&W on one hand and PC and tea on the other hand, is the market growth itself diverting in these categories? Or are you seeing stronger market share gains in home care, B&W? And a related question is, do you see, therefore, in the second half or as you go ahead actions you have taken on tea and personal care to see some improvement from the volume trends there?

So firstly, on Personal Care, we feel happy with the momentum we are seeing quarter-on-quarter sequentially, ArNAB, in our business. So that's -- we are happy to see that sequential momentum -- and that's especially given you're well aware the 2-year palm inflation that we have seen leading to a much more subdued market environment, but we are happy to see the momentum we are beginning to see, especially in our soaps business. So that's the first thing in terms of soaps. On tea, it has certainly been subdued this quarter because of the -- especially in mass fees, where inflation levels were high, we are seeing how that will even out as this settles in terms of tea inflation.

And just on a related question on market share, is it the Home Care B&W growth? Is it because of market share gains? Or are you seeing industry growth itself being resilient in those 2 categories?

Overall, we are seeing growth as resilient and positive across the board, whether it is, as I mentioned, across categories or across geography, channel constructs. So overall seeing consumer product momentum across our categories is positive. And I think it's also the work we have begun to do on our brands, on our execution and the fundamentals are very important. And there will always be cyclicity that is involved, but you have the fundamentals are what you need to focus on.

And overall at a company level and homecare level, we've improved our market shares as well.

Got it. And my second question, and sorry to again ask this has been asked multiple times in the call. See, as we'll go ahead in the second half, I think there are concerns around the poor monsoon, the rising inflation, there is some elasticity of demand with the pricing. You also have a slightly higher base. So with all this in mind, would you have to actually improve your momentum -- sequential momentum, as you said, to sustain these kind of growth rates as you go forward? Or should we expect some moderation as there is a rebalancing between price and volume as you go ahead?

So Arnab, first of all, our momentum has been sequentially improving over the last 3, 4 quarters, as you would have seen. And also, like earlier as we said in the call, really, the base comparison may not be like-for-like, just given that this volume growth are coming on the back of high price growth as well. So I think there's 2 factors need to be kept in mind. Now as we keep moving forward, first of all, we do see demand still holding up and clearly being positive. The macro indicators continue to remain resilient. As we move forward, like any other thing, we'll be tracking what happens as the impact of monsoon and the inflation. And as inflation keeps, let's say, moving up or depending on that, we'll continue to take calibrated price increase. Now some bit of our categories are far less elasticity. And we've been saying that 2 quarters back as well. And we have seen that now for 6 months that our categories faced far less elasticity, and given our brand and portfolio, we have even less elastic as far as our portfolio is concerned. But having said that, some part of the rebalancing may happen.

Our next question comes from the line of Kunal Vora with BNP Paribas.

A question on quick commerce and its impact. So quick commerce is expanding rapidly in the Tier 2, Tier 3 markets now. But can you talk about whether you are seeing any changes in consumption patterns in your categories due to QC? Specifically, is it helping you expand your assortment? Is it helping the newer competitors make inroads? Or is it hurting the kiranas, any observations on this?

So I think when you look at quick commerce, quick commerce actually helps create -- for us is very beneficial because it has created a channel for premium products targeted to affluent consumers. And therefore, given that we have a higher index in premium versus mass. As these channels expand, we are able to grow the assortment in these channels. So overall, is very beneficial when the premium channel emerges. We're also working with all the players in quick commerce to ensure that we build together the categories and given our scale and size, that's a big opportunity. We are working jointly with the quick commerce players to grow the repertoire of consumers in those channels. So that's the work that's happening. And it's a great way to segregate and segment affluent consumers in the country today. And we see that as a huge opportunity.

Understood. And is the supply to quick commerce in small towns done by the local distributors or is it centralized?