HINDUNILVR - Hindustan Unilever Ltd. Share Price

Management's outlook for Hindustan Unilever Limited (HUL) indicates cautious optimism, particularly due to the recent GST reforms. These reforms are expected to enhance disposable income for consumers and drive stronger consumption trends. Management highlighted that nearly 40% of their portfolio will benefit from a reduction to the 5% GST slab, which supports their strategy for volume-led growth.

For the September quarter, HUL reported a turnover of Rs.16,061 crores with an Underlying Sales Growth (USG) of 2%, driven mainly by price increases in categories like Skin Cleansing and Beverages. However, the short-term implications of GST changes prompted temporary disruptions, including a decline in order placements and postposed pantry replenishments. EBITDA decreased to 23.2%, down 90 basis points year-on-year.

Looking ahead, management anticipates normal trading conditions to return by November 2025, which should allow for a gradual recovery in volumes. They foresee second-half growth to surpass the first half, with expectations of low-single-digit price growth if commodity prices stabilize.

Key forward-looking points include:

1. Volume Growth Focus: HUL is committed to driving robust volume-led growth.
2. Increased Market Activity: The company plans to implement more aggressive marketing and sales strategies within its "Channels of the Future" initiative and target quick commerce.
3. Portfolio Reshaping: HUL aims to accelerate investment in high-growth demand spaces to better capture emerging consumer trends.
4. EBITDA Margin Improvement: The anticipated demerger of the Ice Cream segment is expected to enhance margins by 50-60 basis points, with a mid-term EBITDA margin guidance of 22-23%.

The management emphasized that consumer segmentation will be refined, aligning strategies with distinct groups like Power Spenders and Premiumisers to better cater to changing consumer dynamics in both urban and rural markets.

Here are the major questions and their detailed answers from the Q&A section of the earnings call transcript:

1. Question from Vivek (Jefferies): "Can you talk about areas that need attention based on your assessment of the product segments?"

   Answer: "Yes, let me start with Home Care. We have seen competitive performance with mid-single-digit UVG and our focus remains on premiumizing the market. In Personal Care, while GST impacted growth, we've noted strong double-digit growth in premium soaps. In Beauty & Wellbeing, we're growing at 5% driven by skin care. Foods have seen growth in beverages, but there's work to do in Horlicks. Overall, each segment will receive attention to drive further growth."

2. Question from Vivek (Jefferies): "Is the expectation that post-GST adjustment, there could be better demand in volumes, and how does this align with digital-first competition?"

   Answer: "Yes, we anticipate better demand post-GST adjustments, especially since consumer sentiment might improve. We're focusing on radical segmentation to tailor our strategies across various consumer cohorts while competing digitally at all levels, not just premium markets."

3. Question from Abneesh Roy (Nuvama): "Do you see demand improving post-GST normalization, and do populist programs have a tangible effect on FMCG consumption?"

   Answer: "We believe the GST changes will incentivize consumption and augment overall sentiment. However, benefits from populist programs are generally transitory and structural reforms tend to drive longer-term consumption uplift."

4. Question from Abneesh Roy (Nuvama): "Has GST destocking been more pronounced in rural areas compared to urban?"

   Answer: "Yes, the GST transition impacted 40% of our business, notably in rural areas. We've observed that urban categories fared relatively better, reflecting differing market dynamics."

5. Question from Arnold Mitra (Goldman Sachs): "Is there a trade-off between growth and margins, especially with your focus on volume-led revenue growth?"

   Answer: "Our primary focus is volume-led growth, and while margins may appear to dilute temporarily, we anticipate that this investment will yield longer-term benefits. We aim to maintain margins in the range of 22-23% overall."

6. Question from Latika (JPMorgan): "What are your thoughts on macro-level consumption trends, especially regarding rural and urban growth?"

   Answer: "Both urban and rural markets are growing, though the current quarter saw fewer fluctuations than in the past. We've witnessed stability overall, contributing positively to demand."

7. Question from Mihir P Shah (Nomura): "How do you plan to modernize your core portfolio and innovate across categories?"

   Answer: "We're aiming for significant modernization across our brands, tailoring products and marketing to resonate with younger consumers. This includes bold innovations in established categories to foster growth."

8. Question from Siddharth (CWC): "How do you see e-commerce impacting your terms of trade and margins?"

   Answer: "E-commerce is currently an investment phase for us, focusing heavily on brand awareness and building consumer demand. Our approach is channel-specific, ensuring lower conflicts and appropriate profitability as we grow."