Ladies and gentlemen, good day and welcome to Hindustan Unilever Limited conference call for the results for September quarter 2022. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. A. Ravishankar, Group Controller and Head of Investor Relations. Thank you and over to you, sir.
Thank you, Tanvi. Good evening, everyone, and welcome to the conference call of Hindustan Unilever Limited. We'll be covering this evening the results for the quarter ended 30th September 2022. On the call with me is Sanjiv Mehta, our CEO and Managing Director, and Ritesh Tiwari, our CFO. We will start the presentation with Sanjiv sharing an overview of our performance in this quarter and the operating environment. Then Ritesh will cover our financial results in more detail and share our future outlook. 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, Sanjiv.
Thank you. Thank you, and, good evening, everyone, and, delighted to have you join us for the call. My best wishes to you, your loved ones, everyone in your business, and wish all of you a very happy Diwali. Now let me first start with a quick summary of our performance for the quarter and then cover the external environment and our strategy. Of course, we'll have Ritesh, our CFO, take you through the results and outlook in detail. Now from our lens, it was very clearly another quarter of strong all around performance. Our top line grew at a solid 16% with an underlying volume growth of 4%. We continued to significantly outperform the market with more than 75% of the business winning value and volume market shares.
EBITDA margins at 23.3% remain healthy despite the unprecedented inflation that the industry is witnessing. Our EPS grew 20%, including the benefit that we got from one-off prior period tax credits. Profit after tax, but before exceptional items grew 9%. Our consistent strong performance is reflective. We talk about its strategic clarity, strength of our brands, our immense capabilities, our talented people, and the agility to run the business. I'm very pleased to report that we have added more than INR 4,000 crore to our top line in the first half of the fiscal and had a turnover in excess of INR 28,500 crore. Ritesh will of course cover the first half performance in much more detail. Let me spend some time on the external environment, the inflationary situation, and the FMCG market growth.
While there has been some easing of commodity prices and supply chain pressures, inflation still continues to be a significant challenge for the industry. Except palm oil, which has seen a meaningful correction from its peak, most commodities remain volatile and elevated. In fact, some commodities such as soda ash, milk powder, barley, and cereals have further inflated during this quarter. The other source of inflation has been the currency. Globally, high levels of inflation have triggered aggressive monetary tightening measures from central banks globally across the world. This has led to a strengthening of US dollar. Now US dollar INR rate, which was around 74 at the beginning of the fiscal, has crossed the 80 mark, hovering around 82 halfway through the year.
CPI inflation continues to be above RBI's threshold since January of this year, driven of course by higher fuel and energy prices and the food inflation. Within this, rural inflation was higher than urban. Let me now talk about FMCG market growth with reference to the categories we operate in. In September quarter, markets grew in mid-single digit. If you compare this versus last 12 months, value growth has improved marginally, driven by higher pricing. Volume continued to decline in both urban and rural markets with a more pronounced drop in rural. Of course, if you look at the last three months' numbers on a three-year CAGR basis, both urban and rural markets have grown in mid-single digit with a marginal decline in volume.
It is quite natural for consumers, especially at lower income levels, to feel the pinch of increased pressure on their wallets due to the high inflation, and they do adjust volumes and prioritize essentials over discretionary to manage their household budgets. Hence, to summarize the last two slides, the FMCG market context hasn't changed significantly in this quarter and continues to remain challenging. Now we have a very clear and compelling strategy, and that remains unchanged. The two imperatives are. We will continue to navigate the short-term challenges with agility and grow our consumer franchise while protecting our business model. For instance, when it comes to pricing, with the meaningful correction that we have seen in palm oil prices, we are now taking price cuts in big chunks in our skin cleansing portfolio to pass on the benefits to consumers and maintain the right price value equation.
While on the other hand, in home care, we have taken further pricing in September quarter as we saw more inflation in key input materials. The second imperative is that we need to continue single-mindedly on a journey to create a purpose-led future fit HUL and deliver a 4G growth agenda. Growth, as all of you are aware, we talk about in terms of consistent, competitive, profitable, and responsible. I'm sure you're familiar with the five strategic choices. In my next couple of charts, I'm going to elaborate a bit more on developing a portfolio and our progress in the sustainability journey. First, let me bring to life how we are developing a portfolio, leveraging the capabilities that we are building under Reimagine HUL.
Our premium beauty business unit, which is an incubator for digital brands and capabilities, has launched two new digital brands, Acne Squad and Find Your Happy Place. Acne Squad is a specialist brand co-created with dermatologists and backed by patented technology that addresses unmet needs of the hyper-connected consumer. It includes a range of 11 skincare products and curated regime kits proven to offer best-in-class acne treatment at each stage of acne life cycle. Find Your Happy Place has four mood-transforming experiential bath and body ranges that includes moisturizing shower gel, bath scrub, bath salts, candles, body lotion, and body butter. These are again crafted for hyper-connected digital consumers in an era where the trend and need for self-care is at an all-time high.
Each of the four launch fragrance families has been specially designed to appeal to Indian sensibilities, all of them rekindling a memory of one's favorite place, person, or feeling.
These are completely digital brands launched through our agile innovation platform, right from trend spotting through digital and social media listening to use of digital technology to curate mixes in an agile manner. For instance, through our studies, we realized that acne is one of the most common searches on skincare and amongst the top concerns faced by our consumers, hyper-connected consumers. Yet, there are very few specialist brands, excuse me, that address this concern. Very quickly, we were able to curate the right mixes, providing targeted solutions for every stage of the acne life cycle. This agile innovation approach has enabled us to launch new products in half the time it used to take earlier. Our three nano factories give us the flexibility to manufacture closer to demand and in small batch sizes.
We now have 14 bespoke D2C platforms to give unique shopping experience to the consumer. We are extensively using digital marketing and influencer campaigns to reach out to our hyper-connected consumers. Digital media contributes to more than 25% of our total media spend. We are leveraging latest digital tools and technologies to create end-to-end digital journeys for our consumers. Now let me talk about responsible growth. We are a company of brands and people with a clear purpose to make sustainable living commonplace. We believe in doing well by doing good. Dove's purpose is to make beauty a source of confidence and not anxiety. As part of its Self-Esteem Project, Dove is helping young people build positive body confidence and self-esteem. Last year, Dove began a movement, Stop The Beauty Test, to raise voice against beauty biases girls have to face while finding a life partner.
In the second leg of this campaign, Dove is breaking stereotypes and urging the society to place emphasis on education instead of seeing girls from the eyes of prospective groom. Project Shakti, we had launched this in the early part of this millennium with the aim to financially empower and provide livelihood opportunities to women in rural India. Today, we have more than 160,000 Shakti entrepreneurs. We are now digitizing the Shakti Ammas through our flagship Shikhar app to bring them to the forefront of the new digital India. Till date, we have onboarded over 50,000 Shakti women on the app who are now able to place orders at their convenience and get HUL products in an easy and reliable way. Our Tatapuram Homecare manufacturing site has added a new feather in the cap. The site has been recognized by World Economic Forum as a Sustainability Lighthouse.
First company in India across sectors to achieve this status. The Sustainability Lighthouse status reflects the use of revolutionary technologies, including digitally enabled manufacturing processes that have amplified speed and agility and has lessened environmental impact by reducing energy, water, and material waste. This recognition comes on the back of the unit being accorded the designation of an advanced fourth industrial revolution lighthouse earlier this year. A fitting example of making HUL purpose-led and future fit. With this, let me now hand over to Ritesh, our CFO, to talk about our performance in this quarter and our outlook in much more detail. Ritesh, over to you.
Thank you, Sanjiv, and good evening, everyone. Should we begin with questions?
Hello. Hi.
Yes.
I'll continue now.
Sure.
Thank you, Sanjiv, and good evening, everyone. My greetings to you and your family for the lovely festive season ahead. I will now walk you through our in-quarter performance and our outlook. We continue to build on our strong growth momentum with top line growing 16% in the quarter. Despite the high levels of inflation and declining market volumes, we have delivered a robust underlying volume growth of 4%. Our performance has been significantly ahead of the market and more than 75% of our business is winning value and volume market shares. Moving to bottom line, net profit at INR 2,616 crore grew 20%. Profit after tax before exceptional item grew 9%.
There were one-off prior period tax credits in this quarter, and that largely explains the difference in the growth of net profit and profit after tax before exceptional items. Our EBITDA margin was at a healthy 23.3% despite the unprecedented inflation. Let me spend a couple of more minutes talking about how we're navigating this challenging environment through dynamic financial management. As we had anticipated and called out earlier, almost all commodities sans palm oil continue to remain at significantly elevated levels. This, along with consumption of higher cost inventory, has led to a 590 basis points year-on-year increase in our cost of goods sold in this quarter. This also includes an impact of 70 basis points coming from higher investment in consumer promotions.
Despite this, we have been able to hold EBITDA margins at a healthy 23.3%, which translates to 180 basis points year-on-year decline and 10 basis points sequential improvement. This was possible due to a clear focus on fundamentals that we have been consistently speaking about. These are, to start with, operating our business with agility and ensuring that we provide the right price-value equation to our consumers. Adequately supporting our brands with marketing investments while sharply attributing media spends to growth and maintaining our share of voice ahead of our market shares. Number three, investing in our products and giving better value to the consumers. As we had called out, our product superiority continues to be two times the pre-COVID levels. Importantly, number four, we continue to drive savings harder and optimize all non-consumer facing costs.
Through this frugal mindset and growth leverage, we have delivered a net 160 BPS reduction between other expenses and employee costs, where employee costs increased by 20 BPS on account of salary inflation and variable pay true-up for the first half performance. Moving on to performance across our three segments. Home care delivered another stellar performance, growing at 34% with double-digit volume growth. Beauty and personal care grew ahead of the market at 11%. Foods and refreshment had a steady quarter, growing at 4%, led by strong performance in foods, coffee, and ice cream. Despite the significant inflation, our margins in all three segments remained at healthy levels, with home care at 17%, BPC at 25%, and SNR at 20%. We will get down to talk about performance within each of the division in subsequent slides.
Talking about innovations, this has been a busy quarter for our marketing teams as we have launched several products across many of our brands. This is in addition to the two new digital brands, Acne Squad and Find Your Happy Place, which Sanjiv talked about. Let me pick a few to elaborate. Our digital brand, Simple and Love Beauty and Planet, have expanded their portfolio further. Simple has launched a new vitamin C range for complete skincare regimen. Love Beauty and Planet has launched new haircare products. Our iconic beauty brand, Lakmé, launched a new foundation, which is infused with goodness of serum that works both as a makeup and skincare. Glow & Lovely launched Glow & Lovely Hydra Glow, a cream enriched with rose serum.
Extending our Horlicks franchise, we have seeded a new format, gummies, and launched two products, Horlicks Nutri Gummies and Horlicks Diabetes Gummies, on our digital platforms.
Nutri Gummies are specially crafted to fulfill nutritional gaps and is enriched with 12 vitamins and minerals. Diabetes Gummies is powered with mulberry leaf extract, which helps to manage the risk of diabetes in a convenient way. Kwality Wall's added exciting new flavors such as Nolen Gur, Gulab Jamun, and Milk Cake to add more joy to the festive season. Surf Excel Matic introduced Power Concentrate, a revolutionary concentrated liquid formulated to give two times cleaning power with an intense, long-lasting fragrance. Expanding the peanut butter range, Kissan has launched new hazelnut choco peanut spread. Talking about our new marketing campaigns. Boost has activated a new film which aims to break stereotypes around girls and sports. Glow & Lovely has new communication for its Ayurvedic face cream. Hamam was relaunched in this quarter with a new superior product.
The relaunch was followed with a campaign around building courage with girls to embrace the outside world. Moving on to our performance in home care. Our business delivered yet another stellar quarter at 34%, with robust performance both in fabric wash and household care. Despite high pricing, home care grew volumes in double digits, reflecting the strength of our brand and portfolio. Fabric wash delivered high double-digit growth and handsome market share gain, led by robust performance across our portfolio. Supported by our strong market development actions, liquid detergents and fabric conditioners continue to outperform and is now more than INR 2,000 crore annual business. Household care grew in high double digits, driven by solid performance in dishwash. Our dishwash brand Vim won the Cannes Creative Effectiveness Lions for its Unstereotype campaign.
With more input cost inflation, we have taken calibrated pricing actions both in fabric wash and household care. Next, talking about beauty and personal care. The business grew 11%, driven by outperformance in premium portfolio. Skin cleansing delivered broad-based strong double-digit growth. Beauty and premium brands with Lux, Dove, and Pears continue to outperform and delivered mid-single digit volume growth. Lifebuoy soap grew in high teens and continues to be the market leader in this segment. We are now passing on the benefit of lower commodity costs to consumers and taking price cuts in big chunks. Hair care further strengthened its market leadership with strong broad-based performance. Our innovation and future formats such as mask and serums continue to gain consumer relevance. As in previous quarters, skincare and color cosmetics performance has been a story of two halves.
Premium parts of the portfolio such as Lakmé and POND'S outperformed, delivering double-digit growth. However, inflation impact on discretionary consumption affected the performance of our mass segment such as Glow & Lovely and Lux. Oral care had a steady quarter led by Close-Up. Let me now turn to foods and refreshment. FNR grew 4%, led by strong performance in foods, coffee, and ice cream. Tea continued to cement its market leadership and grew volumes in mid-single-digit. In-quarter performance was muted as price cuts impacted overall value growth. Coffee sustained its strong growth momentum and grew in double digits. In health food drinks, we continued with our market development actions to build category relevance. In this quarter alone, we have reached almost nine million consumers through our home-to-home connect program and launched new TV campaigns. Horlicks Mother's Plus partnered with PharmEasy to build nutrition awareness and drive trials with new mothers.
We also created new formats and launched Nutri Gummies and Diabetes Gummies on our digital platforms, as I mentioned earlier. All these actions have helped us continue gaining market shares and penetration. Overall category growths have remained subdued due to impact of inflation on discretionary consumption. Foods delivered strong double-digit growth with volumes growing in mid-teens. This was led by jams and food solutions business. As we had called out earlier, the reopening of schools has increased the consumption occasion for jams. Our food solutions business that provides products for chefs and restaurants continue to scale up and is now almost double of pre-COVID levels. Ice cream had another strong quarter with double-digit growth on a very high base. Our innovations such as Feast Black Forest, Trixy Cheesecake continue to perform well. Ahead of the festive season, we added more exciting flavors that I mentioned earlier.
Now let me summarize. Our performance has been strong in the quarter with 16% sales growth and 20% growth in net profit. As I mentioned earlier, we had a one-off tax prior period adjustment in this quarter, and including that, our ETR for this fiscal year is expected to be around 24%. Let me quickly take you through results for the first half of this fiscal. We delivered a strong performance both on top line and bottom line. We have added more than INR 4,000 crores to our top line, growing at 18% and taking our turnover to INR 28,530 crores. Despite unprecedented levels of inflation, we have maintained EBITDA margin at a healthy 23.2%. Net profit at INR 4,905 crores grew 15%. Profit after tax and before exceptional items grew 13%.
Taking into account the strong performance of the company, I'm pleased to inform you that the board of directors have declared an interim dividend of INR 17 per share for the year ended March 31, 2023, which is a step up of INR 2 as compared to the interim dividend of last fiscal. Now moving on to our outlook. Let me start with giving you some more color on how inflation is panning out. Our September quarter's net material inflation is at 22%, and this is sequentially higher than June quarter. This is in line with what we had called out earlier during June quarter results. Consequently, our COGS has increased sequentially by 150 basis points to 55% in this quarter. You will recall from our earlier slide that Sanjiv covered, most commodities are still at significantly inflated levels and are holding firm.
Strengthening of US dollar is also adding to further inflation. However, few commodities, largely palm oil, have corrected from their highs. With this softening and if other commodities remain at their current elevated levels, we expect our December quarter NMI to be slightly lower than our September quarter numbers, albeit remaining significantly high on a year-on-year basis. This will help us to marginally reduce the price versus cost gap and aid in sequential gross margin improvement. With the likely increase in media intensity, we will dial up our brand and marketing investment and continue to ensure our share of voice remain ahead of our share of market. Needless to say, we will continue to extensively drive productivity improvement and operate our business with agility to maintain right price value equation for our consumers. Looking ahead, we are cautiously optimistic.
In the near term, demand environment remains challenging and growth will be price-led. If commodities were to remain where they are today, we expect the price versus cost gap to marginally narrow, leading to a sequential improvement in gross margin in December quarter. With the likely increase in media intensity, we expect a step up in our A&P investments. Our two clear imperatives remain. First, our priority is to grow our consumer franchise and protect our business model. We will do this by investing competitively behind our brands, ensuring the right price value equation for consumers, and driving savings harder. Second, continue with our journey to create a purpose-led future fit HUL and deliver 4G growth that is consistent, competitive, profitable and responsible. Before we move to Q&A, let me summarize what we covered till now.
We continue to build on our strong growth momentum and deliver 16% top line growth with 4% underlying volume growth. In the first half of this fiscal, we've added more than INR 4,000 crore to our top line, growing at 18%. Our growth was significantly ahead of the market, with more than 75% of our business winning both value and volume shares. Despite the unprecedented level of inflation, our EBITDA margins remain healthy. Considering the strong performance, board of directors have declared an interim dividend of INR 17 per share. We are cautiously optimistic about the near-term demand environment, with growth being price-led. We expect our December quarter NMI to be marginally lower than September quarter, albeit remaining significantly high on a year-on-year basis. Consequently, gross margin in DTU is expected to improve sequentially, along with a step-up in A&P investments.
With this, let me hand over to Ravi to commence our Q&A session.
Thank you, Sanjiv. Thank you, Ritesh. With this, we will now move on to the Q&A. As usual, we would re-request you to restrict your questions to a maximum of two at a time. In case there are further questions, you are always welcome to join the queue again. In addition to the audio, our participants have an option to pose the questions through the web option on your screen. We'll take these questions just before we end. With that, I'd like to hand the call back to Tanvi to manage the next session for us.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.
Yeah, thanks. My first question is, in categories where deflation has started, is HUL playing a different template? Why I'm asking this is in tea, there is around 7%-8% price correction at the consumer level. Against that, your 5% volume growth looks impressive, given the other large player has reported negative volume. Nielsen overall FMCG is negative volume in both urban and rural. Unlike earlier times when deflation happened, regional players used to come back. This time it seems you have gained market share in tea from regional and clearly the other large player. Could you help us understand that? Similar template, can it be followed in skin cleansing also? Because there also deflation has started.
Before I hand it over to Ritesh, Abneesh, we launched Nolen Gur ice cream for you. I hope you have tasted it.
Yes, sir. It was very good. I like that.
Wonderful.
Abneesh, thanks for your questions. There are pockets, and exactly you called out tea and skin cleansing are the two categories which have seen commodity costs coming off. It was tea commodity earlier and then vegetable oil later on. Outside these two categories in commodities, there is significant year-on-year inflation across the board, which impacts all other categories. On tea, our strategy has been consistent. It's a portfolio play. It's a play where building in Make in India strategy, we have grown and thrived excellently well with our products, with our innovation and the way we manage our formulation pricing across the country. With our portfolio in tea, focus has always been, as I mentioned, that whenever inflation has come and impacted us, our strategy is very clear, grow the consumer franchise and protect our business model.
That's exactly what we have done with tea category as well. We cemented our market leadership, as you called out. We have grown volumes, and we have also passed on the benefit of price reduction through price cuts to the consumers. Our pricing strategy, Abneesh, is very similar to what we had spoken earlier. That in-market, inflation happens, we take price increases in small bites so that we're able to land those price effectively and ensure that we're able to hold and keep growing consumer franchise. But conversely, whenever market commodities come off to some extent in select places, we take larger bite decreases. One has to do that, otherwise inventories in the trade will get caught in between price points. That's exactly what we have done in tea.
To your point, very similar we have recently done in skin cleansing as well, where there's a meaningful correction in palm oil prices. Of course, in last week or 10 this time, you've seen a further 15%-20% increase in palm oil prices have happened. Our strategy will exactly remain consistent. Which is keep growing the consumer franchise and protect the business model. While doing that, our entire focus of Nishchay on driving savings hard across lines of P&L and challenging every non-consumer facing cost, that continues. We are running our business with agility. In the meantime, we will move prices up and down as required to ensure competitiveness and to ensure that the price value equation remains and gets maintained with the consumers. That strategy will continue depending upon which way commodity pans out for different categories that we deal in.
Sure. That's helpful. My second and last question is on food. Nestlé also reported a very strong growth, and they pointed out quick commerce really helping them. In your case, ice cream saw a great first quarter because of a harsh summer. Q2 also has been very good. If you could elaborate how much help you are getting from quick commerce, any numbers you can put in any of your food categories, especially ice cream. Second one on foods is how much is the addressable market in terms of Nutri gummies and diabetes gummies? Now further milk inflation has happened. Quarter-on-quarter, more inflation in milk has happened. On the core part of Horlicks, are things getting even more tougher because milk prices clearly matters in that consumption?
Yeah. Three, four different questions. Let me pick them one by one, Abneesh. First you talked about foods growth. Our within foods and Refreshment as a division, our foods business has grown double-digit. As I alluded earlier, ice cream, food within that, coffee. These are the businesses within foods and Refreshment have seen good double-digit growth across the business. We have absolutely taken benefit of quick commerce. Today, ice cream now, as we call it, our ice cream business where it gets distributed through quick commerce and such digital chain, now it's more than 10% of our ice cream business is today generated using this medium of distribution. Talking about Horlicks and Nutri gummies.
We have expanded our format of what we sell in Horlicks, and you've seen our launch of two gummies. One is with 20 different vitamins and minerals, Nutri Gummies, and second is to manage diabetes better, Diabetes Gummies. These formats now we have launched online on our D2C platform, and as relevant we've, like, already extended one of the two into online purely, as well as we speak. This point in time, these are seeded in the market. Of course we learn more this format and this product, how consumer reaction we get from these products. That's on Nutri gummy. Now, as far as core Horlicks is concerned, no change in strategy.
Exactly what we had mentioned to you and to all of you that, market development is the job to be done in this area. Having done full job of integration of Horlicks, which has happened very well, realizing savings of supply chain integration and other overhead integration fully realized, our focus is now to continue to build penetration and consumption in the category. This quarter alone, we have done more than 9 million home-to-home connects. We launched new advertisement campaign, to bring alive our portfolio. That effort across the portfolio is also starting to yield result. For example, our penetration is building. We are gaining penetration. We are also seeing our market share improving. This I had mentioned earlier that this is a job that will be done in medium term.
We will be active in terms of developing this category and segment. We should start seeing traction with this continued effort of staying consistent with our market development strategy with Horlicks.
Sure. Thanks. That's all from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Vivek M. from Jefferies. Please go ahead. Vivek, your line has been unmuted. Please unmute yourself and proceed with your question. As there is no response, we'll move to the next question, which is from the line of Avi Mehta from Macquarie. Please go ahead.
Thanks a lot for this opportunity. Just on the commodity inflation. You know, you highlighted that commodity inflation has been broadly in line with expectations even though this increase is happening this quarter. In that backdrop, would you retain your comment that you made in first quarter that 3Q should see the benefit of commodity moderation in palm oil versus the margin that we saw in first quarter?
Thanks, Avi, for the question. Absolutely right. When last quarter we had announced June quarter results, and our net material inflation was 20%. I had alluded that point in time that we expect to see sequentially more inflation in the next quarter. That's exactly what we have now, also shared with you that our inflation this quarter is 22% net material inflation. It is panned out the way we had anticipated. Our outlook for the quarter after, the second half outlook and, starting with December quarter, we should see slight reduction in the net material inflation for December quarter. The large component of that reduction basically is vegetable oil, and that should lead to slight reduction.
The reason I'm using the word slight reduction because everything else outside vegetable oil remains elevated. Crude oil, it is still firm at 90+. With currency depreciation of US dollar against rupee at 83, that impact almost makes the crude equivalent to $100+ what we had some time back. Milk, number one, cereals, soda ash. Across the board, many commodities it remain elevated on year-on-year basis. We have significant inflation outside as well. Now, with this some amount of cooling off of vegetable oil, we should see, as I mentioned, slight improvement in the net material inflation, and hence we should see sequential gross margin improvement that we should see in next quarter.
As that happens, I'm also very mindful that media intensity might increase as there's some cool off in certain pockets of commodities that will happen. With media intensity increasing, we will continue to do what we have done, which is maintain our share of voice ahead of the share of market. I also expect advertising and sales promotion intensity to go up and hence our investment in A&P to go up next quarter.
Right.
EBITDA will be ultimately outcome of amount of impact we'll end up seeing on commodity and hence NMI and hence gross margin and the amount of media intensity. This will calibrate our A&P investments, and that will ultimately determine the outcome of EBITDA. Those are the few variables which will be at play, looking ahead, for second half of this financial year.
Sorry, Ritesh, let me rephrase. What I meant is, while I kind of take your point that you have seen some inputs seeing inflation in the second quarter, but, you know, when you were kind of going into that slide, you mentioned that this increase was broadly in line with what you were expecting. From an inflation perspective, it seemed that nothing has surprised you on the negative. As in, you know, inflation has not come ahead of what you were expecting. That is the backdrop, and hence I was kind of looking at from the lens that I was in or when we were looking in the first quarter, whatever margins we were expecting in the second half is the margin that we will still expect to be in the second half. Is that understanding correct?
Is what I was trying to allude to. Is that is what I wanted to kind of appreciate. Is it fair that is what is the case?
Yeah. Avi, our read of A, commodity, B, FMCG has not changed in last three months' time. It is very consistent to what we spoke last quarter. Be it the outlook of commodity we had mentioned and as you read, we had rated of seeing a peak in September quarter and some cool off after that. We had mentioned that it is largely led out of vegetable oil. It is indeed the case. Our read on FMCG market overall, the impact of consumption, impact of rural, and hence volumes, again remains very consistent. Yes, at this point in time, you're right, there is no different read that we have in second half of the year and margins for second half of the financial year.
It's a very similar read, a consistent read, and which is what I give a little more granular data points to you that we will see, as we spoke earlier, sequential gross margin improvement. Media intensity, of course, is what we will see as to what pans out. Yeah, very similar read.
Got it, Ritesh. It gives me a sense on the sequential increase as well, because one gives the comparison. Fair point. The second question was on the rural recovery. Just wanted to get your sense on how do you feel about rural right now? Are you feeling more constructive versus what you felt last quarter or any comments on that? That's all from my side. Thank you.
Yeah. Rural, as we had called out, let me just use some data points here. If I look at a three-year CAGR, rural-urban both for FMCG market is growing at mid-single digit. Again, on three-year CAGR, urban-rural both are flat, near flat on volume. If I look at near-term period, latest 12-week or a MAT basis, urban is clearly outpacing rural. Where urban growths are stronger than rural, and also volume decline in rural is more steeper compared to urban. The read that we had that inflation is biting in rural more compared to urban, that is indeed the outcome that we are seeing. That inflation impact is seen in volume decline in market in rural and hence overall value growth of rural continues to be muted. That pans out.
Of course, as far as Hindustan Unilever is concerned, we have gained comprehensively market share both in urban and in rural, but overall, of course, growth will be determined by what happens in consumer market. Now, coming to outlook, I do believe there are. The single biggest factor which will determine rural outcome as FMCG is concerned, is the impact of commodity. If at all we see a broader basket of commodities cooling off the way vegetable oil has, that should help price to come down. If that helps the price to come down, that will augur well as far as consumption is concerned, volume, and hence FMCG growth. This is when I look at FMCG. Of course, there are macro factors at play.
The good news is urban employment is increasing, which would mean that rural migration and non-farm income and hence giving money back to the rural area and hence having more money in the pockets in rural economy, that augurs well. Monsoon has been normal, and the reason I say that, it was good rains, but we all know the spatial coverage and the volatility in that space, and also the timing of monsoon in certain place basically has a mixed outcome. We have yet to see how that pans out in terms of the crop going forward. That's one element which is there in the mix. Government is clearly leaning in.
The news that we had earlier, fertilizer subsidy, the fuel duty cuts, that is helping. The recent decision of government also to extend the food grain subsidy till end of the year will also augur well. There are definitely macro factors and including what we all know, the INR 7.5 lakh crore CapEx investment, which government has committed as part of this budget. All of that should augur well for the rural economy, but we have to see more data points to feel comfortable. When I look at this latest quarter, the data points for the July-September quarter are not very different than the read that we had the last few quarters. Our read remains consistent and, there are macro factors which are, helping.
We do hope that in times to come we see outcome which is better compared to what we're seeing today.
Thanks a lot for this and wish you all a very happy Diwali and a prosperous new year. Thank you very much.
Thanks. Happy Diwali as well.
Thank you. The next question is from the line of Harit Kapoor from Investec India. Please go ahead. Harit, your line has been unmuted. Please proceed with your question.
Yes, sir. We'll probably be getting.
Harit, yeah, if you can just repeat your question now.
Yeah. Am I audible?
Yes, now.
Yes.
Yeah. Good evening all. I just have two questions. Firstly, just wanted to get your sense on, you know, the A&P spend number. You know, at about 7%, it's at a multi-year low for a quarter. You know, you did mention that media intensity increasing, but for the quarter specifically, you know, would you know, say that, you know, share of voice has largely been maintained? Is, you know, is the significant reduction only on account of, you know, lower volume or lower rates as well?
Yeah. No, thank you so much, Harit, for your question. See, for us, our brands, along with the people, are the two most valuable assets. Hence we continue to invest behind our brands to build long-term memory structures. We do what is right from a strategic point of view that is essentially, for long term, the sanctity of the business model. The point you mentioned about A&P, of course, the number in the quarter, Harit, will always get determined by the media intensity which is there. Given the broad-based inflation which FMCG industry is facing, there has been basically overall amount of media investment in the industry has come down. Because of that, the overall number amount of absolute amount of levels of investment are determined based on what media heat is in the system.
If I look at our own BMI percentage turnover, there are two factors. In fact, half of that is the volume/growth leverage that we have. Since our business has grown at 16%, everything else being equal, the media percentage, A&P % turnover looks better. Half of that is basically the market heat, which is lower in a high inflationary atmosphere, and hence absolute amount of reduction on that count in terms of media investment. Suffice to say, our share of voice is ahead of our share of market. We maintain competitive levels of both spends from a salience and reach perspective, but at the same time, we do drive a very sharp media attribution to growth. Hence also our media efficiencies, the way we deploy our investments is very well measured. We will not blink.
Time and again, we have reiterated our share of voice will continue to remain ahead of our share of market.
Thank you very much, Ritesh, for this. My second question is on fabric wash. You know, the growth rates over the last few quarters have been extremely strong. I just wanted to get a sense of, you know, how much of this is being driven by actual category growth and how much of this is, you know, by your market share gains. The reason I ask is, you know, once there is a normalization of, you know, of the base where, you know, you had some COVID-led impact as well, you know, category growth should start to normalize to probably historical level.
I just wanted to get a sense of, you know, how much of this accelerated growth is category-led, how much of it is market share-led, you know, in whichever way you can help with. Thanks.
On fabric wash, there are a few variables out here. First of all, one of the points I was mentioning about product superiority, the kind of work that we have done in that space has started seeing results across the board for us, and which is why in fabric wash, and, of course, there's a market growth, but we have grown ahead of the market and also have handsome market share gain in fabric wash. Our performance is ahead of the market what it is. This is also the outcome of building portfolio over years. Over last several years, you know, the way we have built our portfolio from mass to popular to premium to liquids, and that benefit is what you see also in our growth momentum as you see.
I was giving an example earlier of our liquids portfolio, which is both liquid detergent and fabric conditioner liquids. Put together today, that is more than INR 2,000 crore annualized business that we run today. Now, those are many more elements apart from pricing, which, you know, your point is right, which of course, is also helping to drive growth. But at the same time, the product superiority, the strong portfolio, and a right amount of consumer price value equation has also made us grow volumes. As I mentioned earlier, in this quarter, we also have driven very strong volumes in home care. It's a pretty all around performance, as far as fabric wash is concerned.
Thank you so much for this, Ritesh, and wish the team a very happy Diwali. Thank you so much.
Yeah. Thank you so much. Wish you too a happy Diwali.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, everyone, and congrats on a good set of numbers. My first question is on the two digital brands that you've launched, are these something completely new, or are they sort of taken from the global portfolio?
Hi, Percy . Wish you too a very happy Diwali. Percy , both these brands that you see, Acne Squad and Find Your Happy Place, these are mixes that we have crafted. Acne Squad is crafted completely locally for India. If you look at the skin overall as a category need state, acne comes as one of the top need state. Which is why we crafted this portfolio working with dermatologists, and we launched all the four different platforms within Acne Squad, which are the different life cycles of acne that impacts. It's a mix which is crafted in India and launched in India.
Find Your Happy Place has been launched in one part of the world by Unilever. That's the second market in the world is India, where we do believe it has fabulous relevance, and hence we brought that brand and we launched that mix in India. Both of these, as I mentioned, as you picked up, are launched digitally, so they have been launched on our D2C website, and they also have been launched on Purplle, the [Amazon Central Classic equivalent].
All right. Just I wanted to know, basically, what is the thought process or decision-making framework for launching, new brands in the D2C space versus trying to address, sort of needs through existing brand variants, et cetera. Do you think under this framework there would be more brand launches in the future, as well?
Yeah. Firstly, as you know that we already had launched three brands in the prior periods, be it Simple, be it Love Beauty and Planet, or for that matter, Baby Dove, which are all our three direct-to-consumer brands. We saw demand spaces that we could activate, and then we could start playing. Which is why we then said in acne space, which is becoming a good important need space, we need a portfolio in that space. The way we work, and one of the examples we had quoted earlier as part of our capability, we have our own agile innovation hub, where we scrub all the trends which are emerging with consumers across the country.
Then depending upon what relevant trends we pick up, our first decision is, does our existing portfolio cater to those trends? If yes, of course, our portfolio is activated and we serve those needs. We have large brands across our portfolio in FMCG, it does the job. If there are demand spaces which are developing and they are becoming relevant this point in time, in which case then we choose then to deploy our portfolio in that demand space. Acne is a classic example of that demand space. For that matter, a bath indulgence is a fabulous demand space. The very fact these are niche and which is why it makes sense to go digital rather than do an offline launch this point in time. You have to build awareness before you can start talking offline.
Which is why exactly the thought process and the business model out here has been that look at the trends which are relevant, where we think a portfolio launch will make business sense, then we'll launch those mixes. Our capability to launch digital just gives us that power of experimentation before we scale up in any other format or any other channel. That's the business model which are behind it. Now, is this the first and the last of it? Answer, of course, is no. We have done three before, we've done two now. We'll keep looking at trends and the moment we find a trend, a demand space which is substantial and it makes relevant to invest with a product portfolio, we will innovate and we will launch product in that portfolio, in that space.
Right. My second question is on the market shares, where you mentioned that 75% of your portfolio is growing market share. Could you throw some light on what are the parts, the 25% where you are not, which are those categories? You've mentioned this over the last two, three quarters. Is this 25% the same over the last few quarters, or is there a rotation there also that this quarter it has gained, but next quarter it falls into the losing bucket, et cetera?
First of all, firstly, our narrative is very clear. Our market share performance and our competitive performance is very robust. More than 75% of our business is winning. That was the narrative we had in the previous quarters as well, where more than 75% of our portfolio has been winning. This win is pretty comprehensive. This win is across the geography in the country. This win is across channels, be it traditional trade channel, general trade, be it the modern channels of e-commerce to modern trade put together. This is the growth of business performance in urban. This is in rural. All this ultimately has also translated into corporate market share gain as well. This is what we also do in our business.
We keep looking at a different segmentation of our business and in every segment, how competitive our performance is. Which is why, as I mentioned, it's a pretty comprehensive performance, and when more than 75% of our business is gaining share.
Any clarity you can give on what are those categories which are not gaining market share?
I will not get firstly into individual categories which are growing, which are not growing. As you mentioned earlier, at the end of the day, we deal in a market which is extremely competitive. There will be ups and downs in the portfolio. If in long term we keep maintaining the strength of business winning at more than 75%, it will translate into corporate market share gain. That's the exact reason why in our mind we keep looking at our business winning of more than 75%, and we have delivered that quarter after quarter. We have seen that exactly leading also translating into corporate market share gain as well. Now, in a quarter, it'll be a few basis points up, a few basis points down.
Of course, that portfolio in that quarter might be not winning, and it might be the reason why you're not at 100%. But then it's a matter of time, I'm saying, as we see some sense in certain categories, and then we of course lean in more in that space. It's always a mix of that, but the fact is when you have more than 75% portfolio which you're winning, it's a comprehensive business performance, and this is where we basically angle ourself into.
Right, Ritesh . Thanks a lot. All the best.
Thanks, firstly. Thank you so much. Best wishes to you. Have a great day as well .
Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.
Yeah. Hi, thanks for taking my question. My first question was actually also on the laundry business, where, despite putting more pricing and volume growth has actually accelerated. The last time when such high price increases were put maybe 10 years back in the category, there was definitely some pressure on down trading. Just wanted to check, are there any trends of that sort and your acceleration in the face of increasing pricing, is it largely to do with market share gains accelerating in these last two quarters?
There are a few elements out here, Arnab. Firstly, you're absolutely right. I think in the last decade or so, HUL has transformed the portfolio of home care. The point I was making earlier of liquid part of the portfolio, be it liquid detergent, be it liquid conditioner, which is now a more than INR 2,000 crore business. A, portfolio development, B, product superiority. Those are the elements. Of course, the strength of our brands that we have. Our fabulous brands from Surf Excel to Wheel to Rin. The strength of our brands have also allowed us, A, to take pricing, B, to maintain price value equation, and three, to hold and keep growing our consumer franchise. It's a pretty all around performance the way the portfolio has panned out.
Now, to your point on downgrading. Downgrading as to down trading, what we have seen in times of very high inflation, consumers seek more value. In certain portions and certain parts of the portfolio, more value comes from price point packs. They might be low price point packs, so INR 1 sachet or a INR 2 per pack or a INR 5 Horlicks sachet. In certain parts of the portfolio, especially laundry, the large pack, as you know, offer better value and hence consumers by default go to the packs which offer them higher value, in this case, larger packs in laundry. We have seen a mix of that as well, and we have played our portfolio very well across price points and across the portfolio.
The premium part of the portfolio, and this I'm talking largely overall as Hindustan Unilever, has grown at twice the pace than the rest of the portfolio. We have seen in laundry as well as you know, we have premiumized our portfolio and that overall behavior that we have seen, A, of consumer and B, the strength of our brand and portfolio, we have seen the benefit in our growth as well, where the premium part of the business is growing at twice the pace. Be it premium brand like Surf Excel, laundry in case. Those I would say are four or five, I would say, strong reasons why our performance is so robust, not only from a value growth perspective, but also from a volume growth perspective and absolutely also from competitiveness perspective.
As I mentioned, we have one of the best market share at this point in time in fabric wash.
Okay, thanks so much, Ritesh. My last question is on Horlicks. This launch of gummies, I mean, when the brand was with GSK, they had made multiple attempts to, you know, use the brand outside of HFD. Do you think from here on, HUL would also look to do that and this is a starting point? Or we should not read too much into this launch of the new format?
See, as we acquired another business of Horlicks and let me talk brand, then let me talk format and let me then get into demand spaces. From a brand perspective, we have spoken about as we acquired the business, we activated Boost across the country. Now we have Boost present along with Horlicks across the nation at this point in time. That was the first job we did in terms of portfolio maximization from the Horlicks portfolio and from the GSK what we acquired, number one. Number two, we also activated the Plus range. We mentioned that this is where we deployed our high science range, be it Diabetes Plus, be it Horlicks for bones, be it for women, be it for lactating mothers.
That part of the portfolio also has seen good traction as we have activated. After having done the job with Horlicks and Boost, after having done the job with Plus, third area that now we have seeded is gummies. As I mentioned, this is more of a seeding than a launch full-fledged. This is more in D2C. Of the two formats that we launched, both the Horlicks Nutri Gummies and Horlicks Diabetes Gummies, one of the two we launched earlier, as you know, Horlicks Nutri Gummies, which we launched D2C. We've taken now that to also pure play. We launched after that the portfolio of gummies for diabetes, that we have launched on our D2C website.
We will see consumer traction, how we get for these products and how we're able to develop these products. That's the whole intention of launching and seeding this business as well alongside the portfolio of the two brands and a fabulous portfolio that we activated in the Plus range. This entire attempt of looking at what are different ways we're able to serve consumer needs in functional nutrition is what our attempt will always be. The cornerstone of all of that is one singular insight, that India as a nation overall, we do have micronutrient deficiencies. Our diet is very high on carbohydrates.
Hence, this becomes a fabulous need for us to use our functional nutrition portfolio and to play to that demand space where people might be eating enough calories, but not, might not be having right micronutrients as part of their food plate. This is where the portfolio makes sense. We will keep looking for such opportunities within the portfolio.
Okay. Thanks, Ritesh, and happy Dussehra to you.
Yeah. Happy Dussehra to you as well.
Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.
Hi. Thanks for the opportunity. Hi, Sanjiv. Hi, Ritesh. I have a few small follow-ups, you know, to comments that you made earlier. One was, the first one was a check on, you know, beauty and personal care premium segment doing well. Is there an element of festive pre-buying in the channel, for premium skincare that could have helped the quarter? Is that salient material?
Hi, Latika. Are you saying whether the premium has been impacted by any activity during the quarter? Is that the question?
Yeah. Has that been positively impacted from pre-buying in that channel?
You know, Latika, premium has been growing consistently over this period. Yeah, that is a very clear trend. As you would recall, we are over-indexed on the premium segment. Premium segment we are over-indexed, and it continues to do well. Even if you look at it from a lens of market, premium is growing faster than popular is growing faster than mass. This is a very clear trend, and it is in many ways intuitive because people who have more money are a bit more resistant to inflation than people at the bottom of pyramid.
Okay. The second question that I had was on, you know, price reductions for soap. I just wanted to clarify, is it pure MRP cuts that you're undertaking, or is there a kind of a grammage increase also at low price packs that the company has deployed? And are there any reductions in the laundry portfolio also that you have considered?
Well, let me just probably come back, Latika, a little more comprehensively. As I was talking earlier, tea and skin cleansing are the two portfolio where we have seen commodity coming off. Earlier it was tea and then the latest has been vegetable oil. We have reacted, and the point I was making earlier, when prices went up, we took in small bites price increases. When we have seen a meaningful commodity correction, we have taken in large chunks price decreases as well. Be it tea or be it skin cleansing. The inflation impact in home care has continued. You have seen that crude has remained firm at 90+.
Now with US dollar being strengthening, if I just look at the data point today and a year ago, it's a 12% impact on Indian rupee. That impacts overall commodity costs because either the commodities are in international markets or at least they are sold and bought at import parity. Crude, the point I was making, though it is 90+ firm, but if I add the impact of currency, it is almost $100+ equivalent in Indian rupee. We are seeing it because of that, in September quarter, we did take sequential price increases in home care laundry portfolio. It'll all depend upon...
Within laundry to home care, Latika, also we had called out, soda ash has seen a meaningful amount of inflation, again, coming from energy and overall demand supply of the commodity segment. So we have seen that. Depending on which commodity basket impacts which category of ours, we will keep being very agile and nimble on this front. If at all we do see commodities coming off, we will go with price decreases, as I mentioned, in big chunks. Where we do see commodity remaining firm, as required to protect the business model, we will take price increases.
If I look at latest September quarter, the point I was quoting earlier with a 22% net material inflation and a 12% price, we have a pretty substantial 10% price versus cost gap. Now, I do believe that with crude oil remaining firm because of the currency, but with some cooling off happening to some extent in vegetable oil, there should be slight improvement in price versus cost gap in next quarter. We'll have to see this quarter after quarter, month after month, and depend upon which commodity and which category gets impacted. We will be very agile and nimble with our decision-making and with the speed at which doing.
The kind of reflex muscles we have developed with our science of pricing, that is something which has been a pretty strong competitive edge for us during such difficult times of high inflation across the portfolio or, for that matter, commodity volatility that we have seen across the portfolio.
Sure. Yeah, Ritesh, I was just checking because, you know, there are certain media articles which reported price reductions for laundry as well. I was just trying to confirm that reductions are so far only in the soaps portfolio. Probably also checking there could be some grammage increases at price points, right? Not just MRP cuts. The other bit that I wanted to check was on increase in employee cost of nearly 20%, you know, sequentially and YOY. Any specific reason here?
Yeah. There are three different variables on the overall commodity costs have gone up by 20 basis points, we've seen in terms of percentage turnover. There are three reasons out here. A, the overall inflation of wage inflation in the country and which is why there's a salary inflation, which is there part of the mix, number one. Number two, we also had a VPA true-up as part of our first half performance, which is pretty robust, as you have seen with our results. So we have upped our provision for our variable pay as part of that, and that has also impacted the numbers in the quarter. There is also a component of our overall cost which is shares of Unilever which employees get.
Depending upon the movement of share price of Unilever and GBP vis-a-vis INR, which has seen in this quarter an uptick. Those are the three reasons put together, you've seen overall the employee cost being higher compared to where our top line and growth has increased. Yeah. This is always. There's always some amount of variability you will see, Latika, in terms of employee costs. If I look at overall, let me say a trailing 12 months or a 12-month view, we will always be efficient, where our overhead cost we keep getting leverage. Why? A, because we have a very frugal mindset goes across all lines of overheads, number one. Number two, growth leverage that we have because of our stellar growth performance that we have.
Put together, overall costs will always see leverage, but there will be some volatility like this on quarter-on-quarter.
Okay. Sure. Thank you so much, Ritesh and Sanjiv.
Latika
Thank you. I now hand it over to Mr. A. Ravishankar for the proceedings.
Thanks, Tanvi. We have one question on the web from Richard Liu. Richard asks whether we can give some perspective on how exit trend has been as far as growth is concerned, especially from a rural perspective, given that August and September base months last year would have had the slower rural growth built in. Is the market number starting to look better relative to other months, at least on headline basis? And how would you read this data?
Hi, Richard . Richard, if I break up the September quarter market growth, FMCG market growth into two parts, July and August put together as one bucket and September as other bucket. Definitely month September has been better than July and August put together. The factor which has come out is essential demand generation, which we have seen more in modern trade channel, and number one. Number two, there's also that this time the phasing of season. Festival season a little different than last year, where Diwali and Dussehra both are in the same time, and hence a couple of weeks ahead of what it was, festival season last year. In my mind, there is some impact of that as well in September month.
Clearly September month has been better than July and August put together. Overall, which is also the reason why, as you would see, that the market overall FMCG market in latest three months in the September quarter is ahead of the mark. Mark is more at mid-single digit, and September quarter is more at 6.6%-7%. So we have seen September month a little better. How this pans out in next three months' time, in my mind, the single biggest variable will be commodity inflation and what happens to currency and hence impact of currency on commodities. That will ultimately determine the consumption levels in rural and overall consumption levels in FMCG. That, in my mind, will be single biggest determinant what we should expect going forward.
I spoke earlier about rural in terms of macro. There are elements of rural macro which are in favor, and hopefully they pan out as intention has been and as government intervention has been, and that should help both farm and non-farm income. If that happens, it should augur well for rural economy, and hence in turn, if in commodities we see a broad-based impact and if at all the rural economy does pan out with this government intervention, we should see a better outlook. As I mentioned earlier, we would want to see for a few more months before we start signaling a trajectory change at this point in time.
You know, we've been measured with our commentary and the latest quarter, three-month number, September quarter, has only borne out of what we've been giving our narrative on outlook, even in the prior quarters. Thanks so much for your question.
Thank you, Ritesh. With that, we'll draw the Q&A session to an end. I know we haven't been able to take all the questions. If there is anything still unanswered, please feel free to reach out to any of us in the IR team. Before we end, let me also remind that the playback of this event will be available on our website in a short while from now. Once again, our greetings to you and your families for the festive season. Thank you and best wishes.
Thank you all.
Thank you. On behalf of Hindustan Unilever Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your-