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Edited Transcript of HINDUNILVR.NSE earnings conference call or presentation 14-Oct-19 12:30pm GMT

Q2 2020 Hindustan Unilever Ltd Earnings Call

Mumbai Oct 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Hindustan Unilever Ltd earnings conference call or presentation Monday, October 14, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Sanjiv Mehta

Hindustan Unilever Limited - Chairman, CEO & MD

* Srinivas Phatak

Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director

* Suman Hegde

Hindustan Unilever Limited - Group Controller

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Conference Call Participants

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* Abneesh Roy

Edelweiss Securities Ltd., Research Division - SVP

* Arnab Mitra

Crédit Suisse AG, Research Division - Research Analyst

* Bhakti Thacker

Investec Bank plc, Research Division - Analyst

* Kunal Vora

BNP Paribas, Research Division - Analyst

* Sanjay Singh;PineBridge Investments

* Suvarna Joshi;Axis Securities

* Tejash Shah

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

* Vishal Gupta

Phillip Capital Limited - Trader

* Vivek Maheshwari

CLSA Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Hindustan Unilever Limited Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Suman Hegde, Group Controller and Head of Investor Relations for HUL. Thank you, and over to you, ma'am.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [2]

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Thanks, Raymond. Good evening, and welcome to the conference call of Hindustan Unilever Limited. We will be covering this evening results for the quarter ended and 6 months ended 30th September 2019. On the call from the HUL, we have Sanjiv Mehta, Chairman and Managing Director; and Srinivas Phatak, CFO, HUL. We will start the presentation with Sanjiv sharing his perspective on the markets and the HUL business, and then hand over to Srinivas to share aspects of our performance for the quarter. Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation.

With that, over to you, Sanjiv.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [3]

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Hi, good evening, everyone, and always a delight to share our thoughts with you, and thank you for being on the call.

Today, you might well say that our strategy is boringly consistent. Indeed, it is. It is about delivering consistent, competitive, profitable and responsible growth.

Our thrust on a sustainability agenda and enhancing digital capabilities across the value chain by reimagining HUL makes us confident of building an organization that is purpose led and future fit. I'm delighted to share that HUL has recently been named as a purpose-led company of the year by Business World. This is a testament to a purposeful brands and to the DNA of a company that embeds purpose into their thoughts, practices, products and, in fact, in our very presence.

Now moving on to how the overall markets have been performing. First half of 2019 witnessed slowdown in demand led by rural. Rural consumption has been weak for the last few quarters due to macroeconomic factors that all of you are aware of. Urban consumption has also softened. However, the pace of deceleration is comparatively starker in rural markets.

Crude and currency continue to be volatile due to geopolitical imperatives, global economic cycles and the trade dynamics playing out.

The slew of recent policy measures and announcements signal government's strong commitment to arrest and reverse the slowdown promoting rapid growth, and this together with the direct benefit transfers to farmers should help revise consumption to some extent.

RBI has cut repo rate by 135 bps on a cumulative basis this year to boost the aggregate demand in private investment. In addition, policy measures to link lending rates to benchmark rates will accelerate transformation of rate cuts by RBI and thereby improve the liquidity in the country in the trade.

The MCA announcement on corporate tax rate reduction is a big boost to the industry, makes India much more competitive and should accelerate investments in the economy.

We are quite hopeful that this policy measures should augur well for the near to medium term. However, the virtuous cycle of investment and savings results in more income, especially in the hands of the rural consumer is a key element we need to watch.

Coming to our performance. We have delivered a resilient performance in a challenging context. Our domestic consumer growth stood at 7% with underlying volume growth at 5%. We registered a strong 200 bps EBITDA margin expansion on a comparable basis. We are focused on sustaining growth in a challenging economic environment by significantly improving consumer value across the portfolio. We continue to invest in strengthening our brands, developing market and driving end market execution even harder. At the same time, we are making good progress on our sustainable living agenda. Recently, HUL was named Corporate Trailblazer by India Today and honored for creating awareness and infrastructure in health and sanitation. This is yet another recognition of our belief in doing well by doing good.

This quarter, Unilever has announced 2 new and even more ambitious plastic commitments. First, we will, however, use the virgin plastic in our packaging by 2025 by using more of recycled plastic. In this area, HUL is making good progress. This quarter, we extended post-consumer recycled plastic usage to Vim bottles and some part of Sunsilk portfolio. We will also continue to put thrust on innovating our products and experimenting with new business models to reduce the use of plastics altogether.

Moving on to our second commitment. We will collect and process more packaging than we sell by 2025. We continue to work with various partners across several cities for collection and disposal. Finally, we'll continue to work towards existing commitments to ensure that all our plastics packaging is 100% reusable, recyclable or compostable. This quarter, we also launched a curriculum on waste segregation and benefits of plastic recycling to drive behavior change in nearly 2,000 schools reaching over 1 lakh students in select districts of Maharashtra. We remain committed to building a purpose-led future-fit business and proving beyond doubt that sustainable business drives superior performance. The key enablers to our resilient delivery amidst the softening market conditions are first: We focus on strengthening the core by innovating, strengthening the reach, driving purpose-led engagements and acting on local trends. We launched #MeriBetiStrong campaign on this Daughter's Day with a purpose of raising a generation of strong daughters in sync with the proposition of Clinic Plus.

Secondly, we continue to drive premiumization market development by investing behind brands and building a futuristic portfolio that straddles the price benefit pyramid. This quarter saw an example of how we build access packs, like TRESemmé, in sachet format to drive premiumization.

Our third enabler is innovating for future. We've brought in several consumer relevant innovations in the market like Love & Care, Pears Naturale, Pond’s Super Light gel. We continue to explore new business models and channels. In line with the agenda of future fit and even innovating on building differentiated capabilities, we cocreated a course with IIM Ahmedabad for our distributors to help improve business skills and thrive with the rapidly changing environment.

Lastly, we put relentless thrust on flawless execution to unlock operational efficiency in savings opportunity across all the lines of P&L, which continue to feel our growth.

Looking ahead, we remain confident of the long runway for growth that India offers. We are well positioned to leverage the growth potential of Indian FMCG story.

Under our reimagine HUL agenda, we have dialed up our digital transformation across the value chain leveraging data and technology. We have shared some of the work that we're doing in this area during the annual investor meets. I must reiterate that an integrated end-to-end organization change program will strengthen our data-led capabilities more.

We remain optimistic and confident about what the future holds for India and for HUL.

With that, I hand it over to Srini to take you through the details of our quarter performance.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [4]

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Thanks, Sanjiv. Hello, everyone. Sanjiv has given you a full context of the economic environment in the quarter. While there were headwinds clearly coming through from slowdown to the market, there were also challenges given from disruptions to the physical supply chain, given rains in various parts and there was also liquidity concerns elsewhere.

In the context of this, I think our performance with a 7% USG, domestic consumer growth, and volume growth of 5% is actually a very robust and resilient performance and it's a good performance.

Our net profit has grown at about 21% with INR 1,848 crores. This also takes into account the corporate tax rate reduction, which we have factored in and all of that come in into this quarter. And I will talk more about that when we come to separate chart.

The overall margin expansion was driven by mix, benign commodity and our savings agenda, and overall it has enabled us to deliver a good top line and a good bottom line growth.

If I were to talk about our divisions, it has been a steady performance across our divisions. Home Care has continued its trajectory of consistent growth, grown at about 10%. This will be the 9th consecutive quarter of double-digit growth from a Home Care point of view. BPC grew well at about 4%. Within that again, it's a story of 2 halves. Personal Products had a good performance, and we'll talk a little bit about our Personal Wash business, where we had taken some pricing corrective actions in the quarter and ongoing as we speak. Foods & Refreshment delivered an 8% growth.

Our innovations and activations continue to be critical in terms of how we really run the business. And notwithstanding the macroeconomic environment, we continue to lead our market development, we continue to invest behind our core and therefore, what you really see on the chart is a series of innovations that we put together. You've heard us talk about Love & Care, which is actually our expert care solution tailor-made for special fashion fabrics. I think that's, again, a very interesting innovation, and it's actually a brand launch that we have done in this category after 30 years. Similarly, in Personal Care, you've seen series of innovations, whether it's on gels, whether it's on bodywash or whether it's really in the Lakmé range. And I think if you really see from our own investments point a view, in the quarter, we have actually stepped up our advertising expenses both from an year-on-year perspective as well as sequentially.

Now if I give a bit of a flavor from Home Care point of view, I think it's been consistent top line growth, be it in terms of our Fabric Wash, where I think I have talked about the Love & Care. We have also like actually launched Magic Rinse powder sachets in Tamil Nadu, which actually helps us really manage the water scarcity. It's great to wash while managing the water challenge.

Our Household Care is continuing to drive growth driven by bars really in rural areas and liquids really in the urban areas. And our Domex campaign has been actually taken beyond Andhra Pradesh and now has been extended to Tamil Nadu. And in the purifiers, as you are aware, we are going through a complete channel transformation and our premium -- now premium segment is actually continuing to perform well post the complete change.

If I now look at it from a Personal Wash point of view, in our previous call, we had actually spoken to you about taking series of actions to really address some of our mass part of the portfolio. We had talked about price corrections, price reductions in the range of about 4% to 6% to really pass on the benefits of benign commodity. We have landed most of the actions on Lux and Lifebuoy during the quarter. And as we speak into the current quarter, we will be actually taking further price reductions from, let's say, our other parts of the portfolio, which is really coming from Dove and is also coming in Pears.

We had talked to you about 4% to 6% being the kind of price reduction. So if we now look at the total Personal Wash portfolio, the total price reduction is likely to be circa 6%. You would have seen between 3% and 4% landing in September quarter, the balance you will see landing in December quarter. So that really starts to give you a flavor on what we have done with respect to pricing.

On proposition, it's work in progress. We have dialed up some of the different communication, more will come in due course. And similarly, we will be addressing other aspects of our products. So there is going to be a complete 6P holistic change, which you will continue to see over the next couple of quarters as we complete this journey.

Skin Care has actually delivered a very, very good growth, has actually grown double digit in the quarter backed by robust performance across the brands. We have actually launched Pond’s Super Light gel and some of the other ranges nationally. The Elle 18 also has been launched in the Skin Care in select geographies.

Hair had a good performance with broad-based growth across the portfolio. And Sanjiv talked about the campaign, which is quite an exciting campaign and actually quite an impactful campaign and we're really proud of that.

When you really look at some Colour Cosmetics, I think this is again a business which has been really growing at a good momentum for us, and I think that continues. We really focus on channels of the future. And we have actually also launched the Absolute Matte Revolution lipstick nationally, and there was also a purpose-led communication, which got rolled out during the quarter.

Oral Care has had a good quarter, with growth really led by freshness and the naturals proposition. And obviously, you can see from the charts that we've also added some more variants really addressing the opportunity in a certain segment, which is reality the White as a proposition.

Deodorants set in the market context continues to be quite challenging, and we are actually leading a lot of work in terms of really leading market development. As a part of that, we have actually launched the Axe Mini Ticket variants in select geographies. This is, again, an exciting format at an affordable price, and I think will really help us a long way in terms of building that category.

When I look at, let's say, Foods & Refreshment, so it has been broad-based growth across the categories, again, be it beverages, ice creams or foods. In beverages, I think, we continue to leverage growth by driving some purposeful communication. New communication has really been released for Taj, Lipton and 3Roses. While from an ice creams' point of view, I think our whole strategy of geography expansion is really yielding results, we have seen good growth again in this quarter, while it's not, let's say, the season quarter. But I think, we can clearly start to see the results of geography expansion. We're also starting to clearly see the benefits coming through from the Adityaa acquisition in terms of the results.

Foods, we have had a good performance across the segments. Kissan has been doing quite well. The equity has further strengthened. And in terms of our ketchups, I think we continue to expand our market position versus the competition, and again the WIMI strategy here is working extremely well for us.

Now when I really see from a segmental revenue, I think the numbers are clear. Margins continue to be healthy. Home Care is at about 18%, Beauty & Personal Care at about 29%. And given that we have had phasing of some of the expenses in F&R, while from a sequential basis and year-on-year, there's some bit of lowering in terms of margins, it's actually investing behind our brands and our portfolio and for us it's a phasing issue. At an aggregate, if you really look at it, our margins continue to be healthy and, to be honest, we're quite comfortable investing behind this category to really lead market development.

That's, again, a snapshot of the full year -- the SQ numbers, and I think the clear callouts would be domestic consumer growth at 7%, margin improvement of 200 basis points on a comparable, and I think it will be worthwhile to spend 10 seconds explaining here. You would have seen the reported EBITDA expansion about of close to 310 basis points. If you strip out the effect of the leases, we'll come closer to 200 basis points. You would also remember that we had called out a bit of a change to the accounting treatment, which happened in terms of government grants in the base period. Between the September quarter and December quarter, they negate each other. Having said that, in September quarter because of the accounting treatment, we are actually getting an uptick of about 50 basis points. If I were to call it out clearly for you the best way to read it is 310 basis points as reported, 210 basis points is actually stripping out the impact of leases and about 150 basis points is the right way if I were to strip out the effect of government grants to meet more a quarter comparison issue, but really when you look at the September quarter and December quarter together, they get completely phased out.

This is an important piece. We have taken -- made the change with reference to the corporate tax reduction. Two important elements to call out. While the statutory tax rate was at about 34.94%, our ETR, and I think it's always important to focus on ETR here and eliminate PPA because it depends on -- that's more of a timing issue, our ETR was about 30.5%. We had indicated a slightly higher ETR for this financial year because some of our physical incentives start to come off.

With the change, we will actually go into a -- 25.2% will be the nominal tax rate at. Again, it's good to, again, talk a full year number before we get into quarter. So the nominal tax rate will continue to be 25.2%. But given that we will have 2 changes, given that we will have some deferred allowances, which we always do, and you can see those details from our annual report and because we also have to rebase our DTA. We also had some deferred tax assets. With the lower tax rate, we'll lose some of that benefit, so that also has been factored in. So if you make the change, the effective tax rate from this fiscal actually then starts to become 27%. If you're going to track it and project it into the future, let's say, from an FY '20-'21 point of view, the number which is likely to be more like a 26% and circa, so obviously there will be a few basis points here or there change, but it's good to start thinking in terms of round numbers and is likely to be 26%, it could be 20 basis points here or there, but we'll deal with it when we come closer to it. All of these numbers are actually excluding GSK. Because we have taken the correction in September quarter, the effective tax rate first half and the quarter will be different, and that's what you see on the chart.

Now if I really talk about our first half performance, I think, again, this is actually a testament to our strategy, this is a testament to our agility and how we are actually well positioned versus anyone else in the market to drive which -- growth, which is competitive and growth which is profitable. Our first half numbers are actually domestic consumer growth at about 7% and an EBITDA expansion of about 170 basis points.

Pleased to inform that taking into consideration our overall performance, the Board has recommended a dividend of INR 11 per share versus INR 9 what we did last year. And actually, that's really going to give cash to many of our retail and domestic shareholders in times where, I think, liquidity is at a premium and I think it's -- we're very happy that we are able to do this and pass on some of the cash to our shareholders.

Important to really talk about the outlook for the reasons that Sanjiv explained and everything that we see in the macroeconomic fundamentals around us. The near-term demand outlook continues to be challenging. I think we have seen many an indicator move southwards. While HUL has continued to deliver growth, which is market beating, I think the demand outlook is definitely challenging.

The various policy initiatives taken by the government and the Reserve Bank of India are very welcome, and we believe that they will spur investment, they will spur growth and in due course, we'll also start to see increase to the -- step-up of the consumer confidence.

I think the income transference to the rural areas will continue to be a key. So we are hopeful about the medium-term opportunity, but we will expect a little bit of time before we start to see this growth story come back to its normative potential. Important to clarify here, it's very good growth in the market, there is growth in the market. I think in a context of where we were a few quarters to where we are, there has been a slowdown. Currency and commodity continue to be volatile, such as the nature if you've really seen that crude has moved between $58 to $68 during the quarter. We expect some of that volatility to continue just given the macroeconomic fundamentals globally and actually trade and other related tensions.

So all in all, this will require us to really step up our -- what we really do well, which also continues to be making agility and responsiveness in our full operations.

Our strategy, again, as we say and we'll have to say it, it's boringly consistent, and that remains really unchanged, and we are committed to driving growth, which is consistent, competitive, profitable and responsible.

And on this note, I will hand it over to Suman for the Q&A.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [5]

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Thanks, Srini. With this, we'll now move to Q&A. In addition to the audio, all of you on the call have the option to post a question through the web option as well. We will take up those questions at the end. Before we get started with the session, I would like to remind you that the call and Q&A session are only for institutional investors and analysts. And therefore, if there's anyone else who is not an investor or analyst, but would like to ask us a question or engage with us, please feel free to reach out to the Investor Relations team.

With that, I would like to hand the call back to you, Raymond, to manage the next session for us.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Abneesh Roy from Edelweiss.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [2]

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Sir, congrats on good performance. My first question is on rural. So in Q1, rural grew at same rate as urban, while in Q2 it has become half of urban in terms of the sector. While if I see your overall growth in terms of volume, it's fairly similar, 5% in both the quarters on a reasonably similar base. So does it mean your rural growth would have been faster than what say Nielsen's is reporting for the sector or the urban growth for you has seen some acceleration, so if you would clarify on this?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [3]

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Yes, first, Abneesh, belated Puja greetings to you. And if we look at the market construct, the MAT numbers, the value growth was in the vicinity of 9%, which in the last 3 months has come down to about 5% and the volume numbers which were about 7% have now come down a shade under 3%, yes? And then you compare versus our numbers, then it is very obvious that we -- it is resulting in a market share gain for us. And you're absolutely right that the bigger concern is rural, where we always index versus the urban growth and in good times, it is 1.5x, it also touches 2x at times. And it's slowly been coming down and now it is at 0.5x of urban growth. So urban has reduced, but the deceleration in rural has been at a much faster rate.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [4]

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One follow-up here is on liquidity, till Q1, it was wholesale which was getting impacted. What we are getting is in Q2, even distributors are now getting impacted. So if you could share in your case also have distributors been impacted? And what have you done proactively to support growth both for wholesale and distributors?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [5]

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So I think, Abneesh, the real challenge continues to be, one, actually still downstream, whether it is really retailers or whether it's in wholesale channel. And if you ask me, I think the acute liquidity crunch has been felt there. If you really look at our distributors, we got 3,500 of them. Many of the large people, I think, are well positioned. We manage our stocks. We manage the market credit in a well-oiled way. So I don't think that's really caused any big changes. But if you really look at some of the rural areas, if you really look at some of the central parts of the country, the overall liquidity crunch is actually coming again. I think that's when we are really working with many of our banking and financial partners to really find the right kind of solutions and support our distributors and that's working well, and I think we're looking at a series of measures to really do that. Having said that, in the quarter, we also had many disturbances. I think it's important to highlight that there was a lot of disruption to the logistics and physical supply chain. And there actually in some select cases, we actually stepped in to support our distributors through credit, it's happened during the quarter and it's also happened towards the end of the quarter. So we also made some direct interventions, given the disruptions and the market conditions, in selective basis to really support directly and that's also actually helping us.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [6]

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My last question is on the GSK merger. So earlier, December was the likely deadline. So is there any change to that? I understand there is some delay. So if you could discuss what is the new deadline, and what is the reason for this delay?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [7]

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Yes. So Abneesh, there are 2 sets of NCLT proceedings, which we need to complete, one is a really from NCLT Mumbai, which deals with HUL and there is an NCLT in Chandigarh, which actually deals with GSK. In case of NCLT Mumbai, we've had the final hearing, and we expect to get the orders maybe in a couple of weeks' time, fingers crossed, everything seems to be working well there. While the NCLT Chandigarh proceedings have moved ahead, I think it's taking a bit longer in terms of getting the dates and having the hearings. So as things stand, while we still -- we want to see Jan 1st if possible, I think December is looking tough. If that'd be the case, possibly we could see 1 month or 2 of -- I can't call it delay, 1 month or 2 delay versus what we thought which was December. But overall it's progressing well, it could be a couple of months from where we originally thought.

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Operator [8]

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The next question is from the line of Arnab Mitra from Crédit Suisse.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [9]

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My first question was on the tax -- corporate tax cut. So just wanted to get your thoughts on how you think about this. Is this -- because this is an income tax cut, does it get retained by the company in terms of its earnings or because you do get a relatively high windfall gain in the -- below the PBT, do you relook and revisit your margin expansion aspirations for the year? And do you plate along with any other line of the P&L or because this is corporate tax cut, you retain the benefit?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [10]

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So Arnab, there are, I think, multiple ways to really look at this. First is that we had some factories where we had fiscal benefits, now today there will be no longer fiscal benefits, or let's say the income tax part of it will come away. So there's an aspect that we need to think in terms about, okay, what's the right manufacturing mix and how do we want to handle? I think that's an important element we do. If we do that well, you will -- we'll actually be able to generate some more savings, gross margins and so on and so forth. I think that's going to be an important piece of work that we are doing. There are some interesting aspects in terms of what you do with our supply chain. We have many third parties. There's again a case for us to relook at as to how do you handle some of that, is it time to start bringing some of them in house? And if you do that, is there a benefit? Of course, you need to study the tax laws in terms of what you need to do.

The third piece, which you also need to see is that, look, is there a case for us to look at selective deployment to some of these monies to spur growth, lead market development, bring in further innovations? Of course, there is a case for that. There's also an interesting angle to really see, look, how will some of the other peers in the competitive set and how will they react to it. So it's -- actually there are 3 or 4 or 5 different angles to approach this. We are taking our time to really pull together a few scenarios and work this through. And in due course -- and actually, it's a big change, and I think we need to look at various aspects to it, and we will do all of that. I think the good part at the end of this is that finally, from an EPS perspective and, let's say, from a PAT perspective, there is value accretion and therefore, I think managing the lines in a sensible thing is something, which we will do once we work through the strategy.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [11]

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Sure. My second question was on the competitive intensity. So have you seen it remain stable through the quarter? Has the slowdown has worsened that in aggregate level or has it increased? And in that context, the soap, the additional price cuts you've taken, is it driven by an increasing intensity in the sector or is it something which naturally follows from your earlier 2 price cuts?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [12]

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See, overall, from a competitive intensity, I will not say there's any big difference between where we were a quarter ago. There were [things] where we continue to see intense competition. Modern trade became a classic one where we have seen many people step up promotional intensity. I think that has continued. We have not seen a significant change to where we were. On your second part of the question was really around cleansing. I think we have explained in fair amount of detail, in that we've seen a significant benefit which is coming through from a commodity point of view. Some of the veg oils are actually lower year-on-year about 15% to 20% and they're expected to remain soft for some time. You made a correction -- of course, we have taken a series of steps with respect to Lux and Lifebuoy, one is to actually change the pricing between various packs and in some cases, it was a larger drop, in some cases it was a smaller drop. Given that the commodity is remaining benign for a further period of time, it's only natural for us to look at it from an entire portfolio and therefore, we talk about Dove and Pears in today's context. To us, it's more about passing on the right value to the consumer and therefore, driving consumer value and growth rather than being a reaction to the competition and what they are doing. So I also called out for you, the effective reduction will be approximately 6%, a part of it has come from September quarter and the balance will come from December.

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Operator [13]

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The next question is from the line of Vivek Maheshwari from CLSA.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [14]

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A couple of questions. First, this rural half times of urban, would you remember when did you last see this number because as far as I remember, half of urban, I don't think it has grown to my memory. Is that correct?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [15]

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Yes. Vivek, first, it's been a pretty long time since we have seen the growth rate at half that of urban.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [16]

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Okay. And I think in the previous quarter, you had mentioned about you being hopeful that second half things will pick up with the outcome that we have seen with whatever industry reports kind of suggesting how are you seeing the second half, the recovery gets pushed back to, let's say, '21 or you are still hopeful on second half recovery?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [17]

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One factor, which always plays a big part, Vivek, as all of you know, there are 2 parts to how you could revive demand: One is having more income in the hands of more people; and the second is giving a fill up to consumer confidence. Now more income in the hands of more people could be through a conscious attempt by the government to transfer more money to rural people or it could be by increasing the MSP, which could result in the wage rate also going up in rural India. And as far as confidence is concerned, one good bit has been that in 30 out of the 35 divisions, we've had adequate to above average rainfall. So that augurs well and that could translate into the confidence going up. But I think the critical complement would be that not only should the production go up, but the total realization of the farmers should go up, yes? So there's still variables at play. Our hope is there that things should improve. But at this stage, we are not seeing a sign.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [18]

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Sure. And the other bit was on the launches. The launch activity continues to be good, which is certainly a great outcome. But in the context of slowdown in the market, do you think that there may be a case to kind of slowdown on the new launches and do it only when market environment improves?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [19]

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Our products, you could term them as small indulgences. And even when times are tough, you would still want to pep yourself up by having a good Magnum or buying Love & Care. So we -- as you know, we don't run the business on a quarterly basis or a short-term basis. We always take a long-term view, and broad strategy remains unchanged. We focus on the core. We will drive market development in premiumization. We will keep focusing on driving efficiencies across the different lines of P&L. So from that perspective, we don't do a significant change in the strategy. We might do a nick here to -- from a tactical perspective, but we won't shy away from investing behind our brands and our categories.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [20]

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Sure. And just 1 or 2 more, if I may, on the deferred tax rate, Srini, can you quantify, if possible, the amount of deferred tax asset that you would have reversed in this quarter?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [21]

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Maybe, Vivek, I can take that question. We didn't reverse, the deferred tax asset. You apply the revised tax rate on the deferred tax asset that you had because in the future, you will get value lesser by that extent. The quantification of that, I mean Srini mentioned, was about 1 percentage point for the year, which is why he said, in year is about 27%, but an ongoing basis for 2020-'21, it would be about 26%, yes. So about 1% is the deferred tax impact in year.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [22]

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So that means on a full year profit, there will be 1 percentage point delta, so for the quarter I can do the math and calculate it.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [23]

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Meanwhile, you can do the percentage -- yes, you're right.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [24]

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'19-'20, 27%; '20-'21, 26%.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [25]

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No. The effective tax part, I understand -- I understood. My question was on the DTA just to get a normalized profit growth for this quarter because...

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [26]

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That's different, for 1% is predominantly coming because of DTA.

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [27]

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But on full year, which means that adjustment will be for the quarter here, right?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [28]

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Yes. The entire -- you'll see -- for the 4%, if you do the math and multiply it by 4, yes, so...

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [29]

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I know it's easy to do full year, Vivek.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [30]

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Okay, Vivek, I think that's a number. If you really want to...

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Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [31]

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I mean, the year, if you're thinking just to give the number, I think, Suman.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [32]

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No, no. I will suggest if you can go through our annual report and right go through the number, and you'll find the DTA numbers, just apply the new and the old tax rate, yes.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [33]

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So that's a good conversation. All of you can have to say, what is the easiest way to work it through 1% is the right way of thinking about it.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [34]

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This number will -- or the excel will get it through, yes.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [35]

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Yes, sure.

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Operator [36]

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The next question is from the line of Kunal Vora from BNP Paribas.

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Kunal Vora, BNP Paribas, Research Division - Analyst [37]

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How do you expect distribution to evolve over the next few years with emergence of technology-led B2B players such as Udaan and potentially Reliance also coming in? And how do your traditional distributors see this, any conversations which you had with them? That's one.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [38]

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Kunal, that's actually quite a long term and a medium and a strategic question rather than really focused on the in-quarter performance. So look, if you really don't mind, I think we can take that separately, happy to clarify anything related to the quarter and the outlook now rather than a structural change, what's happening to our trade and the trade structure.

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Kunal Vora, BNP Paribas, Research Division - Analyst [39]

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Sure. Okay. You mentioned tax rate will be 26% for fiscal '21 and going forward. Is there a scope to reduce it further by setting up new factories? Any new investment plans, which are coming up?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [40]

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So look, there is a provision which is available in terms of if you set up a new company, but then it's a question of what will that -- how will you think about it, what will you do? From a stand-alone company perspective, I don't think so if it's Hindustan Unilever. One will have to really think about something in terms of the new structure to really unlock it. But otherwise, I don't see an opportunity to really bring it down from an existing HUL.

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Kunal Vora, BNP Paribas, Research Division - Analyst [41]

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Sure. Okay. And lastly, can you share an update on your tie-up with telco operators, Jio and Airtel, so like you're, like, trying to do something on the consumer connect side, any update which you can provide on that?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [42]

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So look, we are doing lots of partnerships, Airtel is one, and there are a few others actually. And these are all coming through in terms of our whole aspect as in how do you digitize our traditional fit and there are a plethora of initiatives. So there are partnerships with some fintech people, there are partnerships with Airtel, has been talked, Jio was talked about. There are a few others who we have not mentioned names, but it's really about looking at different solutions. And many experiments are progressing well and that's what we keep covering in our reimagine HUL. Overall, it's progressing well and we're quite pleased with that.

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Operator [43]

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The next question is from the line of Bhakti Thacker from Investec.

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Bhakti Thacker, Investec Bank plc, Research Division - Analyst [44]

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Congrats on your numbers. I have only one question left. What has actually changed in the Oral Care that the performance has been very -- the performance has been good and improved?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [45]

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Thank you, Bhakti. Oral Care, I think, we've said the 2 callouts for us have been really all about freshness proposition, which is, again, aspect of Close Up; second is really about Ayush and what we're doing with the naturals. I think we've also now started to deploy effectively our total WIMI strategy in terms of how we are focusing on few geographies, how we are focusing on a few packs. And I think we have also started to make changes to our communication, which is actually today a lot more adaptable to the different languages and different preferences. So I think these would be some of the 3 changes that we have really done from an Oral Care point of view and it's also started to give us some good growth. But to be honest, again, I think it should be good for us to see you know a bit of a longer term perspective because where we are coming from is also some of the weaker base that we're really coming. So while our headline growth may look good from a particular quarter point of view, I think we need to start seeing it for a few quarters before we can really say we have completely addressed the issues and we have come back to a good cadence. We are happy with what we have seen so far, but we would want to see that to continue for some time before we really say that, look, we've got it all going the way we want.

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Bhakti Thacker, Investec Bank plc, Research Division - Analyst [46]

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Okay. And how is the competition in that space now?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [47]

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I think it continues to be intense. I think it is one of those categories where we still see that naturals is playing a big part. So to that extent, some of our peers have got some good presence. I think that category has also seen a lot of step-up in terms of innovations which have come through in the last 12, 18 months. So I think there, the competitive intensity continues to be higher.

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Operator [48]

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The next question is from the line of Sanjay Singh from PineBridge Investments.

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Sanjay Singh;PineBridge Investments, [49]

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Just wanted to clarify when -- with the new tax rate, the fiscal benefits for the -- the income tax benefits go away, which you were getting for the old -- for the factories, which were in -- for the income tax-free locations, but the GST benefits continue, right?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [50]

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Yes. So absolutely, you're right, so GST benefits continues. So for example, if I were to give you an example, I think, if you look at our annual report, we've talked about something like about 560 basis points as a benefit of fiscal in the last year. That was predominantly coming from some of our manufacturing plants in Assam and a couple of others. So to that extent, while the income tax benefit gets -- goes away, we still get the GST benefits coming in Assam and therefore, the Assam factory is absolutely continues to be relevant. The question that we need to ask is, do I need to continue to produce everything that I'm producing today or once I work through my -- where my consumers are and where my raw materials and where my packing materials is and where the -- my GST benefit, if I do the math of all of that, there is a case for me to reach -- shift some of the production differently and that's what we'll be doing. But the overall attractiveness of NESA as a factory still continues, so the Assam factory still continues.

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Sanjay Singh;PineBridge Investments, [51]

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And when does the Assam factory complete 10 years?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [52]

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It doesn't matter now because I am moving out of that fiscal incentive scheme for...

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Sanjay Singh;PineBridge Investments, [53]

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For the GST benefit?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [54]

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Sorry. GST benefit.

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Sanjay Singh;PineBridge Investments, [55]

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For the GST benefits.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [56]

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When is it, Suman?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [57]

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Yes. So we have -- the different units will have a different points in time. The outer limit on the last one is around 2028.

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Sanjay Singh;PineBridge Investments, [58]

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Okay. And I didn't understand the 26% part because ideally if the deferred tax asset should go away -- I mean this year, I understand, but why 26%, why not 25.2% from...

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [59]

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No, that's simple. If you look at it 25.2% is going to be my base tax rate. I always get some tax disallowances, and they have been going on for a long time and there are some structural issues, which are all matter of judicial cases. So there are some elements on which the income tax department has been giving me a disallowance for now, what, 7, 8, 10 years. So to that extent, there is no reason for me to factor in anything differently. As and when we win those cases, and we are hopeful we will, then you're likely to be seeing more like a 25.2%, failing which, which I'm really saying is that I look at 26%. So if you look at, again, our annual report, what's page number, Suman, on this?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [60]

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111.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [61]

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If I look at our annual report Page 111, you'll get to see that even in the earlier regime, we always had some disallowances. So question is absolutely right. If everything were to be normal, it should be 25.2%. Given that we'll have some disallowances and it has got nothing to do with DTA, we will get 26%.

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Sanjay Singh;PineBridge Investments, [62]

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And is there -- I mean you would have got some view from your tax consultants, is there legally, technically it is allowed that if Lever sets up a manufacturing with a subsidiary, that will get a 15% tax rate under the new manufacturing -- new income tax laws or it's not allowed something -- is there any legal aspect to that?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [63]

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So Sanjay, this is work in progress. It's not something which I can really off the cuff remark because the various aspects we are examining and as and when we are ready with that, I think we'll be in a place to share.

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Operator [64]

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The next question is from the line of Tejash Shah from Spark Capital.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [65]

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Congrats on a good set of numbers. Sir, just if you could share some more read on the rural slowdown as in is there any regional diversity to it or is it uniform across?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [66]

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So thank you for your wishes. So look, in a large country, such as us, there's always going to be different dynamics. I think what you've not spoken about is saying, look, if you see premiumization is still intact. Premium is still growing faster than the aggregate. So that also still continues. Have we seen naturals growing faster? The answer is, yes, naturals is still growing faster than the overall portfolio, so even that continues. Have we seen a bit of a slowdown? Sure, we have seen pockets of slowdown. Couple of examples, if I were to quote, parts of Madhya Pradesh, Chhattisgarh has been a bit slow. Parts of greater Maharashtra, which is outside of Mumbai, Pune, some of the slowdown we have seen has been stopped, so we have seen a bigger slowdown there. A little bit of Punjab and Haryana and hills has been a bit slow. So therefore, there are some pockets in which case it's slower. There are other pockets also where it's holding on quite well. For example, if you look at some of the southern markets, I think they're holding on quite well. If you look at parts of UP, and that's the contrast of India, that's also holding on well. So yes, different parts of the country are behaving differently. And that, again, is something we observe and watch very closely. And I think that's also where our whole Winning In Many Indias strategy actually help us navigate and manage these different patterns.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [67]

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Sure. And sir, if I reconcile your overall industry commentary and now with your numbers, is it a safe assumption that you would have gained market share in larger part of the portfolio?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [68]

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Yes. So look, we would definitely believe that the growth is competitive, and so the short answer is yes.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [69]

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Okay. And sir, lastly, you said naturals is still growing faster as a trend, but if I observe, then Ayush has been missing from our communication for a while, this is second consecutive quarter. Any rethink on that strategy?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [70]

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There's no rethink on that strategy. If you see in Oral Care, I still said that it is coming from Freshness and naturalness. By the same logic, I have not even been talking about Indulekha for many quarters now. So look, it's not about every quarter trying to call out each of this. The strategy on naturals remains unchanged, the focus on naturals remains completely impact. And we continue to do it the way we've talked about our three-pronged strategy. So nothing really changes there because as a trend, I think, it is the right trend and it's here to stay. And if you ask us, actually it's also an interesting time to talk about some of the different -- and for example, simple is, again, a brand, which we brought in e-commerce. It actually is a slightly different take on it. It's not naturals, but it's about no baddies, it's about really chemical-free. So that's also an interesting trend. So even that is something, which is going to be promising for future. So absolutely, you can be rest assured, no change to our strategy.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [71]

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And sir, last one, bookkeeping question. Even on a low pace of last year, our employee cost has degrown this quarter. So any one-offs or reclassification here?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [72]

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There are -- yes, you're right. So there are some base numbers, which have changed in terms of variables and some cross charges that we do between our own parent company and our subsidiaries. But intrinsically, there has been a certain amount of salary increment. But in a large company, there will always be some one-off in the base because of which you are seeing the number drop.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [73]

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So again, I think the best way because this question keeps coming up often, I think it's always good to look at an year-on-year number to get a better picture because in a quarter depending on how some of our VPA, some of the payouts happen and some of the valuation assumptions, which change in terms of our longer-term benefits, we do tend to see a bit of volatility to the numbers. If you want to really pick up a secular trend, I would really encourage all of you to start looking at a full year number rather than really see quarter-on-quarter. We do pay our people well, and therefore I think to that extent, we are in good state.

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Operator [74]

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The next question is from the line of Vishal Gupta from Phillip Capital.

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Vishal Gupta, Phillip Capital Limited - Trader [75]

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Congrats on a good set of number. Can you please elaborate on this new launch that you made, Magic Rinse powder, it seems to be a water-saving product. So as of now, it seems you launched in Tamil Nadu, do you plan to extend it to many more geographies in the near future?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [76]

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Let me take that question, Vishal. I think you're right. It's just now launched only in Tamil Nadu in some of the -- in parts of Tamil Nadu per se. It is a product which has been launched from a water conservation perspective. So what does it effectively do? You add it to a bucket of water, it cuts out the amount of lather that the detergent generates and hence the rinse -- the amount of water used in rinsing comes down. For now, it is planned only in the city. As and how it picks up and how the proposition really works, then we could look at expansion, but very early days, it is launched in the quarter. So as of now, we just want to see if the mix works and if there is genuine consumer need for the same.

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Operator [77]

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The next question is from the line of Suvarna Joshi from Axis Securities.

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Suvarna Joshi;Axis Securities, [78]

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Congrats on good numbers. Sir, just wanted to know how is the naturals portfolio tracking for us, and could you highlight about the competition in this particular category, in the industry as such?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [79]

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Yes, so thanks, Suvarna. I think we just had a slight discussion on naturals just before this question came up. I think as a segment, it's -- naturals is not a segment. Naturals as a proposition is relevant. We are continuing to see a lot of traction in naturals both from our side as well as many of the peers. As you recollect, we had three-pronged strategy where we are doing naturals under our existing brands, there are a lot of natural variants that we bring in. There was really Indulekha, which is a specialist brand and Ayush where we are now focusing on south and in west, which is really our master brand. I think we continue to stay invested in all 3, and I just explained that they're growing -- naturals is still growing faster for us than the company average. Of course, everything we've seen a slowdown, so that also impacted naturals and naturals is not immune to that. Coming back to your question, I think, Oral Care is one space, if you really ask us where natural proposition has landed the best and there, given the nature of the players involved, there is fair amount of competitive intensity. Having said that, this is a space we continue to believe will gain traction, there will be a lot of interest and people will continue to invest in this segment. So if I were to call out today, it tends to be a little intense in Oral Care, but clearly relevant across, including cleansing, skin and others.

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Suvarna Joshi;Axis Securities, [80]

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Sir, just a follow-up on that, in Q3 FY '19 call, we mentioned that naturals portfolio was growing 2x to 2.5x of company. So what would that number be right now if you would want to call that out?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [81]

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I don't recollect the 2.5x. We've always said it's being growing at twice the company's average and I think that we've said. So if I were to look at a year-to-date basis, it's about 1.5x. So it's come off a little not because it's come off because I've also had Indulekha, which I now have got extremely good growth and they're sitting in my base. And until I find the next level of Indulekha, even a 1.5% -- 1.5x is a very attractive number. If I were to look at on a year-to-date basis, it will be more like 1.5x.

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Operator [82]

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Next, we have a follow-up question from the line of Arnab Mitra from Crédit Suisse.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [83]

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Srini, just one question regarding the refunds on the fiscal benefits. So in the base quarter, you had basically called out for around 0.8% to 1% impact on the USG. So would it be fair to, therefore, adjust that and say that the adjusted USG this quarter would be lower by that amount?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [84]

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No. So Arnab, if you recall, last year, there was an impact of the 2017 base of December quarter, which we had said we have taken a correction in 2017 SQ and DQ where there was a movement, which was impacting the USG of 2018 September quarter. It was on an account of this because this was sitting in different in other operating income and income, so it is not really sitting in the sales number. So the 2 are not correlated. It was in the context of the 2017 correction that had happened on the GST refund. I think what you can take is the EBITDA impact this time only, which Srini has called out, is to the extent of about 50 bps. They are not really impacting growth in any sense at all.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [85]

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Yes, growth, you can completely -- I think, you're absolutely right. There's no impact on USG. Definitely margins are higher -- EBITDA margins are higher 50 basis points, not EBIT because it's again a question of where does it fit. Next quarter, you'll see a reverse effect of that.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [86]

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Yes.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [87]

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So therefore that's why I said the numbers, 310 basis points, 200 basis points and 150 basis points, and 150 basis points is a good way for you to look at stripping out these 2 effects.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [88]

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This never sat on the sales number, Arnab, just to answer.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [89]

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Yes. The other income and other operating income.

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Operator [90]

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(Operator Instructions) The next question is from the line of [Priyanka Trivedi] from Antique Stock Broking.

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Unidentified Analyst, [91]

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I just wanted to know what has led to the improvement in the gross margins?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [92]

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So look, it's a inconsistent story. There is nothing else which we can really talk from a quarter point of view. I think it's a combination of 3 or 4 things. There's definitely a combination -- first element of mix that we continue to do. There is a bit of savings that we have continued to drive and it's been an ongoing agenda for quite some time now. We're still flocking closer to 7% or 7% thereabouts about as on a year-to-date basis as we look at our gross savings. We've also had some benefit of benign commodity, which has come through. And these are 3 or 4 elements, which have actually continued to drive our margin expansion. And the fourth element is that we also get a growth leverage. All said and done there, look, on a year-on-year basis, again, we've grown 7% one more quarter, which is actually a good growth rate and higher than many other fixed costs that you have, which by definition also then tends to give you growth leverage.

No further questions on the phone. We're taking a quick look at some of the questions which are on the screen. I think there was a question relating to rural demand and urban. I think we've had a fair amount of discussion with reference to that. So I'm not going to repeat that. There's a question relating to margin expansion. I think we've also spoken about margin expansion, that's the last one, which I've answered. So that's really been addressed. Advertisement spends for second half 2020, don't know what that really means. We continue to maintain competitive spends. Even if you see the current quarter, we have actually stepped up our spending year-on-year. We have stepped up our spending sequentially. And as we've said, we will continue to drive innovations, and we will continue to drive market development.

Reason for GSK consumer, I think I have explained to you the status of GSK where we are with the NCLT proceedings. Input price environment, as I said, look, the story is in 3 parts. If I were to look at Home Care, crude year-on-year has come off a bit, but crude has continued to be extremely volatile. We have seen crude move between $58 and $68. Currency has been a bit of a pressure, given everything which is happening. It's more legged out of international factors and some domestic factors. So but still if I were to see there is -- year-on-year, if I were to take the volatility out and inflation, there's not much in Home Care, it's more benign. If I were to look at Cleansing and we've spoken about Cleansing, actually veg oils were lower year-on-year by about 15%, 20%, so there is no inflation there. We have started to see inflation in our Foods & Refreshment parts of the portfolio, whether it's premium teas or SMPs as 2 examples. So overall, I think it's going to be a space which we need to watch out with different aspects of and different commodity change behaving differently. Total price cut, I think, we have also clarified that from a Cleansing perspective. I don't think there's any point in really talking about an aggregate. Because really if you see, these price reductions are focused towards Cleansing and I've clarified that number.

This came from Nirmal Bang Securities and Manish Ostwal. Manish, I presume I've answered all your questions there. The next question is from Nitin. Nitin Gupta from SBICAP asking us whether there was any upstocking benefit in volume growth of Q2? We sell to demand, we sell to replacement. I don't think there's any upstocking, which works in our business. So from our point of view, no, there isn't any.

The next question is from is Percy. Percy is really asking about gross margin. He says it's commendable, but it's surprising. I think I've answered why I believe it is commendable, yes, I agree. Was it very surprising? Perhaps not, actually not. And I think we have had a good reason in terms of the levers and drivers for that. So Percy, I hope that answers your question. The next one is from Shirish, which is from Centrum. Rural growth and stronger markets, I think I've given a bit of a flavor of rural. And I have also called out geographies, so Shirish, that should answer your question. Is wholesale struggling come back despite improvement in liquidity? Shirish, I think the liquidity is not really where we need it to be. While many measures have been initiated, there still has to be the transference through the banking system and actually come wider. So if I really look at it today, the liquidity still continues to be quite tight and it's, therefore, the improvement is some distance away. We are hopeful that it will happen sooner than later. Magic Rinse Powder is the next question, and Suman has already clarified what is the product and what does it do and our plans on that.

The next question is from Rohit from Elara. How has the growth been sequential in July, August and September? Are we seeing any uptick in consumption? And are we seeing any improvement visible in Diwali sale? So not a material big difference between July, August and September. But because as we said, overall the markets are trending lower, if at all there is any, there is only pressure sequentially, rather than an uptick, which is coming through. So as I said, that's the reason we have called out as demand outlook being challenging. Sorry, just, second is pre-Diwali sale, look, there is some effect, which comes through, but in our category, you're likely to see some benefit, which comes through in skin, you're likely to see some benefit, which comes through in colors. But if I were to look at it on aggregate, Diwali is not something which really then starts to skew up our consumption or demand offtake.

So there's one question from Shirish, again, from Centrum. How does modern trade and e-com grow and their sales contribution, inventory correction witnessed by company in GT? I think modern trade and e-com are continuing to grow well. They're going to grow faster than general trade, obviously. But overall, the growth rates have come off even in these channels. But it's fair to say that both these channels are still growing in double digit. Yes, so that, I think, is a fair comment. Inventory correction witnessed by the company in the general trade, look, from a distributor perspective, that's what we continue to monitor. We don't see any difference because we sell to offtake, we sell to demand. Having said that, from a retail perspective, is it possible given the liquidity issues and given the consumer confidence issues, would there be some correction happening at the retail chain? Retailers, it's quite possible because part of it will be consumers offtake, part of it could also be some of the people, the liquidity result is not really stocking up what they would and that definitely is a genuine issue out there in the market.

The next question is Sagarika from Elara. We don't talk about volume growth at a divisional level and therefore, the question was kind of indicate what is the volume growth in BPC? We don't do that. Any categories where price hike was executed and is it carryforward? Suman, would you want to just give a quick view on any price -- pricing action?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [93]

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So there have been, Sagarika to your question, some price increases and some price decreases within a particular category, like I think Sanjiv and Srini answered previously, these are strategic driving actions that we take through the quarter. Yes, sometimes linked to commodities, sometimes linked to certain markets where we need to do a strategic price correction looking at the price value creation that needs to be landed to the consumer. But nothing specific like the skin cleansing intervention that we've done that we'd like to call out. Yes, some of it would be carryforward, some are new pricing actions that have taken in the quarter, yes?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [94]

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Yes. Next question is from Chintan Patel from ASA Capital, talking about price increase and decrease in Home Care and the individual divisions. I think Suman has given the answer. At an aggregate level, we don't split it between our 3 divisions and go granular there. So that I think is the right answer, Chintan. The next question is from Anand Shah from Axis. Would it be fair to presume that personal growth -- Personal Care growth has improved sequentially? I think let me split this, Anand, on a personal products point of view, we have seen good volume growth. I think that continues. In the Personal Wash, given that we've taken some price reductions, we have seen some volume uptick , that's only natural. But given that we have taken somewhere about 4-odd percent in terms of price reductions, we are not seeing volumes which will fully compensate for that. But to be fair, that's not something that you'll see in the short period of time. But have you seen a little bit of uptick in volume? The answer is yes, we have seen a bit of an uptick in volume. The next question is from Jaypal Shetty on other expenses. Suman, can you just give a quick view on the movement in the other expenses and a quick commentary on that?

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Suman Hegde, Hindustan Unilever Limited - Group Controller [95]

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Yes. So if you're asking for a particular raise on year-on-year, yes, there has been an increase. There are some one-off investments that we have done in quarter. We have been speaking in the past on the investments we're doing behind capability building and on our IT infrastructure. So those costs are an increase, which is coming in, in this year. Also some of the infrastructure we landed previously has come in. There are also some phasing of expenses, which quickly happen in December quarter when we do our closing of books on physical verification, which we've taken as a one-off into this quarter, plus I think one of the things there's also between last year and this year, there has been some movement in the ForEx, so the mark-to-market of that is a hit in the quarter as well. So yes -- so there are multiple things, they are mostly one-off and phasing that have come in. Normative basis, we would anyway have a bit of an inflation coming into other expenses, yes.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [96]

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I think all good except that some of the investment in capabilities, it is actually -- it's a consistent investment that we'll continue to do. Some of it could be higher in a particular quarter and some of it could be lower in a particular quarter. Just to clarify that, that may not be one-off investments, but absolutely everything else Suman has clarified is absolutely right, yes.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [97]

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So I don't think we have any more questions on the web option for us now. So with that, I'll bring an end to the end of -- do we have one more, okay. We did -- one more just popped up by Avi Mehta from IIFL. Do you see Personal Care margins coming under pressure from price cuts in Personal Wash? Does each segment look at managing pricing actions to maintain margin or is the comment more on the corporate level? Srini, do you want to take that?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [98]

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So overall, look, at this stage, I don't expect to see any big pressure coming from a Personal Care margins point of view to 2 simple aspects and largely what we've done in Personal Wash is actually passed through the benefit of commodity. And even if we actually were to take it forward and even invest further in Personal Wash, I'm fairly comfortable with that. Given that we have got different parts of the Personal Care business, we got enough levers to continue to generate fuel for growth even between that division. And to be honest, on a strategical basis, we actually manage the totality. The beauty of a company like us is that it gives us the ability to manage portfolios. It gives us many -- ability to manage at a corporate level, obviously, while we maintain either ends to a divisional strategy. Within that, I think we've got enough levers to play with. But on aggregate, I don't see the Personal Wash actions really leading to any margin implications at this stage on a material level, yes.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [99]

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Yes, so that's the end of the Q&A session. Before we end, again, let me remind you that the replay of the event and a transcript will be available on the Investor Relations website in a short while. You can go back and refer to it. You would already have a copy of the results and the presentation. If not, you can find that on the website as well. We bring the call to a close now. Thank you, everyone, for your participation, and have a good evening.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [100]

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Thank you.

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Operator [101]

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Thank you very much. On behalf of Hindustan Unilever Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen, you may now disconnect your lines.