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Edited Transcript of HINDUNILVR.NSE earnings conference call or presentation 31-Jan-20 12:30pm GMT

Q3 2020 Hindustan Unilever Ltd Earnings Call

Mumbai Feb 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Hindustan Unilever Ltd earnings conference call or presentation Friday, January 31, 2020 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

* Aditya Soman

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Amit Sinha

Macquarie Research - Analyst

* Anubhav Sahu

moneycontrol.com, Research Division - Research Analyst

* Harit Kapoor

Investec Bank plc, Research Division - Analyst

* Kunal Vora

BNP Paribas, Research Division - Analyst

* Manoj Menon

ICICI Securities Limited, Research Division - Research Analyst

* Percy Panthaki

IIFL Research - VP

* Pulkit Singhal

Motilal Oswal Asset Management Company Limited - Associate VP & Analyst

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* Shirish Pardeshi

Centrum Broking Limited, Research Division - Senior Analyst

* Tejash Shah

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

* Vishal Gupta

Phillip Capital Limited - Trader

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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 Q3 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. 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 confirm in this evening results for the quarter ended 31st December 2019. On the call from the HUL end, we have Mr. Sanjiv Mehta, Chairman and Managing Director; and Mr. Srinivas Phatak, CFO, HUL. As is customary, we will start the presentation, with Sanjiv sharing his perspective on markets and HUL business and then hand over to Srinivas to talk through the details 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 deck for good order sake. 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 let me first talk about our clear and compelling strategy. And we remain committed to a strategic agenda of delivering consistent, competitive, profitable and responsible growth. This is something which should not be new to all of you who have been on these calls before. We manage the business for the long term by investing behind brands, to keep winning with consumers, and this is underpinned by our compass, which is purpose-led and future-fit, hinging on 3 fundamental beliefs that we have as an organization: brands with purpose grow, companies with purpose last and people with purpose thrive.

Now moving to the market context, market growth on L3M basis has now slowed down to 0.3x of 2018 levels in value terms and 0.2x in volume terms.

Rural has seen much sharper deceleration with its growth index to urban now down to 0.5x.

Urban growth has also slowed down. Market also witnessed disparate trends across divisions, with categories which are more discretionary seeing a bigger impact, while Foods category being relatively more insulated due to its very nature.

Crude and currency continued to be volatile due to the geopolitical imperatives, global economic cycles and trade dynamics. And we are also starting to see inflationary trend in certain select commodities such as palm oil, food and dairy.

The overall market environment continues to be challenging with liquidity issues, retail inflation touching 5.5-year high, and downward revisions in the GDP growth estimate. This is reflected in the unemployment rate peaking, overall consumer sentiment weakening. Consumer confidence index has dipped to a 6-year low with both current situation index and future expectation index declining.

The quarter also witnessed weather disruption in the form of late monsoon withdrawal, post-monsoon heavy showers impacting Kharif crops and the delayed onset of winter.

In this context, we believe putting more income in the hands of rural consumers is a key element which could boost demand. We are hopeful that the government will take all steps which are necessary to provide impetus to the economy and spur consumption.

Coming to the quarter under review, I think we have delivered, and you will agree, a steady performance. We had 4% domestic consumer growth and 5% underlying volume growth. Registered a strong 210 bps EBITDA margin expansion on a comparable basis. The sustained volume growth and margin improvement is a reflection, we believe, of the strength of our brands, our execution prowess and the rigor and discipline we have in implementing a consistent strategy. While we continue to focus on delivering consistent, competitive, profitable and responsible growth, our compass is calibrated by a sense of purpose.

On this front, we are making good progress. On World Toilet Day, we launched another Suvidha center; a community, hygiene and sanitation center in Andheri East, which provides household access to clean drinking water, hygienic toilet and modern laundry facilities at nominal cost.

This is another good example of our Start a Little Good initiative to create awareness and build infrastructure for health and sanitation. We're also rigorously continuing on a journey to meet the plastic commitments announced by Unilever in the last quarter.

We have now switched to post-consumer recycle content in the Sunsilk and TRESemmé bottles. Lifebuoy and Lux wrappers have now moved to monomaterial, which is recyclable and lighter than earlier, reducing our plastic waste footprint.

During the quarter, we launched a range of products under the brand Love Beauty and Planet, with bottles that are made from 100% recycled plastic and are also fully recyclable.

We continue to have undeterred belief in the business case for sustainability and a compass, are purpose-led and future fit, integrate sustainability with the strategy.

Now let me share with you once more the performance drivers which are the key enablers to, we believe, our steady performance amidst the challenging market condition. First is our focus on strengthening the core, where we invest behind the brands through stepped-up innovation, sharper end market execution, leveraging our WIMI model.

As an example, we launched a campaign on Wheel advancing its purpose of think fresh by giving women a platform to get upskilled. This is how our brands walk the talk by making purpose tangible and relatable for the consumer.

We also believe this is a key differentiator for our brands to stand apart.

Our second enabler has been premiumization and market development. We keep our focus on building a futuristic portfolio despite the turbulence in the market. This enables us to unlock new opportunities across the price benefit pyramid with agility and scale, and scale up quickly as the markets turn around. We invest to maintain our competitive edge, looking at both from a perspective of reach as well as ensuring that we remain competitive on our spends by having the right frequency.

Moving to our third enabler, innovating for future. We do not shy away from investments behind innovation, even when the markets remain a bit muted. We are determined to stay the course. And we are bringing both the relevant global brands into India as well as creating new jewels, local jewels, as well as exploring new business and channel models which are future fit.

Last but not the least is our execution, which always remains a top priority. We keep developing our execution capabilities by sharper in-market activations, differentiated consumer insights and improved operational efficiencies to continue to fuel our growth in this challenging market condition.

Looking ahead, while the near-term market outlook is cautious, we are confident of the medium- to long-term growth prospects of the FMCG sector. We continue to build an agile and responsive organization under our digital transformation program, reimagine HUL to dynamically navigate the short-term challenges, and also tap into the long-term structural opportunity.

With that, I hand over to Srinivas 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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Thank you, Sanjiv, and good evening to everyone. You've heard Sanjiv talk about, in detail about the market context and some of the challenges, both in terms of the overall economy and some of the liquidity. Against this tough market backdrop, HUL has indeed delivered a steady performance.

Our domestic consumer growth stood at 4%, with underlying volume growth of 5%. We delivered an EBITDA of INR 2,445 crores, which is up 19%.

Our EBITDA margins expanded 335 basis points on a reported basis and 210 on a comparable basis. So that's really eliminating the impact of leases accounting. And we've been calling that out for some time just to make sure that it's a like-for-like comparison.

Our profit after tax but exceptional items, PAT (bei) grew by 21%, but our net profit at INR 1,616 crores is up 12%. If you would recollect, in the base quarter in the prior year, we had a one-off benefit which came through from some of income tax provisions, which actually boosted up our bottom line. And that's the reason you see a difference between our PAT (bei) predominantly versus the net profit.

I think it will be a good summary to say that our growth in the quarter was competitive, and our healthy margin expansion was driven by our savings agenda and leverage in other expenses. If I were to talk you through from a divisional lens, we had a good performance in Home Care and Foods & Refreshments. Home Care continued its growth trajectory with another quarter of 10% value growth.

Now we have seen this for many quarters that we've continued to clock that rhythm. Beauty & Personal Care had a negative performance of 1%, impacted by delayed winter and certain price -- Personal Wash pricing actions, and we'll talk about that a bit when we come to the relevant section.

Foods & Refreshment delivered a robust growth of 8% across the categories.

If I were to also just give you a flavor from a segmental revenue perspective, I think what we spoke about was the USG, and if you [really see is] the segmental revenues, the picture on top line does not fundamentally change.

You would see that Beauty & Personal Care at a segmental revenue shows a minus 3%. You'd really recollect that this has got to do with the accounting for government grants, which is, again, a base effect issue. So if you eliminate that, I think the best reflection of the performance would be at 10%, a minus 1%, and 8%, as I called out previously. And segmental margins have continued to be healthy at an aggregate as well as at each of the divisional levels.

As Sanjiv talked about, I think -- notwithstanding the environment, I think we continue to invest behind our innovations and activations. I think we continue to keep the growth engine running. And to this effect, we have seen a host of innovations during the quarter. I think a couple of notable ones is really about launching Love Beauty and Planet across multiple categories. And actually also bringing to the country our world-over famous brand, Hellmann's, through a test launch of mayonnaise in Kolkata. That is something that we will pilot and in due course with success is something which we believe we'll have a much wider footprint to take it forward.

What we'll now do is to actually talk through individual divisions and actually call out some of those relevant aspects. As we said, in Home Care, both Fabric Wash and Household Care, we have seen good growth and aided by core, aided by premiumization and market development, and we've started to see the benefits of this.

During the quarter, we also launched Comfort Pure Deluxe in select geographies, and that's progressing well for us.

Purifiers, you are aware that we are actually leader in the model by focusing on the premium segment. And that is, I think is actually progressing well for us and is progressing in the right direction.

On Beauty & Personal Care, while we said that the headline number was a negative 1%, I think there are 2 important aspects to call out. If I were to take the first, Skin Care, and if you see Skin Care is, again, a story of 2 halves. The nonwinter care portfolio did well. And you'll all appreciate being closer to what's suddenly happening in India. We had seen this time actually a prolonged monsoon, and therefore a delayed winter. And it's actually one of the longest delays that we have seen in winter. It's only somewhere in the mid of December when we really started to see it actually go wide and a bit deep. And having said that, even there, we have not seen winter really come out the way it normally does, whether it's in the Western parts of the country or in the Southern parts of the country.

So all of this has really meant that we have seen an impact on our Skin Care business, and skin for us in December quarter is actually a large business, yes? So that's really had an impact in terms of the headline numbers.

Having said that, we will continue to focus. We are focusing on innovation and premiumization, and that's something we will continue to do. And to that extent, you have seen a series of innovations which got launched during the quarter.

Now when you look at it from Personal Wash point of view, I think there are, again, 2 aspects to highlight. We have seen for a bit that the market slowdown has been a bit pronounced in this category. And as a consequence of which, if you really look at December quarter, the overall value growths as reported by Nielsen are actually negative.

You'd also recollect that with the softening of the commodity prices, there was a significant amount of deflation which had happened in the category and between September quarter and December quarter, we've actually taken down prices almost to the extent of about 6-odd percent to pass on the benefits of the [global] commodity.

In a normal situation, that should have also helped us aid some growth through volumes. But given the overall context of a slowing volume performance, we haven't seen the benefit come through at a net level. A combination of this has really meant that our growth has really not in line with our expectations from a Skin Care point of view. When I see Hair Care, I think the performance has been good, and it has been across the portfolio. We talked a bit about Love Beauty and Planet, which is [hava] which we launched. In addition to that, we've also launched Indulekha Neemraj oil, which is really addressing the antidandruff parts of benefit segments, and we're quite excited about this range, which has gone into the market.

In Color Cosmetics, we continue to tap into the new opportunities by unlocking the rising aspirations of women across the country.

We set up our innovation focus with the launch of 9 to 5 Naturale Makeup Remover and the Lakmé Absolute Ultimate Kohl.

In Oral Care, we've seen a steady performance, steady quarter, led by Close Up on the freshness proposition and through Lever Ayush.

Deodorants continues to be a tough category, just given the competitive intensity, which has been there for some time. And our focus has really been to continue to lead market development, and we are committed to that.

When I look at our Foods & Refreshments business, we saw good growth -- broad-based growth across our brands, both tea and coffee did well during the quarter. And with new communication which was launched on Lipton Green Tea, strengthening its purpose of making India healthier.

In Ice Creams and Frozen Desserts, as you would appreciate, it's winter, it's not really a peak quarter for us. I think that's why we continue to focus on expanding our distribution and actually building innovation pipeline for the season, and both these elements have worked out well.

Foods had a good quarter for us, led by shopper activations basis our differentiated consumer insights, and I've already spoken to you about the test launch of Hellmann's.

And now if you really look at the summary of our results from a DQ point of view. This is a snapshot view, and the numbers you've already seen. It's a growth of -- underlying domestic consumer growth of about 4%, with volumes at 5%, and a net profit increase of 12%. But if you see before exceptionals, it is 21%.

A quick view on the 9-months performance because it's also important to bring the context in terms of what's happened in the quarter and year-to-date.

I think our performance continues to be very resilient. For the 9 months ended 31st December, our domestic consumer growth was at 6%. Our EBITDA grew at 14%, registering a healthy 190 basis points of margin expansion on a comparable basis. And our net profit was up by 16%. And you can actually see the number is slightly higher when you look at before exceptionals.

I think it will be good to really -- comment would really be is -- I think what will be worthwhile to call out is that our growth has been competitive. Our growth continues to be profitable and the demonstration of strength of our brands and consistency of our strategy and the execution prowess.

I think that's an important element to call out both from a quarter perspective as well as the year-to-date 9-months performance.

Looking ahead, I think the market growth continues to be sluggish. And for the various reasons that Sanjiv has called out. And therefore the near-term demand outlook is challenging. Commodities and currency as have been for some time, will continue to be volatile. And I think that will really require us to manage and manage it well. And therefore, if you really look at our focus will continue to be on driving agility and responsiveness across the value chain and end to end, to really get ahead in terms of this challenging environment. And obviously our model of delivering growth, which is consistent, competitive, profitable and responsible remains unchanged, and that's I think something we have demonstrated during the quarter, and that's something which we are committed to.

And on this note, I will hand it over back to Suman for question and answers.

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

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Thanks, Srini. We'll now move on to the Q&A. In addition to the audio, as you already know, our participants have an option to post the questions through the web option on your screen. We will take those questions at the end of the audio session of Q&A. I would like to remind you all on the call that the Q&A session is only for institutional investors and analysts, and if anyone is on the call who is not an investor or an analyst, but would still like to ask us a question, you can engage with us offline with the Investor Relations team.

With that, Raymond, can you begin the Q&A session, please?

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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, my first question is on F&R. So 2 subquestions. One, parent has announced a global tea business review. You have been gaining market share, volume and value, both the last few years. So will it be fair to understand that India business is not part of this? And second, the Hellmann launch -- normally launches are not done in the slowdown time, so what is the thought process behind this launch?

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

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Abneesh, first, we are speaking for the first time. So very happy New Year to you. And I'm compelled to say that I'm sure during your school days when you must be playing soccer or cricket, you must be opening the bat or playing center forward, yes? But just to pick up your question. First is on tea. As Unilever has stated that they are doing a strategic review for the global tea business, which has been prompted by the slowdown in the black tea market in the developed world. And they have also said that the strategic review should get completed in about 6-months time frame. So that is the position. As far as we are concerned, we will continue our journey on tea, as it has been normal, yes? And you're absolutely right. We have gained leadership, and we will continue to strengthen our business. But let's wait for the strategic review, and then we will see how things progress from there.

As far as Hellmann is concerned, I have always made it very clear that we play for the medium to long term, we never play for the short term. So our strategy does not change. But we adjust our sales when times are tough. And we are not going to shirk away from innovations, nor are we going to shy away from market development during this tough times. So Hellmann's is a great product, and we are delighted that we have been able to bring it to India. We have started it by launching it in Kolkata and hope to extend it to rest of the country.

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

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My second question is on Personal Wash. So you've taken a 6% price cut now and you've also looked at how to rejuvenate Lux and Lifebuoy. Now if I see the #2 player, they have seen a 5% volume growth in this quarter. So do you need to do much more on, say, a multipack or naturals? In naturals, you do have a Hamam here and there, but on a national basis, do you need a -- now a much stronger naturals soap because Wipro seems to be doing well there?

And second, on multipacks, is that the way consumer is now buying, so you need to do much more multipacks?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [5]

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See, in different parts, first is, Abneesh, I think there's no gainsaying that we have to do much more in skin cleansing, and we are very cognizant of that. So the first step that we did was to correct the price/value equation because the commodity prices had also fallen, and we believe we needed that to do that, which we have done.

The second bit is, I'm very pleased that if I look at the volume growth, now they are in tandem with the market, yes? So there is very clearly from that perspective. It is heartening for us.

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

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But market, sir, has seen a decline, right?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [7]

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The markets have seen a decline, you're absolutely right. But I'm saying that our growths are not very different, as far as the volumes are concerned, from the market growth.

The other bit is, if you look at the national market, it's not everywhere that it is in multipacks, yes? There are markets where still singles play a bigger part and there are markets where multipacks play a bigger part. Now we also play that game based on our WIMI strategy, and that's what we will sharpen further.

I'm very confident that the steps that we are taking in skin cleansing. We will certainly, even in value terms in the days to come. It might take some time, but we will definitely rebound strongly.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [8]

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And so Abneesh, just a couple of things to add to what Sanjiv has said. One was the price corrections, which had happened to pass on the benefits of commodity and that started somewhere early in July and went through the balance year. Second was also when we took some of those price reductions, we also got the price laddering right across our different parts of the portfolio, which I think was, again, an important step, which we have done. Some of the measures which we see [and there] some of the advanced measures such as penetration, we have started to see an improvement versus where we were. Then, we've also talked about volumes, which Sanjiv has explained, and now it's coming more in tandem with the market, and we are not slipping behind. Having said that, the whole slowdown has had its impact.

I think on this -- as a relevant also call out, if you've seen that the quantum of inflation, which has happened in palm has been sizable. If you were to really look at it, we've seen inflation upwards of 25% to 30%, which also warrants us to actually look judiciously at taking up some prices and across the portfolio. And that is something we will actually be doing over the course of next couple of months.

It'll take a bit of time to land the networks and to see the impact, but we are also looking at anywhere pricing between 5% to 6-odd percent as things stand given the quantum of inflation. The inflation has been much higher, but we're being actually very judicious in terms of how we look at different parts of the portfolio, but you will see some bit of pricing coming through in due course.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [9]

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And sir, last question, so general trade for you and most of the players has been a laggard last few quarters. Now they have been calling out for parity in terms of pricing and packs also. Now today, one FMCG company highlighted that their e-commerce growth has slowed down significantly from a 300% growth last year, it has become just 5%. So are you also seeing much slower growth in e-commerce? And any comment on how general trade and e-commerce modern trade will pan out from a pricing and pack perspective?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [10]

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See, for us, we have been very clear that we have a pack price architecture which has been developed for each channel. And there are many packs which are exclusive to different channels. Just to highlight, we don't sell sachets in modern trade or e-commerce. Similarly, we have certain brands which are exclusive for certain channels, like we have launched Love Beauty and Planet, which is right now only in e-commerce. So our endeavor has always been that there should be a minimal overlap, yes?

Our e-commerce business has still been doing very well. We are very satisfied with the growth rates. And we have not seen the kind of fluctuation that you had spoken about.

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Operator [11]

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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 [12]

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Congrats, sir, on a good set of numbers. And thanks to the entire team for allowing Sudhir sir to write the book on the company. It has given a wonderful insight. I have 2 questions, sir. One is on the winter portfolio. So do we expect some part to recover maybe during this quarter because winter has been delayed? And second question is on Oral Care. What are you doing differently to drive growth out over here because market leaders are also struggling and the category has also declined? And how are you positioning Lever Ayush as a brand?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [13]

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Yes, let me first start with Lever Ayush. Lever Ayush you know the platform. And if you recall that we had first done a national launch and then it is a strategic call to concentrate on the South of the country. And that's where we are today. We are very pleased with the performance of Lever Ayush, and we are also very pleased with the performance of our natural portfolio, which continues to grow 2x the rate of the average growth of the company, yes. So that is as far as naturals and Lever Ayush is concerned.

As much as Oral Care is concerned, when there is a softening of the market, there are certain categories where when people are in -- when the markets are sound and when there is a bullish sentiment in the market, then there are more than one brand which gets used in the household. When times are tough, people retreat back to a fewer number of brands within the household and people start sharing the toothpaste. And that is something which we have seen very clearly happening in Personal Wash, and there is also a very clear tendency where people move from large packs to smaller packs.

And whenever you move from a large pack to a smaller pack, we also see a drop in the consumption. So these are certain factors which stand out, which have nuances which are specific to certain categories and not to every category.

So that's what our story would be as far as Oral Care is concerned. But as far as the potential is concerned, it is absolutely massive. The habit of twice a brush doing -- brushing your teeth twice a day, that's day and night, hardly exists in our country. So that is certainly much to be exploited as we go further. And we still believe very strongly about the potential of this category. And I'm very pleased that our performance as far as Close Up is concerned over the last few quarters has turned around. And now we need to do a bit more work on our Pepsodent brand, and that's what we are focusing our efforts on.

As far as the winter portfolio is concerned, Vishal, what you lose because of delayed winter, you do not get because the winter ends later. This does not happen because as the winter progresses and you come closer to summertime, the trade also becomes very cautious in terms of stocking up with winter products, lest they are left with inventory as the season ends. So I don't think the loss of delayed winter will be caught on, but let us see how this quarter pans out. And if we see that the winter continues for a much longer period, there would be some aspects that we would be able to recover.

And I'm glad you have read Sudhir's book.

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Vishal Gupta, Phillip Capital Limited - Trader [14]

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You are expecting approval from NCLT Chandigarh, so by what time you were expecting that approval to come through?

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

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See, the next date of NCLT is 3rd of February and -- not really far from here. So let us wait and see what happens on the 3rd of Feb.

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Operator [16]

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The next question is from the line of Sameer Gupta from India Infoline.

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Percy Panthaki, IIFL Research - VP [17]

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This is Percy Panthaki here. I just need some help in understanding your volume versus value equation. So this is how I look at it: in soaps, you have taken a 6% price cut, of which about half was in the previous quarter and half in this quarter. So incrementally versus last quarter, there's a 300 bps pricing cut this quarter, which on a overall portfolio basis would translate anywhere between 50 to 70 basis points.

However, on a sequential basis your overall pricing has changed by 300 basis points and soaps accounts for 50 to 70 of that. So what would the remaining be? Have you taken any effective price cuts either through promotions or MRP cuts on other products? Or has the cut in soaps actually been higher than the calculated 6% because certain SKUs have seen 25% to 30% cut as well, and customers may have gravitated more towards those packs and therefore the price cut higher than 6%? Or is there a third reason which I'm not sort of able to think right now?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [18]

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Yes. So Percy, few comments. So give or take, the cleansing reductions would have been in the ballpark that we've spoken about. So mix will have a little bit of a variation here or there, but that's not really material in its totality. If you really look at our Skin Care part of the portfolio, obviously when you go into a winter, you go in with lots of trade inputs, along with marketing and everything that you would really do. And when you don't see the volumes come through, you will end up with a potential negative pricing impact, and we've seen part of that come through in our Skin Care business. Equally, as you see that some of the intensity in the modern trade has been a bit high, and that's been across some of the categories. And obviously we'll match wherever we have to, to maintain competitiveness.

So we're also seeing a bit of negative price come through in some of the subsegments, which has also come through in terms of our totality. So therefore if I were to give you an answer, the big one would really be in cleansing; a big one, again, would be in Skin Care; and the rest would be again split across different parts of our portfolio.

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Percy Panthaki, IIFL Research - VP [19]

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Okay. So in Skin Care, I didn't really understand it fully. Are you saying that basically because the demand was not there, you were sort of -- thought it prudent to increase the promotional intensity to sort of drive the stock? Is that understanding correct?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [20]

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Just help me by going with me. I think we've spent some time trying to explain to you. Because of a delayed winter, we did not see the volumes. But if you go in with certain plans, you go in with a certain volume subset and you put on activities in general trade and modern trade, finally your trade spend is a function of what volumes you will realize. If you under-realize those volumes, I will end up with a negative pricing effect because the absolute quantum of rupees that I put into the market doesn't vary. Yes? I've got fixed [DQs] and that's what really happens.

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Percy Panthaki, IIFL Research - VP [21]

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Okay, understood. And secondly, sir, could you give us some color on what you see the demand outlook going ahead in terms of the overall sort of volume for the company? You've maintained this 5% kind of number for the last few quarters. And I know you don't give guidance, and I'm not expecting a number, but any kind of color you can give on what you think of the demand outlook in volume terms?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [22]

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So look, I think, Percy, what we've said is that the demand outlook is looking a bit challenging, yes? And if you really look at even December quarter, the market growths have come down. I think Sanjiv gave you in terms of indexes, slightly longer term. And even if you were to look at the last 3 quarters, there has been a clear perceptible step down, both from a value perspective and volume. While our objective continues to be to drive profitable volume growth, in this kind of an environment it is getting quite challenging. Suffice it to say how it will really move into the next quarter will be very tough to comp. But overall, outlook is challenging and it's something that we'll have to navigate. At this stage, it's very difficult to make any kind of a projection on what volume or value numbers could be.

Having said that, I think our objective will really continue to be mixed. Our growth has to be competitive, that means the growth has to be ahead of market.

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Operator [23]

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The next question is from the line of Aditya Soman from Goldman Sachs.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

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A couple of questions from my end. So firstly, in terms of the rural slowdown, I mean we've heard a lot of reasons, from sort of lower income growth to liquidity concerns to even sort of the higher mobile tariffs leading to lower consumption. In your view, what are the sort of biggest drivers of the slowdown? And more importantly, how do you see these slowdowns? Or how do you see these factors improve over the next, say, 12 to 15 months?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [25]

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So I think, Aditya, it should be -- possibly all the reasons you called out are valid and there are many more. We haven't seen agri inflation for a long time. We haven't seen any incremental effects after MGNREGA went in. So there are multiple factors which have happened in the rural and over some period of time. And I think that's why we always say that, look, rural which was growing at about 1.5x, slowly became 1.3, 1.5 became parity, then started to come down. Today, it's at 0.5x. See, sometimes it's very difficult for anyone to decipher and break it down into individual components. Sometimes it is 1 or 2 of them, sometimes it's a combination.

And finally, at some stage it also then starts to come down in the ripple effect when it starts to hit the consumer confidence.

I think today what's really happened is a combination of all of that, which is really leading to rural now going slower. Perhaps that's also what is actually also causing urban to actually growth to start to come down.

So coming to the second part of the question, I think we just discussed this. Look, right now as we look at it, the market growth are looking sluggish and the demand outlook is challenging. We are -- then look, the good part is the government is cognizant. They have initiated many measures, and we are hopeful that over the next course of next few weeks, we will see more. We all, as you do, are waiting to see what budget can do, and we're positive that look, some steps will come through.

But at this stage to really make an guesstimate or an estimate of how quickly will markets pick up and turn from here will be a difficult one.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [26]

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Fair enough. No, the reason I ask is because, I mean obviously, some of the liquidity-led concerns could be easier to fix than sort of just the -- a slowdown in income growth. And if the challenge is a slowdown in income growth, how do you -- how would you, as a company, respond to that?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [27]

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So look, as a company, we do what we do best, which is really playing our portfolio, playing the different brands, playing the different segments and continuing to drive market development. I think that's the best that we can do, and we are doing everything we can. We also need some help from whether it's liquidity or the overall economy picking up. But that's something that we're hopeful will come through so -- because the fundamental FMCG or the India story, we still believe, is intact. And I think Sanjiv has spoken about it. It's also there in our press release. I think this is a transitionary phase that we just have to work it through.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [28]

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Yes. And there is also not one rural, there are several rurals, and there are different aspects. There is one more, I don't know whether you have heard this before or not, for instance the collateral impact of real estate. During the nonharvest season, there are a lot of people who come in from rural area to work in the real estate, construction industry. That has slowed down, that has impacted the income. Yes. Rural wage growth rates remaining soft, that's had a big impact. Then in certain pockets where, depending on the kind of crops that are grown, the prices of crops, that also has an impact. So there are different reasons why rural has got impacted. Yes. There is never one reason for a large economy like ours.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [29]

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Yes. No, the only reason I ask this, I'm sorry to belabor on this, but was that -- some of these reasons are clearly hard for the government even to fix in just sort of one budget, so in general the expectation seems to be that it will be a much faster recovery, and I was just trying to understand where that confidence is coming from? But...

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [30]

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Our thinking is that you need to put more money in the hands of consumers. And certainly so in the hands of rural consumers. And there are different ways you could be doing it. There could be some much more structural in nature, where you reduce the subsidies. And put more money -- the direct transfer of money to the hands. And there could be some where you could play with MGNREGAs, increase the number of days, increase the rate per day. Those are the kind of levers they will have to play to put more money. So that's what is needed today.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [31]

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So Aditya, I think just telling to -- good to add a couple of perspectives. As Sanjiv has said many a time, we run the business for the medium to long term. We don't really run it for the short term. I think that's an important lever to look at. And we've always been very optimistic on the medium-term potential of the FMCG sector. So if you add both, yes, we continue to believe there is opportunity. I think I just want to add, significantly I've not said anything to the effect that we expect the turnaround to come faster or turnaround to come slower. All that we've said is that when we look into the near term, the demand outlook is sluggish and the market growth -- market growth are sluggish and demand outlook is a bit challenging, yes? I think just good to contextualize it in terms of what we've said.

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Operator [32]

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The next question is from the line of Amit Sinha from Macquarie.

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Amit Sinha, Macquarie Research - Analyst [33]

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My first question was on your other expenses. And in the last 2 years, we have seen significant improvement there. Just wanted to understand how much is this related to GST-led savings? And also wanted to -- wanted your commentary on the overall cost savings program. Has it accelerated in the current environment? Yes, so these 2 things on the other expenses.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [34]

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Yes. So let me talk through the second part, I think if you really look at our savings program, I think we have talked about running with an ambition of 7%-plus in terms of turnover. We've talked about it for a few years now. And I think that's something we have been able to continue to maintain thus far into this year, yes? I think that is really helping us in terms of generate a lot of gross savings, which therefore we're able to use for multiple whether it's for investments or see some of the benefit coming into bottom line.

Now if you really look at other expenses, I don't think there's a GST-related any call out in that. The other expense is a combination of many things. If I were to give you a picture of 2 or 3 things, what typically tends to happen, and if you just go back in September quarter, if you see some of our other expenses were slightly higher than normal levels. And at that time we also called out, saying that look, some of these expenses are phasing expenses. If you see last year, we had December, which was slightly higher. At that time, we were trying to explain why December was higher.

So there is one aspect of phasing of expenses, which happens between September quarter and December quarter for us.

Second, we also talked about, as we look at some of our plans, given that some of our innovations and some of the work runs on a calendar basis, we also end up having some expenses which come through between September and December for next year's innovations and next year's plans. So that also has a bearing in terms of how some of these costs change.

The third element which has also happened, is that as we've gone through some critical contracts we had, whether it was in the space of some of our transport contracts or whether it was in terms of some of our contractual other contracts, we've had some successful negotiations which have also meant that we've realized some savings, which by definition means that we would have accrued it a bit higher in the prior quarters, and we've got that benefit coming into the current quarter.

So this is where I simply try and say because when I try and [see it] on a year-to-date basis, they all tend to equalize, but there will be a bit of phasing which happens even on that count.

So it's a combination of these 3 or 4 things, which really then starts to give you a flavor of the movement in the other expenses.

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Amit Sinha, Macquarie Research - Analyst [35]

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Sure, sir. No -- when I said GST-related, I meant the savings on the logistics part, which Suman indicated.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [36]

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Sure, but that comes in. Look, sorry, sorry. Look, all of that [steps] comes in. Because when you look at the GST part, it comes in multiple lines for us. Some of it comes through in material, some of it comes through in logistics. To that extent, absolutely right. We have -- we are gaining on that, and we'll continue to see the benefit.

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Amit Sinha, Macquarie Research - Analyst [37]

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Sure. Sir, my second question is on your premium versus popular portfolio. While the premiumization journey in the last few years has been phenomenal for you, and you are obviously over-indexed there, and some of the efforts which we see from -- as a company, we see a bit of aggression more on the premium side. However, on the popular side of the business and I mean this is like across the categories, we have not seen a similar kind of aggression. And -- I mean my commentary is more on the sense that you might not have lost market share across some of these popular brands, but was there a bigger opportunity which we have missed? I just wanted some commentary there. Because when I see your new launches or the market development or the investment across A&P, et cetera, it is much more kind of bent towards the premium portfolio?

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

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Yes. I think, Amit, we all need to go on a journey of trying to see how is rural Bharat playing out and what is that HUL does. I think many of us sitting in cities end up seeing more of the digital mediums, and we see some of the popular channels, and therefore sometimes it tends to give an impression that there is only a focus on premium.

For sure, premium is an important and a critical part of the market, and therefore we're committed to do a lot there, and we will there.

If I were to just give you an example, even if you see like, a brand like Taaza for us, so for a fair amount of time, it's all a -- completely a story of upgradation of tea from loose to branded. And Taaza has again been a very, very good example and a classic example of how we are continuing to drive opportunity there.

We're also fairly aggressive when you look at a lot of the price point packs that we do, INR 1, INR 2, INR 5 and INR 10 in many of our big brands. Continue to be, again, very, very relevant as we continue to recruit consumers into the category and also then upgrade consumers through the whole journey.

So I think the best way to describe is, we want to capture every opportunity of growth, whether it is premium, whether it is a mid or whether it is at the bottom, and we're continuing to do that. I think that's how I would really explain it, and just I'm looking to Sanjiv if there are any...

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [39]

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No. Amit, recently we initiated a very big activation on Wheel with Reliance Jio.

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

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Yes.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [41]

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Yes? Which is about providing life skills to women in a very big way. It's a massive activation. So we are certainly not vacating the mass plan. We are competitive. We are -- look at the last couple of years, one of the reasons behind the resurgence of entire laundry business has been not just Surf Excel. We've also become very competitive on Wheel.

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Amit Sinha, Macquarie Research - Analyst [42]

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And just a follow-up there. I mean so I don't -- I'm not subscribing to the view that you have lost market share. Just wanted to understand that, could we have been more aggressive in some of these popular brands? But anyways, I mean I think you have answered my question.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [43]

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So Amit, just as the order of -- just at the risk of repeating myself. I think we have done everything to capture opportunities, and I don't think we're in a position to say that look, we have lost anything because we are aggressive in one space or the other.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [44]

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Yes.

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Operator [45]

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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 [46]

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First question is an extension of an earlier question on rural slowdown, which we perhaps called out first on The Street. But one common reason that we heard this year was a liquidity crisis in rural areas was a major reason for a slowdown. Now if I look from last budget and based on official data, schemes like PM Kisan actually helped 6 crore farmers and distributed some INR 36,000 crore, which is a sizable number compared to MGNREGA location also. So when you see a slowdown, is it even in the areas which adopted such schemes we are seeing there also slowdown, where liquidity won't be that much issue? Or as Sanjiv pointed out that rural slowdown has also multiple shades, so some are actually not as bad as it appears on the aggregate numbers?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [47]

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So this is right. I think Sanjiv has explained it. For example, if you see parts of Punjab, if you see parts of Haryana, see parts of UP, Bihar, Bengal, we have seen a bigger slowdown in rural markets in some of these states. That's not been the case when you start to look at some of the Southern states and if you look at some of the different parts. So there are different flavors, different shades and different contours. And therefore it's very difficult to call out and just paint a picture on a uniform basis.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [48]

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But certain fundamental things like the wage rate being low, like the nonfood inflation being higher than food inflation, those are the main fundamental issues definitely. And what happens is it percolates, right? Is initially 1, 2, 3 years, it takes time. And then you start seeing the compound effect of the last few years wage rates being very low.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [49]

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Yes. No, so the reason for asking this question is that, let's say in markets, rural markets where liquidity is not an issue, is it that the highly penetrated categories don't have that much levers to grow further, and that's why we are seeing wallet share change in some of those markets?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [50]

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Yaar penetration, if you look at it, there is no category in the country, urban or rural, which is anywhere close to maturity. You have seen how in a category like detergents or home care, which are where the penetration is near universal, we have kept growing at a clip pace.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [51]

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Sure. This is very helpful. Second question pertains to a brand which has not been discussed, Indulekha. We are witnessing a sharp slowdown in the category from other players. So versus that, how's Indulekha performing and if you can share some details there?

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

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Indulekha has done quite well for us. It's been, again, a very good quarter. And for us, we've not seen such issues. We're very quite pleased with actually how Indulekha has been continuing to perform.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [53]

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And are we planning to expand franchise to other segments of Hair Care?

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

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So we just talked about the new innovation we talked about.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [55]

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Shampoos.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [56]

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Shampoos, we have.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [57]

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Yes, shampoos, we have. But we've also now introduced more [of it] in terms of our Oil segment itself, but it's now in shampoos and it's in hair oil.

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Operator [58]

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The next question is from the line of Harit Kapoor from Investec.

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Harit Kapoor, Investec Bank plc, Research Division - Analyst [59]

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So just 2 or 3 things. Firstly, just a clarification. When you said the 5% to 6% price increase that you could look at, that would be on average on the soaps portfolio, right?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [60]

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That's correct.

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Harit Kapoor, Investec Bank plc, Research Division - Analyst [61]

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Okay. The second thing, until the first half of this year, in spite of the slowdown, premiumization was a theme that was fairly consistent. If you could just comment on -- in the increased slowdown, have you seen premiumization as a theme for you also slow down, or it hasn't worked out as well?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [62]

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So overall markets have slowed down across broad base, whether it's premium, popular or when you look at the mass. But within this context even if you see, premium is still growing faster than the other segments.

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Harit Kapoor, Investec Bank plc, Research Division - Analyst [63]

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Got it. Last thing was, I just wanted to pick your brains on something. So when Nielsen reports these numbers and they have said that growth has also slowed down. But at the same time, while they have these numbers, they also project for quarter 4 and quarter 1 to be slightly better than quarter 3. So I just wanted to understand from your end, how do you kind of match the 2 things?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [64]

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So what we've always said is that look, don't go for an absolute number. So even today, when we talk about Nielsen and reported growth, it's only to give a context of saying the direction of where it is and where the slowdown has happened. So it's very tough for us to say how they're reading and making a projection into the future. We don't do that. So it's also difficult for us to answer that question. I think what we see is really saying is that the growth continues to be -- market growth continue to be sluggish at this stage. We are hopeful with various measures which have been initiated and hopefully will get initiated, that we'll see a bit of a pickup, but tough for us to really comment on their reflection of what quarter 4 will be.

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Operator [65]

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The next question is from the line of Manoj Menon from ICICI Securities.

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Manoj Menon, ICICI Securities Limited, Research Division - Research Analyst [66]

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Congratulations on a good performance given the context. Just one small clarification on the December 16th, we had this Unilever plc sales warning, which actually spoke about a sequential deceleration, or rather, I'm just quoting it, it says -- it talks about a significant deceleration. I understand that if let's say, there is a release which comes on 15th or 16th probably because the data would have been [delivered] a few days prior. Just trying to understand that when I look at HUL's performance, given the context that Unilever called out, growth in South Asia also has decelerated. But from a volume point of view, it's just 5% in September and 5% in December. Is that post the release, we had seen some changes to the trajectory? How do I actually reconcile the statement versus the actual performance?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [67]

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So look, Unilever comment was at its overall global operations. So I'm not going to comment on that. If we look at South Asia, it's again a component of India, Pakistan, Sri Lanka, Bangladesh. That's one aspect.

But the other thing also you have to see is that it's also in a Y-o-Y or an year-on-year comparison in terms of, if you were to look at December quarter last year. If you were to look at December quarter this year, it'll give you a certain perspective in terms of what's been the growth in the base. In the base, we grew upwards of double digit. And here, we have now talked about whatever growth that we've talked about it, 4%.

So that's another lens. If a corporate has to look at on a Y-o-Y basis, how does performance look like...

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [68]

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And the impact.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [69]

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And the impact that it does. So that's one reason which I would believe is important from a Unilever perspective and so would many other reasons be in other geographies and other markets.

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Manoj Menon, ICICI Securities Limited, Research Division - Research Analyst [70]

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Okay. Understood, understood. Secondly, coming to the quarter gross margins, given the various movements in terms of pricing inputs, et cetera. Would it be a correct assertion to make that most of the gross margin expansion is a flow-through of the better mix?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [71]

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Flow-through of what, Manoj?

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Manoj Menon, ICICI Securities Limited, Research Division - Research Analyst [72]

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Big premiumization -- better mix, basically, not just premiumization, panel mix and better mix.

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

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It's a combination of a few things. So look, savings program fired well. Even when you had seen some of commodity inflation, we were aided through covers and our buying strategies, that came through. And it's also a combination of -- we also had certain one-off -- not one-off, I can't call them one-off, but certain higher other expenses in December quarter. It's a combination of few. And I think Suman wants to add, to give a better color. Suman, go ahead.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [74]

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So Manoj, is the question, if I understood right, on the gross margin improvement Y-o-Y?

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Manoj Menon, ICICI Securities Limited, Research Division - Research Analyst [75]

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Yes, that's right.

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

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Yes. So actually driven by 2 things. If you look at material costs in actually the base quarter last year, they were quite high. So sequentially, of course, we are seeing in place. But if you look at the crude levels in DQ '18, were one of the highest and also oils was substantially higher than their -- we saw December quarter this year. So a lot of it is driven by material costs coming off and of course, like you rightly said, some amount of it which was mix as well. But -- predominantly driven by material deflation over -- on a Y-o-Y basis, DQ cost in '19 was still lower than what DQ '18 was.

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Manoj Menon, ICICI Securities Limited, Research Division - Research Analyst [77]

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Understood. Now just we have -- [simplistically the optic of] thinking about it. So the historical thought process was that when there is an inflation, it's all about judicious price increases. Now probably in the last decade or so, we've not really seen this sort of a market context. Is it fair to say that, that thought process of judicious price increases is still relevant, assuming there is a -- or rather that you are seeing some inflation now?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [78]

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No. Look, I think that has absolutely remained unchanged. If you look at the quantum inflation that you now see in, both in vegetable oils. Palm is up some 25%, 30%. Even if I want to give you a flavor of SMP, if you were to look at some of the SMP price increases are up -- and the cost increases are upwards to 60%. I think our approach has always been judicious pricing without losing competitiveness, and that's how we're looking at it in terms of calibrated pricing where required.

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Operator [79]

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The next question is from the line of Shirish Pardeshi from Centrum Broking.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [80]

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Sanjiv, congratulations, I heard you've been promoted yesterday on the Lever call. So just a couple of questions. If my -- in my observation, we are seeing that India has got about 6.6 lakh villages and the wholesale component was much larger in the largely penetrated categories. And we've been seeing that liquidity issues, which is happening persistent last 2, 3 quarters. So is the wholesale connect is also is one of the challenge which is seeing the significant slowdown other than the rural general slowdown, what -- reasons what you have mentioned?

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

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So Shirish -- no, first, we're all slightly perplexed who got promoted in yesterday's call, but we'll leave that for now. Look, overall, wholesale, if you see, I think wholesale is actually largely understressed from a liquidity perspective, number one. And second is that as we're seeing an overall slow down, the consumer confidence is also something they're not feeling it. When something like this tends to happen with wholesale channels, they don't stock up to the levels that they normally do.

So that's the, I think incremental piece which is actually playing out here, if I've understood your question right.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [82]

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Okay. The second question on the pricing action you have taken on Personal Wash. The basic question is that in a slowdown time, generally when the liquidity issue is seen across the channel, do we really see the effect -- the penetration is driven by the promotions, or the inventory gets piled up in the trade channel?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [83]

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So I think, Shirish, there are 2 or 3 things that you've talked about here. I think first is, if you're talking about the price reduction we took about 6-odd months ago, and it went on for some time. That was really done to pass the benefits of the lower commodity. We did that. So today, as you are also saying that there's significant inflation coming through, we're also looking at taking up pricing. So I think if you maintain the right value -- price/value equation and you continue to do market development, you will gain penetration over a long periods of time. I think that's the better way to handle it rather than really treating it as a short-term phenomena either of an increase or a decrease.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [84]

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So what I mean to say that with these pricing actions, is the trade stocking has gone up? Because generally my sense is that in winter, the bathing happens less, and you've taken a pricing action in Personal Wash. I still can say that Skin Care is still justified, but is there any situation where the trade inventory would have gone up?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [85]

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I don't have any data which continues to indicate to me that my trade stocks have gone up in any of the categories because we sell to demand, we don't sell to stock up trades.

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [86]

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You know our stocks have not gone up in the trade.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [87]

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Okay. Just last one question. On the cash and carry, we have seen that there is incremental benefit which is enjoyed by most of the companies. But on the flip side, the traditional distribution is also under challenge. So what do you see the way forward? Is that traditional trade is going to go away and the cash and carry is going to take over in next, say, medium to 5- to 6-years' time?

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Sanjiv Mehta, Hindustan Unilever Limited - Chairman, CEO & MD [88]

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The answer is no. The way we look at cash and carry is in a much more strategic sense because we have a direct distribution to, in a very large extent we use cash and carry to act as complementary to our direct distribution. So we look at cash and carry to help us with the market development categories. And in our core categories, we very clearly look at it, that it does not result in cannibalizing our direct distribution.

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Operator [89]

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The next question is from the line of Rohit Dokania from IDFC Securities.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [90]

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Could you talk about in terms of regions, if any of the regions have grown better than the others? And also, if any of the regions you are seeing any bit of sort of green shoots, if I may use that word?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [91]

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I think, Rohit, what we've done, I think, is a couple of things. I think if you really see from an urban rural, of course rural is growing about 0.5 as a percent. We have said that, look, modern trade is the channel which is continuing to be a bit resilient as we even see from an urban area kind of comparison to GT.

Sometime back, I called out saying rural slowdown was a bit more pronounced in certain markets, of the UP, Bihar, Punjab, Haryana. I think that's under [ed space]. And if you really see some of the Southern states have done better. I think that's some of the examples that we've quoted about in terms of how we are seeing differential goals.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [92]

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Sure. The other was, now that we're getting closer to the GSK transaction, we did spoke about earlier about 800 to 1,000-odd bps kind of a margin improvement. So I was just wondering for FY '21, could we assume a 50% to 70% of that benefit to come through? Or it's too early to sort of build that?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [93]

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I think that, Rohit, let's wait closer to the date of the amalgamation. I think once we get all the NCLT clearances, I think we'll be in a better position to give you a good perspective. You would appreciate that today, it's a listed company, and we run them separately. While we have worked on many things -- and we're working on many things in terms of how to unlock value. We'll be able to give you some perspective without giving guidance, closer to the date of the merger.

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Operator [94]

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The next question is from the line of [Bismit Naik] from R.W. Advisors.

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Unidentified Analyst, [95]

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So continuing on the GSK merger, the 800 to 1,000 basis point margin expansion. So are we talking about PAT margin is it? Or PBT margin?

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

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So I think, Bismit, go back. We talked about an operating margin increase, and we talked about a certain baselines that we reduced at the time when the merger got announced. That's the right way to look at the value because the share swap ratios and the whole merger equation got put together at a certain time frame, at certain numbers. Now we are at least 12 months down the line, and I just said, we will relook at all of this in terms of what we need to share with you closer to the date once we get the NCLT approvals.

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Unidentified Analyst, [97]

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But what are the main cost and revenue synergies that you expect to gain?

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

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Bismit, I don't think in this quarter conversation is the right one to go back to the merger case. If you go back to some of our old literature, you will find very detailed explanation which is on our website, and we'll talk more about this when we are closer to the date of the merger post-NCLT.

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Unidentified Analyst, [99]

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Okay. And last one would be, what is the direct retail -- direct reach, total urban and rural?

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

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We don't quote that number, and we've not quoted the number for many, many years now, Bismit. Needless to say that we continue to expand direct coverage every year.

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Operator [101]

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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 [102]

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I was looking at last few years data, and I see that consumer staples company sales growth has been lagging normal GDP growth for the last few years, which was not the case earlier. Do you think consumer spending is getting diverted to other things, such as white goods, mobile phones, higher interest payment, and that's hurting the spending on staples? And do you think we should get back on track with spending -- consumer spending catching up with nominal GDP growth on staples?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [103]

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Look, when we look at some of the data I think it was useful for us. Look, there's lots of composites which come into a GDP construct. It's just not a one-to-one correlation. The piece which we had done some time ago was really saying at least try and get a bit of a surrogate in terms of volume growth and how they look like. Depending on the period and how deep and how wide you look, we saw a range of about 0.6, 0.7 depending on how you look at it of volume to GDP correlation. But to be honest, these are very, very headline structural once-in-a-while exercises that you can see in terms of longer-term trajectory. Because after point in time, I think what you really need to see is that how do you drive some of the market development opportunities because in India context penetration consumption, there is massive opportunity. I don't think after a point in time, any of these equations really tell us.

See, it finally comes down to doing how well are you doing to unlock the opportunity.

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Kunal Vora, BNP Paribas, Research Division - Analyst [104]

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Sure. Second one, agri commodity inflation has returned. We had a good monsoon. Reservoir levels are up. Rabi crop outlook is good. Are you seeing any green shoots multiple times between us but...

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [105]

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Oh, yes. As of now, we are seeing it sluggish. We're definitely -- look, as Sanjiv also said, it's not that there is only doom and gloom, and it's not like only one rural. There are still parts of the country which are being resilient and which are growing. But I think what you want to see is you want to see a broader-based growth pickup if you want to start seeing a much buoyant FMCG industry.

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Operator [106]

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The next question is from the line of Anubhav Sahu MC Research.

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Anubhav Sahu, moneycontrol.com, Research Division - Research Analyst [107]

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Yes, sir. Just one question. Like, you have speaking a bit on that, but I just want to understand on a relative basis, when we look at urban demand versus rural demand, do you think that going forward, probably, the urban demand could be a more challenging thing than the rural demand? So you have given that a lot of commentary has been coming from your peers about the supply chain issue -- pertaining with respect to the liquidity challenges?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [108]

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Look, I don't see any reason to start saying, why will urban demand or rural demand be more challenging. I think if you would have step back and say, look, if many of the measures which have been taken are all measures in the right direction? Yes, they are. Yes, do we believe the policymakers and the government is cognizant and is committed to doing many others? I think we are. And if all of that is true, I think we should continue to be optimistic in terms of what will happen and how will market growth bounce back, rather than get unduly worried about the challenges and whether urban will start to go below rural.

At this stage, at least, we don't see any reason for us to start thinking on those lines.

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Operator [109]

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The next question is from the line of Pulkit Singhal from Motilal Oswal.

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Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [110]

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Yes. I mean while I understand the market context, and I mean the charts clearly show the kind of slowdown that we are witnessing, but I'm just surprised to see that this slowdown is quite restricted to just the BPC category. I mean Home Care and Foods & Refreshments are still growing at 10% and 8%, which is quite good. So why do you think these categories are immune to the slowdown?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [111]

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So I think if you really look at this, I think just go back and relook at the chart. I think what we have said is that overall markets are slowing down. We've said that in discretionary segments, the slowdown is more than what you have seen in the other markets. Question of in-quarter performances at the end of the day, 5% UVG is a good performance. And that's why I also said that we continue to believe that our growth in the quarter has been competitive, which is really ahead of the market. So we're also getting benefits of gaining share and doing well. And that's how you really explain performance in Home Care and Foods & Refreshments.

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Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [112]

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Sorry, so -- okay, so this is largely market share gains is what I should read this as, Home Care and Foods & Refreshments?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [113]

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Yes. What we were saying because -- yes, because overall markets are slowing down. We've got a strong portfolio. We're doing well, and there are good market share gains, yes.

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Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [114]

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And in terms of the premiumization trend, one would tend to expect in the consumer slowdown time, that should at some point get impacted as well, but hasn't so far. But is that a risk that you foresee?

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [115]

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So I've said that, look, overall, even premium has slowed down. I have not said the premium has not slowed down. Absolutely slowed down, but still growing faster than the other market. So we are seeing slowdown across the board. But premium is still growing faster than popular in the market.

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Operator [116]

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That was the last question in queue.

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Srinivas Phatak, Hindustan Unilever Limited - Executive Director of Finance & IT, CFO & Executive Director [117]

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Yes. So very quickly, I'm just picking up a few questions which came on the web link. I think the first question was on the global tea business under review. I think Sanjiv has already answered that question. I think this was the question which came from Binoy Jariwala from Sunidhi Securities. Sanjiv has already answered that question.

The second one was really, again from Binoy, talking about our Food Solutions business and our focus area.

I think this is, again, a very interesting part of our business. We're committed to this business, and we're continuing to invest both from a portfolio point of view and a go-to-market and to unlock the opportunity. So that's a consistent strategy which we've been following for some time.

The next question is from Amit Sachdeva from HSBC Securities. He says that Hair Care portfolio seems watertight and significant innovation has happened over the years. It appears that Skin Care portfolio has not been shipped that aggressively. What are your plans to fortify this segment?

Amit's point is right. We would like to do much more in our Skin Care portfolio. And that's something which continues to be a focus area for us. But yes, we are working on it, and you will see a lot more happening.

Even if you would have seen in the last few quarters, I think our innovation intensity from our side has gone up. And that's something that we will continue to pursue.

The next question is again from Amit Sachdeva from HSBC Securities. The question was really saying that the growth of e-commerce in certain pockets of the country and rise of other aggregators have weighed on the throughput of some of the GT distributors, in some case quite significantly. How the situation evolving? Are you deliberately consolidating the GT channel?

I think Sanjiv has explained earlier in terms of how we are thinking about channels and our portfolios in context of the channels. I think when you look at GT, I think it's an important channel for us. We continue to expand our distributors. We are consolidating distributors where it makes sense. Equally, we are actually putting in more distributors in many parts of the country to actually leverage the full opportunity that the GT channel offers.

The next question is from Nitin Gupta from SBI Capital. The question is in Personal Wash, we're aggressive with premium soap, but not in the liquid wash shower gel, any reasons for limited focus on liquid wash?

The second question is for Unilever future growth categories are luxury, beauty and nutrition. We do not have any luxury brands listed in India, is there a plan to launch some offerings?

Nutrition segment is evolving in India and what products are expanding, and what -- can we expect HUL to follow the same path?

The first point is, yes, there is an interesting market opportunity in terms of liquids and shower gels, and we have a portfolio. I think as we really look at our Skin Care or skin cleansing part of the business, I think we are already making lots of interventions, even on our core with Lux and Lifebuoy. I think it's important for us to do that well and execute it and land it. Equally, we are committed to the liquids part of the portfolio, and we are progressing. And that's an area that you will see us progressively step up because it's also market development category.

On your question about luxury brands and premium brands, I think best to call it as a premium brand rather than a luxury brand for us. And you see examples of what we have done with Love & Care and Home Care or Love Beauty and Planet. These are again some good examples in terms of how we are bringing brands from the Unilever port stable to India at the right price point and the right channel to grow this.

Our Nutrition segment, and if you really look at it GSK for us in a manner is actually about HFD segment or the Health Foods Drink segment, so to that extent, there is an interesting play there. I think we'd really first like to focus on what we can do to get that -- first get the day 1 done and really accelerate growth there, and that would really be our focus for now.

The next question has come from Najman Isa from Sumitomo Mitsui DS. Two questions. Could you please some updates on the e-commerce initiative with kirana shops versus internal expectations? How has that held up in challenging environment and what is the potential?

Tough to understand the question, but I think Sanjiv has spoken about channels and how we are looking at it from a portfolio point of view as well as our growth opportunities and how we're looking at it. If the question is straight on Humarashop [then] there are a couple of initiatives in the e-commerce space. One is that we are taking our Shikhar app, which is a way to really digitize the ordering by a retail store back to HUL and make servicing. I think that we are continuing to expand the Shikhar app, encouragingly good results.

If the question is also on Humarashop. Humarashop is something which we have limited to a few cities and working on multiple models. I think we're very encouraged that we've actually been able to crack through some viable business models in a couple of states, and we are now testing it deep. And based on the success of that, we'd really look to go wider with that.

E-commerce channel for us [is in] one of the questions, is about 2% to 3%. And we've seen healthy growth rates in that channel. So second question from Najman.

If I look at the next question, it's come from Alok Shah from Edelweiss. What will be the appointed date for HUL GSK merger?

I think, Alok, just let's wait for the NCLT approvals and clearances. I think once we get clarity on that, I think we'll be able to come back to you to answer that question in a specific manner.

The next question is from Binoy Jariwala from Sunidhi Securities.

Sanjiv has spoken about looking at a vertical takeoff in GSK from day 1? Absolutely, he continues to say that every day to us even before I read the question.

Would it be wise to assume that the blueprint on integration, distribution expansion is ready? Would you also -- would also be helpful if you could share some thoughts on the work in progress that's happening on the front?

Look, a lot of work has been happening with respect to the GSK integration. One needs to be conscious that it all has to happen within the remit of what is allowed under legislation because it's also a listed company. Within that remit, I think we've had extensive discussions in terms of portfolio, how we want to look at media, how we really want to look at some of the value unlock opportunity. And we're also getting ready in terms of looking at some of the systems and the processes and IT integration. So all of that is something which is work in progress. But for us to really implement that, the merger has to get effected. We are quite excited. And to be honest, I think we are as -- we're well prepared as we can be, given some of the restrictions or the constraints that we have with respect to the merger. But all in all I think we are quite excited, and our objective continues to be to secure a vertical takeoff.

Yes. That's all the questions that we had on the web link. I'll now hand it over to Suman to really bring the call to a close.

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Suman Hegde, Hindustan Unilever Limited - Group Controller [118]

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Thanks, Srini. So with that, we come to the end of the Q&A session. The replay of the event and transcript will be available on the Investor Relations website in a short while, and you can go back and refer to it for any clarifications. A copy of the results and the presentation also is available on our website, you can refer to that. With that, I draw this call to a close. Thank you, everyone, for a patient hearing, and have a very good evening.

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Operator [119]

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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.