Hindustan Unilever Ltd

NSE:HINDUNILVR

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentleman, good day and welcome to Hindustan Unilever Limited Conference Call for the results for June quarter 2022. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. A. Ravishankar, Group Controller and Head of Investor Relations. Thank you and over to you, sir.

[A. Ravishankar, executive]

Thank you, Steven. Good evening, everyone, and welcome to the conference call of Hindustan Unilever Limited. We'll be covering this evening the results for June quarter ended 30th June 2022. On the call with me from HUL is Mr. Sanjiv Mehta, CEO and Managing Director; and Mr. Ritesh Tiwari, Chief Financial Officer, HUL. We'll start the presentation with Sanjiv sharing an overview of our performance in this quarter on the operating environment. Ritesh will then cover our financial results in more detail and share our future outlook as well.

Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation for good order sake.

With that, over to you, Sanjiv.

[Sanjiv Mehta, executive]

Thank you, Ravi. Good evening, everyone. Thank you for joining us on the call, and it is always a pleasure to interact with all of you. Let me begin with a quick summary of our performance for the quarter and then cover the external environment and our strategy. Then we will have our CFO, Ritesh, take you through the results and the outlook.

In this quarter, we grew our top line at a strong 19% with a decent underlying volume growth of 6%. In an environment that was extremely challenging, we focused on growing our consumer franchise and protecting our business model. Our growth has been ahead of the market, and we continue to gain value and volume share in more than 75% of our business.

Our EBITDA margin at 23.2% remain healthy in the context of unprecedented inflation that the country as well as the industry is witnessing. Overall, this has been a good start to the fiscal year and we are on a strong momentum with 11% EPS growth, clearly reflecting the strength of our brands, the capabilities that we have, the strategic clarity and the agility to run the business.

Now let me spend some time on the external environment, the inflationary situation and the market growth. Inflation has been a big challenge for the industry for the last few quarters. There have been periods of high inflation in the past as well, but what makes this different and challenging is the fact that prices of several commodities have inflated to the decadal highs at the same time. While the chart that you see is not an exhaustive one, but it gives you a good idea about the kind of inflation that the industry is witnessing.

Against the 10-year median price, you will notice that Brent crude, caustic soda, polyethylene and barley have all inflated by more than 50%, and the prices are at a historic high. Palm oil, which has seen more than 100% inflation, has softened in the recent days from its peak. Tea saw extremely high inflation in 2021 and since then has cooled off from the peak but is still at relatively high levels.

The other source of inflation has been the currency depreciation. The dollar strengthening and the USD-INR rate that was relatively stable around INR 74, INR 75 is now hovering around INR 80. So very clearly, there are 2 things: one is that several commodities are at the decadal highs; and secondly, despite the recent cooling of a few commodities, most of them remain significantly elevated versus the long term averages.

Let me now talk about FMCG market growth in reference to the categories we operate in. And as all of you know, it's a pretty broad-based category that we operate in. In June quarter, markets have grown in mid-single digits driven by price growth. Volumes continue to decline. Rural growth continues to lack growth in urban markets. We should also keep in mind that optically on a year-on-year basis, June quarter looks better than March quarter. But that is on a low base of 2021, where the country was going through a second wave of COVID.

However, when we look at the market growth on a 3-year basis to compare against a normalized baseline, we can see that the volumes are nearly flat both in March quarter and June quarter and there is a slight uplift in value growth, which is due to incremental pricing. Rural growth also remain in the same trajectory. In such inflationary scenarios, it is but natural for consumers to feel the pinch of increased pressure on the wallet and they do adjust volumes and prioritize essential over discretionary to manage the household budgets.

In this difficult times, as we have articulated in the past, we have 2 clear imperatives. First, we need to navigate the short-term challenges with agility and grow our consumer franchise while protecting our business model. And secondly, we need to continue single-mindedly on a journey to create a purpose-led, future-fit HUL and deliver on our 4G growth agenda. We are making great progress on our 5 strategic choices that I had covered in detail during the March quarter results.

Just to recap for your benefit. First is developing a portfolio by growing the core ahead of the market, accelerating market development or creating the future market and driving premiumization where we are with all the thrust over the years are over-indexed to the market. We are investing behind our brands and in market development of underpenetrated categories. We continue to upgrade the consumers to higher order benefits, thereby growing a premium portfolio at twice the growth rate of the rest of the business.

Second, win with the brands and the force for good powered by purpose and innovation. Our focus is on providing value to the consumers through superior products and impactful innovations.

Third, lead in the channels of the future. We continue to expand our presence in e-commerce and drive digital adoption through the e-B2B app Shikhar, which has now been adopted by over 9.5-lakh or 950,000 retail outlets. Put together, our total digitized demand capture is now more than 20%.

Fourth, build differentiated structures and capabilities through our reimagine HUL program to digitally transform HUL from linear value chain to an interconnected web of ecosystems powered by data and technology, leveraging our WIMI strategy to deaverage India and find growth opportunity.

And the last one is to build a purpose-led, future-fit organization and growth culture by empowering our people, giving them the environment to thrive and outperform. Talking about purpose. We have taken a big step in this quarter and announced a full suite of ESG commitments across our 3 focus pillars of planet, people and the society. Unilever globally has always stood out as being the finance and sustainability with the vision of making sustainable living commonplace. Way back in 2010, many of you would recall that ahead of the industry, Unilever had codified what was famously called the Unilever Sustainable Living Plan, which detailed out our sustainability strategy. In early '21, Unilever fully integrated the business in sustainability and allows a single integrated compass strategy with very clear time-bound actions.

Now we took inspiration from Unilever's Compass to create a time-bound and focused ESG commitments. What you see here is, of course, a very busy chart since we have been very busy charting our ESG commitments. Let me now talk about a few of these.

Under our first pillar, which is improve the health of the planet, we have taken a target to achieve zero emissions in operation by 2030, which will be ahead of India's COP26 commitment. Further, we aim to have net-zero emissions from all our products from sourcing to point of sale by 2039. We're also committed to transitioning from fossil fuel-based carbon in our cleaning and laundry products by 2030. By 2023, we want to create a deforestation-free supply chain in palm oil, paper and board, tea, et cetera, contribute to creating a water potential -- a cumulative water potential of 3 trillion liters in India by 2025. And by 2025, 100% of plastic packaging will be reusable, recyclable or compostable.

Our second pillar is to improve people's health, confidence and well-being. Here, we are committed to doubling the number of products sold that deliver positive nutrition by 2025. And we will also take action through our brands to improve the health and well-being and advance equity and inclusion.

Our third pillar is to create a fairer, more socially inclusive world. Here, we are talking about creating an equitable and inclusive culture, ensuring that everyone who directly provides goods and services to us will earn at least a living wage or income by 2030. And we will pioneer new models to provide flexible employment opportunities.

These are audacious targets. But we are confident about achieving them and being the leader in sustainable business.

With this, let me now hand over to our very competent CFO, Mr. Ritesh Tiwari, to talk about the performance in this quarter and our outlook in detail.

[Ritesh Tiwari, executive]

Thank you, Sanjiv, and good evening, everyone. I will now walk you through our in-quarter performance and our outlook.

We have a strong start to the year with a robust 19 percentage top line growth and an underlying volume growth of 6%. Growth has been added off the market, and we continue to gain value and volume share in more than 75% of our business.

Moving to our bottom line performance. Profit after tax before exceptional items grew 17%. Net profit after is INR 2,289 crores grew 11%. There's a one-off prior period tax credit in June quarter '21, and that largely explains the difference in growth of PAT and PAT (bei). Our EBITDA margin was at a healthy 23.2% despite the unprecedented inflation.

Let me spend a couple of more minutes to bring to life how we are navigating this challenging environment through dynamic financial management. As we had anticipated and called out earlier in March quarter results, inflation has further worsened in this quarter, and prices of many commodities are in their decadal highs. This has led to a 330 bps year-on-year increase in our cost of goods sold. Despite this, we have been able to hold EBITDA margins at a healthy 23.2%, a 110 bps year-on-year decline. This was possible due to our clear focus on fundamentals that we've been consistently speaking about.

First, ensuring that we adequately support our brands and maintain our share of voice ahead of our market shares. As you can see, our A&P expenditure has increased 70 bps year-on-year as we continue to invest at competitive levels and lasts early [indiscernible]. This is a 30% [indiscernible] increase year-on-year.

Second is investing in our products and giving better value to the consumers. Our product superiority continues to be 2x of pre-COVID levels.

Third, we continue to take competitive pricing actions. Our UVG for the quarter was 12 percentage, a setup of -- from 10% in March quarter '22. The most important thing is to drive savings harder and optimize all nonconsumer facing costs. Through this frugal mindset and growth leverage, we have delivered a 270 bps reduction within other expenses and employee costs.

Moving on to performance across our 3 segments. Home Care delivered yet another quarter of robust performance growing at 30%. Beauty & Personal Care grew ahead of market at 17%. Foods & Refreshment had a steady quarter growing at 9%, led by a stellar performance in ice cream. Our margins in Home Care were flat on a year-on-year basis as the increase in costs were offset by strong savings, operating leverage from high growth and price increases.

BPC margins declined by 180 bps year-on-year, largely due to very high inflation, which was partially offset by savings, growth leverage and price increases. Foods & Refreshment margins declined by around 200 bps, largely on account of step-up in A&P investments and an adverse mix coming from higher-growth in ice cream business related to other categories like health food drinks and tea. We will sit down to talk more about performance within each of the division in subsequent slides.

Despite high inflation, we have continued to build our brands through consumer relevant innovations and activations. In this quarter, TRESemme has launched its Pro Pure range, which includes shampoo, conditioner, serum and mask across 2 variants: Damage Recovery and Moisture Boost. It is a premium offering in clean beauty space. Our premium national brand, Love Beauty and Planet, has expanded its portfolio with 3 new products for hair fall reduction and deeply nourished hair. Taking a strong ayurvedic credentials to newer format Indulekha has launched hair serum and mask.

Baby Dove has introduced Derma Protect moisturizing body wash for ultra gentle care. Lakme expanded its skin care portfolio with facial foams [indiscernible] silicone facial brush that gently exfoliates. In April, Lakme launched a new range of body serums, especially designed for Indian summers. The launch was followed with focus activation across TV, digital and influencer marketing. Our fabric conditioner brand, Comfort, has launched a new variant, Delicate, which protects delicate fabric and gives unbeatable softness.

Talking about our new marketing campaigns. Through its purposeful and iconic MeriBetiStrong campaign, Clinic Plus is celebrating mothers for being the first role model in their daughter's lives. Glow & Lovely is new campaign is bringing for the product benefit relevant for its consumers. [indiscernible] believes that game is about standing [indiscernible] Boost sponsor the women's T20 Challenge and deployed various on-ground activations, including the [indiscernible] is talking about in great aroma is hallmark of a [indiscernible] .

Moving on to our performance in Home Care. Our business grew at 30 percentage, enabled by robust performance in both Fabric Wash and Household Care. Both categories grew in strong double digits with all parts of the portfolio performing well. Supported by a strong market development actions, liquid detergent and fabric conditioners continue to outperform and lead growth for the business.

Our dishwash brand, Vim, was recognized by Kantar for fastest-growing consumer reach across FMCG brands globally in the last decade. With more input cost inflation, we have continued with our calibrated pricing actions in both Fabric Wash and Household Care.

Talking about Beauty & Personal Care. We grew 17%, led by strong performance in premium portfolio across categories. Soaps delivered price-led double-digit growth. Beauty and premium soaps continue to outperform. Demand for hand hygiene products moderated on a relatively high pace. Hair Care grew in high double digits. Our premium brand, TRESemme and Dove are performing very well and are at the forefront of driving consumer upgradation to higher-order benefits. Further, we are seeing good performance from our innovations, such as TRESemme serum and Dove Mask, Sunsilk [indiscernible].

In Skin Care, Pond's and Lakmé delivered robust growth and are now significantly ahead of pre-COVID levels. Glow & Lovely and Talc were impacted due to slowdown in discretionary consumption.

Color Cosmetics had a very strong growth on a soft base and is marginally below pre-COVID levels.

In Oral Care, Closeup continues to grow consumer franchise.

Let me now turn to Foods & Refreshment. F&R grew 9% with a strong performance in ice cream and foods. Tea continue to cement its market leadership and deliver steady performance on a high base. Coffee sustained its growth momentum and grew in double digits.

In health food drinks, we continue to focus on market development actions to build category relevance. These actions have helped us continue to gain market share and penetration. As we had mentioned earlier, the category growth has been impacted significantly due to inflation, and this has led to a subdued quarter for HFD.

Foods delivered double-digit growth, led by strong performance in jam and food solutions business.

Ice cream delivered another stellar performance with very strong growth across brands and formats. Our innovations like Trixy Cheesecake and Feast Black Forest have found good traction with consumers and are extremely well in this quarter. Our home delivery solution, ICNow, continues to gain relevance and is a significant source of growth for us in this category.

So let me summarize. Our performance has been strong both on top line and bottom line. While I have covered most lines, let me pick up a couple of more things to elaborate. Increase in other income is largely due to higher income from services rendered to Unilever Group, higher commission on OTC sales of GSK, CH products and government grants. Finance income is higher in the quarter due to improvement in treasury yields and a one-off interest received on income tax refund of about INR 40 crores. Our ETR for the quarter was 25.8%. As I mentioned earlier, we had a one-off tax prior period adjustment in June quarter '21. ETR for this fiscal is expected to be around 26%.

Now moving on to our outlook. Inflation continues to be a significant challenge. As you can see, market prices of most of the commodities have further increased sequentially in June quarter '22 and are at very high levels. In March quarter results, we have spoken to you about a measure that we use in our business to look at inflation. That is net material inflation or NMI. As a reminder, this is net absolute inflation that the business faces after factoring in all savings and efficiencies.

As a percentage of our total material cost NMI in June quarter '22 was circa 20 percentage. And we need to be mindful that this is on top of 9% inflation that we had in JQ-21. Given that the correction in some commodities like farm happened in the last couple of weeks of June, we will have higher cost pipeline inventory that was contracted earlier. With consumption of base inventory in SQ and many of the commodities like crude oil, caustic soda and plastics remain elevated year-on-year, SQ/NMI will be higher than June quarter.

Needless to say, we will continue to extensively drive productivity improvement in our business and take calibrated pricing actions. However, cost of goods sold will be higher in September quarter as price versus cost gap widens. In the softening that we have lately seen in commodities remain, we expect BQ NMI to be lower than September quarter. We would need to wait and watch how the commodities play out in next few months to get a sense of exact quantum of reduction.

Looking ahead, in the near term, growth will be price-led as inflation continues to impact consumption. As I mentioned, most commodities have further inflated in June quarter and continue to remain at very high levels. This allows consumption of higher cost pipeline inventory will result in our SQ margins to remain under pressure. The recent softening of commodities [indiscernible] perhaps. And at this stage, it will positively impact our sequential margin from December quarter '22 onwards.

Our 2 clear imperatives remain. First, our priority is to grow our consumer franchise and protect our business model. We will do this by investing competitively behind our brands, driving savings harder and taking calibrated pricing actions as needed. And second, continue on our journey to create a purpose-led future-fit HUL and deliver 4G growth, growth that is consistent, competitive, profitable and responsible.

Before we move to Q&A session, let me summarize what we covered in now. We had a strong start to the year with 19% top line growth and 11% EPS growth. Our growth was ahead of the market, and more than 75% of our business is winning share. Despite the unprecedented level of inflation, our EBITDA margin remained healthy at 23.2% as we continue to drive savings harder and take calculated pricing actions.

In the near term, growth will be priceless. Our margins in September quarter will remain under pressure. The recent softening of commodities were to remain, it will positively impact our sequential margins from December quarter onwards.

With this, let me hand over to Ravi to comment our Q&A session.

[A. Ravishankar, executive]

Thank you, Sanjiv, and thank you, Ritesh. With this, we'll now move on to our Q&A section. [Operator Instructions] And we'll take these questions at the end.

With that, I'd like to hand the call back to Steven to manage the Q&A session for us. Steven, over to you.

[Operator]

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.

[Abneesh Roy, analyst]

Congrats to team on the numbers. My first question is on the disruptive innovations happening in the liquids. So for example, you came out with the INR 10 handwash powder-to-liquid. Competition had come out with INR 15, and now competition has come out with a INR 35 disruptive pricing product. So my question is, what do these kind of disruptive innovation do to the category [indiscernible] and margins? Because ideally, you would have liked to grow that with a premium product rather than a premium product at a value pricing. Could you elaborate on medium, long term? Is this more of a niche segment? Or this will become the main part of the liquids?

[Ritesh Tiwari, executive]

Abneesh, thank you so much. Talking about innovation, you should remember we called out in our full year results '21/'22, that we had INR 900 crore delta turnover that we added because of driving innovation across the length and breadth of the portfolio. Innovation continues to remain an extremely important element for us to drive competitive growth, be it in skin cleaning or for that matter any of the category in the business.

Second element for us, equally important of innovation is also drive market development and market development being driven through price point pack through different formats and albeit different innovations will be able to bring market development. Now every category, which today has a very low amount of penetration, many players will end up making innovations to drive penetration and ensure that the category growth keeps coming up to be examples that you quoted as [indiscernible].

And across multiple categories, we keep doing that, be it innovation. You heard many examples I was quoting today on premium products in Clean Beauty. So wherever we do see demand space is attractive, wherever we do see market development need to continue to build penetration, we will continue to deploy innovation with impact across the portfolio.

[Abneesh Roy, analyst]

But one follow-up there. Margins in these disruptive innovations, is it similar to your probably the solid soap, solid body wash, right? So margins don't improve because of it?

[Ritesh Tiwari, executive]

Yes. So what happens -- at least for many innovations, for example, when we do innovations in category, they will be margin-accretive. But there will be also premium products with which we will end up investing more in the initial stage of market development or launch for that matter. So margin profile could be very different. It all depends upon the objectives that we have defined that we want to do.

Ultimately any innovation on market development, the first single-biggest objective is to grow and ensure that we're able to get consumer franchise for their product or for their format and price point. So that's the single-biggest objective. Some innovations end up being margin-accretive because we do a lot of innovation in premium portfolio across brands.

And yes, sometimes, as I mentioned, we will end up investing more in certain products. So margin profile in short term might be different, but the whole objective there is to ensure that we're able to gain penetration and grow our consumer franchise in that product segment.

[Abneesh Roy, analyst]

So that's useful. My second and last question is on the divergence in the performance of 2 categories. Premium skin care is now significantly ahead of pre-COVID while Color Cosmetics is marginally below pre-COVID. Ideally, as a layman, I would have thought these to grow almost similar given they depend upon mobility, colleges restarting and offices also. These are leads back to normal. Is there a difference in the consumer behavior? So B2C is picking up more in cosmetics or in cosmetics, there is a mass end which is underperforming or the premium cosmetics are doing that?

[Sanjiv Mehta, executive]

Our mass and also of Color Cosmetics has picked up. And when you are comparing -- you're right in saying that Color Cosmetics has the mass range, popular range and premium range. Whereas premium skin care, as the name alludes, is primarily premium. And it is very clear of niche that premium has remained very resilient.

Yes, if you look at the Nielsen numbers, the premium both in -- is growing both in value and volume. So this is very clearly -- and it is not counterintuitive because premium caters to consumers who are in less than 7-plus their more disposable income, and this is a smaller part of the wallet spending as compared to rest of the population. But we are very optimistic about our Color Cosmetic business, and it has bounced back very strongly.

[Abneesh Roy, analyst]

Sir, Sanjiv sir, one last. I know I have completed my 2 questions. But sir, you speak of very good growth in almost every category, which is a commendable achievement. When do we see good growth being mentioned in health food drink where you're still mentioning the market share penetration gains, et cetera? When do we see double-digit growth being mentioned this year?

[Sanjiv Mehta, executive]

I know. That's a right valid question, Abneesh. And what we've been doing is we continue to focus on the fundamentals of the business. Had COVID and inflation not happened, with all the work that we have done, we would have bounced back strongly. The market share gains have been superb. If I look at the history of this category in the short period, it would be the highest market share gains we have seen for many years. Same goes with penetration.

But when you look at the price of milk going -- and different factors have affected the category at different points of time. There was a time when the children remaining at home, the mother had many other alternatives. Now when you look at this category, yes, price of milk going up significantly. Cost of Horlicks with milk, which used to be about INR 12 earlier, is now INR 18, yes?

So that -- all those factors have contributed. But we will remain committed because we believe that this nutrition category is so essential for the people of India to give them the right kind of nutrients. And year here, year there doesn't save us, yes, because our focus will be on doing the right things. And time will come when we will unlock the top line growth also for business. And we must also, Abneesh, accept that this is a very profitable business. So while there is a stress on top line growth, the fundamentals are strong and we are still very bullish about its future.

[Operator]

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

[Vivek Maheshwari, analyst]

Two questions. First is on the rural demand. What is your -- I mean some of your competitors are of the view that rurals is picking up. Others have a view that it has bottomed out, yet to show pickup. Given that we are the market leader, what is your view on that from a demand standpoint?

[Sanjiv Mehta, executive]

Yes. Thanks, Vivek, and good to get this question from you. When I look at market, and that will be the best way to answer your question, is the rural demand is from a value growth perspective. Say, if I were to look at the total FMCG is 7%; urban is slightly above, 9%; and rural is about 4%, yes?

But when I look at the volume growth for the last 3 months, urban is about minus 3%, and rural is minus 7%. And this is the closest you can do to assess the rural demand. So rural demand still remains soft. But when you were to put -- you would have seen from Ritesh's chart, if you put a 3-year picture together, then the distortion go away. And while the value growth in urban is higher, the volume growth is nearly flat in both urban and rural, virtually very little change. And that would indicate that from a longer-term period, if you remove the distortion, there is not much difference at all. In fact, quarter-on-quarter for a 3-year basis, rural maybe -- value maybe slight higher than [ April ], yes?

So it is not on a -- if we remove the year-on-year growth perspective and look on a longer-term basis, not significantly away. And where we see some of the green shoots, of course, is -- one is the government has done a very sensible thing in terms of enhancing the commitment on fertilizer subsidy by nearly INR 1.5 trillion, giving more foods -- free food to the rural population, primarily rural population; and monsoon, saving and except the hot land where we also -- the forecast indicates that the rain will catch up. In rest of the country, the rain has been decent. And if the realization for crops is more than the input price inflation, then there will also be an increase in income for the farmers, and that should augur well for them. So these are factors which could result in, in the coming quarters rural bouncing back from where it is today.

[Vivek Maheshwari, analyst]

Got it. Got it. Second, on the Horlicks Boost portfolio. So already your question has been asked, so I will not repeat that. But Horlicks has been a very, very powerful brand, to an extent underleveraged. So when do you plan to make it an umbrella brand and launch more -- get into more categories now that the 2-year period is over, there has been all the disruption hopefully behind us? Once inflation stabilizes, do you think that will be the time to start expanding into newer categories?

[Sanjiv Mehta, executive]

Yes. One of the things we have done, of course, is streamlined the portfolio. The second thing what we have done is we've gone into the plus range much more strongly and which is a high-science range. And we have a very attractive innovation funnel, but we are also focused on driving our top line of the core portfolio stronger.

And a lot of work on market development is happening -- a lot of work is happening on market development. We're reaching millions of consumers. And I am very confident, like you're rightly saying, Vivek, that when commodity prices soften a bit, we will see a huge bounce back on the top line of HFD portfolio. And then we will start unleashing the innovation that we have all got ready in the pipeline.

[Vivek Maheshwari, analyst]

And when you say, Sanjiv, just to clarify innovation, you also mean innovation beyond the core HFD, right?

[Sanjiv Mehta, executive]

Yes, we have several plants is also looking at adjacencies. That's what you are alluding to. Because at the end of the day, is this whole area of pure nutrition is vitamin/mineral supplement is a focused area for us globally and certainly very relevant for India considering the nutrition deficiency in the country.

[Operator]

The next question is from the line of Latika Chopra from JPMorgan.

[Latika Chopra, analyst]

Congratulations on your performance in a challenging market. My first question was on Home Care. The revenue strength is very strong and out. Just wanted to understand this a little better. If you could throw more light on how the category trends have been? Are you seeing an acceleration in the category growth here? Is it benefiting from full market reopening? Or is it that your market share gains have stepped up meaningfully or other players are probably investing less in the category of input cost inflation?

[Ritesh Tiwari, executive]

Yes. So thanks, Latika. Talking about Home Care, we've seen our performance has been very robust at a 30% growth. It's a growth which, of course, in short term is price-led. There's also good performance of volume as well behind the growth that we have. So it's a category which has grown very well from our top line perspective both volume and value, number one. Number two, the growth is also competitive. We're growing ahead of the market and gaining market share as we speak.

And there are many drivers to Home Care growth. And this is a classic example of a long-term portfolio deployment. For years, we've been investing in Home Care. I'm working on the portfolio all the ends at the premium end, popular end and mass end. To start with, we have a very fuller portfolio that we have in Home Care, and we've driven very well premium portion of the portfolio.

So they call out fabric conditioners, for example, is a clear market development for us, and it's a pretty good driver for growth for us in Home Care for last several quarters now. If I talk about liquid detergents that is, again, an extremely strong contributor of growth and market development as far as Home Care is concerned. So we have done the job of portfolio evolution in Home Care, which has only become stronger over the last several years. And to me, that is a real hallmark of how we're able to drive growth in Home Care.

Yes, there have been ups and downs in terms of [indiscernible] impact Home Care, the latest one being a significant amount of inflation that we have seen or basket in organic like soda, which has impacted, of course, the fuel cost which has impacted the distribution cost as well. So the business has been challenging in terms of its own input cost materials. But again, we've been very mindful with our own pricing calibration. And as usual, we always call out that our first port of call is to keep driving savings hard and then keep taking calibrated price increases.

So in this journey of high inflation, again with Home Care, can be exactly than that. Our strategy is to grow consumer franchise and protect our business model. And that's exactly what we have done. You see, for example, our margins that they are at 18 percentage. It's -- we've been able to hold year-on-year margins in Home Care with all the interventions. That supports a very strong growth, which happens, gives also a good amount of growth leverage.

So in those would be the causality of good Home Care performance and plus also a strong set of brands Rin, Wheel or in Household Care, Vim. So strong set of brands performance across the portfolio.

[Sanjiv Mehta, executive]

I'll just supplement some of the things, Latika, which Ritesh spoke about. One very important thrust of ours over the years has been product superiority, yes? And we benchmark our products versus eyeball competitors and ensure that our products are superior to our competitors. So that's also very important thing.

The second thing is you would have all heard me talk about market development consistently over the years. Now market development is not something which gives you massive growth immediately. It has to reach a point of inflection where the growth comes in.

And the third important bit, which is a very unique HUL strategy, is winning in many Indias. So our strategy is very distinct for different parts of the country and from where it is about improving our competitiveness. Somewhere, it is about upgrading powders. Somewhere, it is about converting powders to liquids, but it is a very distinct strategy. And this is something which is a complicated play and not very easy to replicate. But we have created an ecosystem whereby we can play the WIMI game very effectively. And one of the best example you will find is in laundry category. The other is the way we have taken leadership in the tea category, and we have been cementing our leadership in tea category is through WIMI game.

[Latika Chopra, analyst]

Sure. My only -- I was trying to understand is, does that mean that the market share gains for you would have accelerated in the recent past...

[Sanjiv Mehta, executive]

It has been unprecedented market share gain.

[Latika Chopra, analyst]

All right. Good to know. The second quick question I have is on soaps. And 2 aspects of just to get a better understanding [indiscernible] experience in the past during periods of price inflation. So one is that, how soon do market players start parking on commodity gains to consumer? How will you approach that?

And the second is does it, in fact, channel inventory in any way? Is there any material impact given expectations of the channel report to price reductions and unit price hikes happened in phases or even price eruptions will also happen in sales? Any preliminary thoughts?

[Sanjiv Mehta, executive]

Thank you, Latika. First, let me give you a headline picture. Our price increases have not been in tandem with the commodity price increase. At the macro level, in the June quarter, our commodity price inflation was 20%. Our price increase has been 12%, yes? And it gets more accentuated in certain categories. So that's point number one.

The second point, you're right in saying that the price increase is easier because a retailer doesn't worry about getting higher-price stock. He doesn't worry about having lower price inventory when the price picks up, yes? But whereas on the reverse side, they would be very circumspect.

So the model that we normally follow: price increase, we take in small bites; and price drops, we take in a larger bite. But we have also developed now a science and muscle of how to manage the inventory both in price -- how to manage the trade both for price increase as well as for the price drop.

[Operator]

The next question is from the line of Avi Mehta from Macquarie.

[Avi Mehta, analyst]

I just wanted to understand as hearing your comments on commodity costs showing some signs of correction and on rural. Would we look to change the focus to volume growth instead of market share, and hence, more aggressive marketing, market development, et cetera? Or is it still some time [ away ]?

[Sanjiv Mehta, executive]

Yes. First, I'll tell you is, our focus on market shares is both on volume and value, yes? It's not just on value. So our pricing has been competitive. And while we lead the price increase in most categories, it is not that we are significantly ahead to lose or to not gain volume change. So that one is very clear, yes?

It's still today. It is not just about inflation in our category. It is also about inflation in the environment. When a consumer pays more for fuel price, if a consumer pays more for all other products in the basket of their consumption, then the [indiscernible] of the wallet shrinks. So it is not just categories which impacts the consumption but also the inflation of all the household goods that they acquire or they use which impacts the consumption. And still, we are at a stage where the volumes growth are pretty negative. And it will take time once the -- and hopefully, the inflation is the beginning of tapering off. And once that happens and the Indian economy keeps growing at the same time, then we should start to see the volumes come back.

[Avi Mehta, analyst]

Okay, sir. Okay. No, I understand that market share focus on value. It was more about you driving being the leader in...

[Sanjiv Mehta, executive]

Yes. Long term has always been, we have articulated it very clearly, volume-led profitable growth. You would have heard us saying many times in the past.

[Avi Mehta, analyst]

No. No. Perfect. No, I understand that. And sir, lastly, on the expectation on the health care end. It's essentially across all the spaces linked a lot to inflation moderation is what I think here the [ commentary ] across. Do you have any expectations on when you kind of see this momentum changing especially, not in terms of volume growth but more in terms of margins -- EBITDA margins? Would you argue that 1Q has bottomed out in EBITDA margins? Or was the comment on EBITDA that it would be moderating further in the second quarter and that -- and probably DQ when you have to set an uptick?

[Ritesh Tiwari, executive]

Yes. So let me take this one, Avi. So as we called out in June quarter, we used a number called 20 percentage inflation net material inflation that you've seen in the results. Our current understanding is that in September quarter, we will see sequentially more inflation. There is one headline commodity, palm oil, which has come off from its peak. But there are several commodities which have risen to their historical high levels and they remain at elevated level, be it Brent crude, which was at $110 average for June quarter, as we speak, it's $105, $106. We are seeing sequential inflation in soda ash, caustic soda, milk extracts, coffee, barley. So there are many commodities which are inflating.

And we should also not forget that Indian rupee has, against the U.S. dollar has fell, and hence Indian rupee has [indiscernible] 5% to 6% in the last 3 months' time. There are many commodities which are bought on international import parity pricing principles. Also that matters the materials which are sourced locally have input ingredients which are imported. PFAD is a classic example where the palm oil gets imported from Indonesia or -- Malaysia. And then in the final product [indiscernible] PFAD.

So we will see all put together in September quarter inflation higher compared to June quarter. And there will also be impact of pipeline inventory estimate, there are supply chain lead times in procuring many materials. So you have at any point in time anywhere from 4 weeks to 7 weeks of inventory of different materials, depending upon the source location, demand visibility, supply reliability and concerns and logistics time, which is purely involved in those materials.

So we will also have higher price pipeline inventory in cases where commodity prices come off for some time after the commodity comes off. So all put together, we will end up consuming that inventory in September quarter.

Now if the commodity situation like palm oil, it remains at the lower end as we have seen it coming off and if we do see that across many other commodities, then we do expect that from December quarter onwards, inflation might come up to some extent. And that should help sequential margins being -- getting built from December quarter '22 onwards.

September quarter, because of a higher sequential inflation on material costs, margins will remain under pressure. The point that Sanjiv was mentioning earlier, in June quarter, we have seen 20% material cost inflation. But again, the 20% material cost inflation, our pricing has been 12%. So we have also not rise at the peak of the commodity. So there is a price versus cost gap.

And to some extent, when there is a reversal of commodity trend, we are also circumspect on our pricing decisions. So we will also, as Sanjiv mentioned earlier, we closely follow an extent when price drops. In case happens, we will not take a small bite. We're taking big bites of price decreases. And hence, there might be a transient impact on margin in the short term.

But given the conversation I mentioned earlier, if commodities they keep coming off beyond palm and that remains, we should see from December quarter onwards sequential margin getting built. So that's what I would say the view would be on September quarter and December quarter onwards margin.

[Operator]

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

[Percy Panthaki, analyst]

This is Percy Panthaki here. Sir, my first question is on the pricing. So you have about 12%, 12.5% pricing this quarter. Going ahead, basically, there is -- in Q2, there is 400 basis points of pricing which is anniversarying because last year in Q1, you had 7% and Q2, you had 3%. So there is a 400 basis points anniversary which happens. At the same time, you are also during the quarter and probably, as we speak, some -- taking some more pricing increase also versus the average of Q1. So net-net, these 2 forces, which one is the net sort of positive? Do you think that the price increases that you will take will more than offset the anniversary? Or do you think it's the other way around, and therefore, the Y-o-Y pricing in Q2, will it be above the levels we have seen in Q1? Or will it be below the levels we are seeing in Q1?

[Ritesh Tiwari, executive]

Yes. So Percy, thanks for your question. Coming to pricing, as you mentioned, our growth outlook for near term, [indiscernible] will be price-led. So there will be pricing in the business. And the point of speaking earlier, yes, you're right in the base, there is price, which is [indiscernible]. But we also have many commodities which are inflated. And the point I was making earlier, we have almost 8 percentage price versus cost gap with 20% material cost inflation June quarter, and 12% pricing that we have taken.

Yes. So Percy, thanks for your question. Coming to pricing, as you mentioned, our growth outlook for near term, [indiscernible] will be price-led. So there will be pricing in the business. And the point of speaking earlier, yes, you're right in the base, there is price, which is [indiscernible]. But we also have many commodities which are inflated. And the point I was making earlier, we have almost 8 percentage price versus cost gap with 20% material cost inflation June quarter, and 12% pricing that we have taken.

But after having driven hard, as we always kept saying in terms of driving, savings first and then after that, take calibrated price increases. So in my view, it will be the case for September quarter onwards as well. There are very few select categories like tea, where we do have year-on-year deflation. And those are the categories where, as you -- we also have done the right job in terms of taking price decreases where we had to a different price point that we operate in the category.

But apart from tea at this point in time, [ as we see ] is a pretty comprehensive impact across many categories. The close one that we're going to watch out is palm oil and an impact, and we have seen that coming off significantly. I did articulate the September quarter outlook. And if the palm oil prices remain benign and commodity outlook remains where it is, then from December quarter onwards, we will see cost increase -- [ decrease ] coming in.

September quarter, as I mentioned, we have a pretty elevated cost pipeline of inventory for many materials, which have very high inflated in September quarter -- in June quarter, including palm oil for that matter in June quarter. So I hope that gives you some amount of understanding of where pricing would net out in September quarter.

[Percy Panthaki, analyst]

Yes. Yes, very helpful, Ritesh. Just a related question to this. Supposing if I take a simplifying assumption that, let's say, commodity prices remain where they are going into the future, how long do you think it would take for you to restore your EBITDA margins to pre-COVID levels?

[Ritesh Tiwari, executive]

See, where we are today with EBITDA margin...

[Percy Panthaki, analyst]

Sorry, not pre-COVID levels. I mean, sorry, the levels you had before basically this big inflation set in, which was, I think, somewhere around the 25% mark, you have been pretty stable at that 25% mark. So that's the benchmark I have in my head.

[Ritesh Tiwari, executive]

Yes. So there are multiple elements, Percy, out here. A, first of all, also, we need to understand how commodities will play out. We are, as we speak, something [indiscernible] palm oil at a very high inflated levels of multiple commodities. That will be one very important driver how commodity play out over the next few quarters from December quarter onwards. And that will be, in my mind, a very large determinant how we are able to build sequential margins from December quarter onwards.

And we are yet to know with currency depreciating with other commodities further [ inflating ] and ones which are at high levels like crude remaining elevated, we've got to see as to how that commodity atmosphere gets pulled off in quarters down the line. And if that does happen, we will start building sequential margins from December quarter onwards. That's one.

Number two, when deflation [ resistant ] commodity comes off, we do also expect competitive intensity to go up on A&P, on investments, on innovation. So margins, of course, have one element of commodity, gross margin and pricing, is also an element of competitive investment in the business that we have to do. So that, again, is something that we need to see how it stands out.

And last but not least, something, the price-value equation. As I mentioned that we do have a price-to-cost gap at this point in time, and that price-to-cost gap needs to start getting bridged over a period of time. So we'll have to see as to how various [indiscernible] play out. I don't know if Sanjiv [indiscernible]?

[Sanjiv Mehta, executive]

Percy, there is also one very important factor. Assume for the time being that commodities remain at an elevated level, yes, then that equation changes permanently. Then one of the big drivers is India's GDP growth. And if India keeps growing at 7%, 8%, and it is an inclusive growth, then our ability to restore margins would be that much more easier.

[Percy Panthaki, analyst]

Sure. Sure. Understood. My second question is on the detergent's market share, which you mentioned, we have seen unprecedented growth in market share. Could you give some more flavor on this? Is it that the market share gain more accentuated towards the mass end, mid-end, premium end? And any more flavor as to why this is happening? Are there certain players in the market who, for whatever reason, have become very weak or something like that?

[Sanjiv Mehta, executive]

Yes. Percy, first, the good bit is we are gaining shares across our portfolio in bars, in powders, in liquids, and this gain is across the price tiers, yes, in mass, in a popular range and the premium range. And some of the factors, if I may allude to which I would repeat, which I was also telling Latika, one is a massive focus on product superiority, yes?

The second is we have, for the last several years, invested significantly in market development of liquids and upgrading consumers to higher-order benefits. And the third is our WIMI play. And the categories like laundry and tea lend itself to a WIMI play much more because your competitors are different in different pockets is the market shape is very different in different pockets. And you can't have one recipe for the entire country. And I think of the large companies, we are the company which is more -- most adroit in playing the WIMI game.

[Operator]

The next question is from the line of Amit Sachdeva from HSBC.

[Amit Sachdeva, analyst]

Congratulations on a very good set of numbers. Sir, my question is on the basic makeup and Skin Care part of the portfolio. And I alluded to also that you are working with [indiscernible] the future and e-commerce being a key focus. Could you give us a little bit more detail on e-commerce contribution coming from especially the Beauty part and Skin Care part of it? And do you see that new wave of business being done in the BPC side? Is it looking like a long-term opportunity? Or you see also somewhat a challenge because it opens up [indiscernible] of new entrants coming into beauty space especially?

And also mass end of the skin where you are dominant, it is migrating to masstige and premium side of things. And wherein your plays still evolving. And if I may say that there is some gap there. How do you read the Skin Care and beauty situation under the new realities and if you could give us some share of what percentage of revenue from these particular products are coming from e-commerce and how it has grown over last year?

[Ritesh Tiwari, executive]

Yes. So performance in the -- if I just break down into a few components of beauty catalysts, you spoke about, let me start with Hair Care. It's an excellent performance for the last several years now and several quarters, where we are very full on portfolio across different price points and different formats and different pack sizes. And be the premium end of Hair Care of Dove or TRESemme that has grown well, also that matter of premium end in Ayurvedic range like Indulekha that has grown well.

We had called out that our market share gains have been one of the best in last decade what we have in Hair Care. So if we talk about beauty categories, Hair has done extremely well. And the kind of [indiscernible] development we have done, the kind of market development we have done over years, is really yielding results. And a portfolio which is strong across multiple brands, be it Clinic Plus, be it Sunsilk, be it Dove, be it TRESemme, that really helps us to get that.

Even within the area of masstige, we have spoken about that -- we have [indiscernible], which we have launched [indiscernible] in this quarter also under Love Beauty and Planet, which is our D2C brand. We have launched more innovation in Love Beauty and Planet. So we've been very active across price points. Masstige is still a niche segment in the country, the kind of the power of large brands like Dove, TRESemme, Clinic Plus, which drive incremental growth is huge. And -- but at the end of the day, we are also focused on niche opportunities where masstige provides, and which is why our portfolio in beauty across skin across hair in premium beauty business unit, what we had called out between Simple, between Love Beauty and Planet and [indiscernible].

Coming to Skin Care. Again, Pond's has done extremely well, our performance in there. And we have seen a business coming in Skin Care pretty strong good growth in the portfolio. There are parts within Skin Care we yet have to see full resurgence, like GAL we had called out. There are elements of discretionary categories. At the end of the day, with so much amount of kitchen inflation happening at consumer end, there's a clear amount of priority a consumer today gives to kitchen items and essential items. And hence, to some extent, discretionary categories have taken a beating in where the market growth of these categories have come off in last, I would say, last 3 to 4 quarters. And we should see that getting build back as the situation improves as Sanjiv was articulating, be it on economical front or be it on commodity front, where there's some amount of relief in the input cost inflation. And the kitchen inflation should come -- should start coming down. And which is where we have seen impact in Glow & Lovely.

When I talk about Talc, Talc has a pretty high rural footprint. And this is one area in the country which has seen higher some of the bite of inflation is in rural area. And that was the point that we were articulating earlier. When you have high inflation happening, that's a segment of the population which end up seeing more impact.

But if I just take a step back, Skin Care is a category which is still as a category underpenetrated. There are many products within Skin Care where the penetration levels are any low from 10 to 20 percentage, and hence, a huge headroom for growth by doing market development and which is what has been the focus for us: bringing innovations and scale. And I quoted many examples as I was alluding today from [indiscernible] to multiple areas, [indiscernible]. There are many things that we've launched in Skin Care. So portfolio is evolving and so our brands in that portfolio which are evolving. So this is a space which, in our view, for years to come, we would keep doing penetration and market development and keep getting growth.

[Sanjiv Mehta, executive]

So I'll just give a bit more flesh to some very valid questions you have raised, yes? If I have to peer ahead, while all the categories in which we operate have gotten massive headroom to grow, one of the fastest-growing markets would be beauty and wellbeing segment of BPC, which is Hair Care, Skin Care and all. So the simple reason is that the per capita consumption is still very low. And as the country progresses, you will see a massive exclusion.

The second is, you're again right in stating that it is predominantly a mass, upper mass kind of market. And the masstige and the prestige is very, very niche. And prestige, most of the consumers would buy while traveling outside. And masstige is still a very slow segment, and it's still to evolve. There is a lot of noise, but still the segment is pretty small.

Now one of the things is in Hair Care, we have grown our shares consistently over the years, and now we have over 50% share of the market and growing. In Skin Care, we have the highest relative market share of any player in any of the big markets. So the right to win for us is massive. And we are now focusing huge amount in building the portfolio of the future. And a lot of the work which we are doing -- and you will see a lot of innovations coming in, and you will realize the -- what I'm talking about in the days to come, that as a leader, we have to take the role of converting the market to masstige and beyond. And we will not shirk away from that responsibility.

And if you were to look at just Pond's range, how we have evolved over the years, it has become a very majestic brand. And that is the threat. So there'll be newer brands, there'll be newer formats, and we will -- I'm absolutely clear. We will build on the leadership and not see the leadership.

[Amit Sachdeva, analyst]

Sure. So that's extremely helpful, Sanjiv. I just wanted to ask that do you need a newer brand other than Pond's and GAL -- just to...

[Sanjiv Mehta, executive]

So, we have.

[Amit Sachdeva, analyst]

Now the Lakmé is coming in bits and pieces, but...

[Sanjiv Mehta, executive]

No. No, there would be a need for more brands. And you will see the space evolving because a brand cannot be everything for everyone.

[Operator]

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

[Kunal Vora, analyst]

Congrats for a great quarter. My question, similar to last one, in your annual report, you have said that almost 30% of sales from Lakmé come through digital channels. That's a large number. Can you help us understand this? And would this be entirely B2C to e-commerce or even B2B sales would be a part of that -- Shikhar sales would be a part of that 30% for Lakmé?

[Ritesh Tiwari, executive]

So -- thanks for the question, Kunal. So Lakmé, highest number of Instagram follower across any beauty brand in the country. So it's a true digital brand. And this is why there is no surprise that it has -- we see more than 30 percentage of the turnover which comes from e-commerce pure-play, Amazon, Flipkart, [ Nike ] equivalent. Lakmé also has its own D2C site, its own site. And we get 2 million unique visitors every month on this site. So it's, again, basically a platform for us, apart from pure-play e-commerce, we drive sales to Lakmé's own D2C website. And that was, by and large, comprise the 30% digital sales for Lakmé that we spoke about. As I mentioned, because of the digital footprint of the brand, we were able to drive that. I hope that answers the question.

[Kunal Vora, analyst]

Sure. Yes, yes, yes. Now on the [ D2C ] website point, like you mentioned that for premium brands, you have your own like website. And how about [indiscernible]? Are you also looking to get -- like have your own apps for that? And can you help us understand your thoughts on prospects of your own [ D2C ] platform and how you're looking to do the fulfillment?

[Ritesh Tiwari, executive]

Yes. So there are 4 different brands where we have our own D2C website, and we keep adding where it is relevant and consumers need it, be it Lakmé that we have, be it [indiscernible] we have, be it Love Beauty and Planet. So wherever relevant or [indiscernible] matter, wherever relevant where we want to be messaging product knowledge, and of course, sales and where consumers are engaged in a very different way and if relevant, we will have our D2C website.

To say the format is more website rather than apps. We have not seen that behavior where consumers prefer different apps for different brands to buy. It's more website, so which is why you see more D2C websites than you see the apps at this point in time. But again, all that, Kunal, will always be driven by what consumers want. At the end of the day, wherever they go is where we want to ensure that we make the more products available. They go to a pure-play e-commerce website, we would want that to be available. They go to a modern trade outlet to shop as footfalls are increasing as we see, we will have our products fully available there. Also it matters they find convenience of both content and product availability through our own D2C website, we make them available as well. So all depends upon where shopper wants to go to get content and get service.

[Kunal Vora, analyst]

Sure. I mean, what's the kind of potential you see from this? And how are you looking at like doing the fulfillment part? I mean, are you looking to get into competition with e-commerce? Or do you think it's going to be a small-scale [ update ]?

[Ritesh Tiwari, executive]

See, we are an FMCG player, and we are good at making soaps, we are good at making shampoos, we are good at making fabulous products. And as a large FMCG player, our focus always will be to make fabulous FMCG products, market them and fulfill the needs of the consumers.

There are various channels and vehicles to ensure that the [ brilliant ] product that we make, more importantly, what consumers want, be able to reach them. Now if the GT still remains in the country, the most dominant channel. And which is why wherever consumers go and shop, be it general trade, be it modern trade, be it e-commerce, we will ensure our products are available in all the channels that consumers shop. So our strategy of channel all depends upon where consumers find convenience to go and shop. And as I mentioned that we still believe in [indiscernible] will remain a dominant channel.

Equally, for this matter, stockkeeping, be it CNC, Cash and Carry, be it wholesale within GT or B2B players, wherever our retailers want to go and access our products, we will be available. We see all of them to be our customers. So yes, so priority always will be to ensure that we do brilliant job in customer service to our retailers and be it GT, be it e-commerce or be it modern trade and ensure that our stock availability for consumers wherever they shop is available. So the distribution and customer service strategy will all depend upon the shopping behavior of the shopper. But as I mentioned, our focus always is to make [ brilliant ] products available and fulfill consumer needs in the space of FMCG categories.

[Operator]

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

[Harit Kapoor, analyst]

So we have 2 questions. The first question on the COVID base impact. So in categories like ice cream [indiscernible] possibly even in Home Care to some extent, we would have had a positive impact off the base. Also probably a negative impact of the hygiene category. Just wanted to understand for this quarter, my assumption is that your impact will be net positive. Do we expect -- so firstly, is that understanding correct? And secondly, do we now have a normalized base from quarter 2 across most categories and it becomes a little easier to kind of judge the growth there?

[Ritesh Tiwari, executive]

Yes. So everything as being equal, yes, you're right. We had COVID wave 1 June quarter last year and COVID wave 2 the year prior. And over the last 2 years, 2 June quarters have got impacted. And hence, the growth that we have in this quarter is on the base of quarter last year, where we unite the health portfolio, we have seen moderation in consumption of these products.

I expect from September quarter onwards, I think it's all in the way, but one can never be very sure. There are different dynamics of pricing and different dynamics of category growth, and we will see in times to come. But yes, there are no major fallout, if I see next few quarters from a base adjustment perspective.

[Harit Kapoor, analyst]

Got it. Got it. So it is this quarter, it's a net positive [indiscernible]?

[Ritesh Tiwari, executive]

Yes.

[Harit Kapoor, analyst]

And the second question was on the grammage impact on UVG. You've been calling that out in the earlier quarters. I just wanted to know what's the kind of net negative impact on UVG due to the grammage.

[Ritesh Tiwari, executive]

See, number would be net 2% to 3%.

[Harit Kapoor, analyst]

2% to 3%. Okay.

[Ritesh Tiwari, executive]

Yes. And as you know, what happened even this quarter, June quarter, with a significant amount of inflation, the conversation that we had in price point packs and the fill levels, et cetera, that is absolutely relevant. And there's a 2% to 3% impact of volume on the price point pack, which is as we had quoted earlier, is 30 percentage is our part of the portfolio, price point packs.

[Harit Kapoor, analyst]

Right. And just a follow-up on that is, do we incrementally given that we've seen commodities kind of stabilize or come off, any incremental change in pricing? Will that still be a mix of price and grammage of what you're putting into the market now? Or it's more pricing than grammage? Or it's still a mix?

[Ritesh Tiwari, executive]

Yes. My only request would be, we should not make palm oil as a headline commodity to make assumption across the portfolio of commodities. It is one of the commodities, and there are multiple of the commodities, which are either at historical high levels in terms of inflation or they are further inflating as we speak. So it's very important to ensure that palm oil is not -- we don't generalize that across the commodity portfolio, number one.

Number two, you're absolutely right, the price-value equation is something which we very closely monitor to ensure that remains intact for the consumer. And to an extent, for example, if commodities, they do come off and like [indiscernible], we will again show the price-value equation where we need to. The point which I mentioned earlier, in the first [ place ] for many of these price point packs, we have not increased pricing because when -- yes, to the extent we could -- I'm saying reduce grammage we have. But there's a point beyond which you cannot, if a sachet of shampoo has to give hair wash for a lady, and we don't want to ensure that, that amount of shampoo is left in the sachet. For that matter, if [indiscernible] Horlicks's sachet has to give a cup of Horlicks, there is no way we could reduce the quantity in that Horlicks cup beyond a point in time, which will not give a full cup of Horlicks. So there are those limitations and we don't -- within that, we have done what best we could do on price point packs.

So we have not fully priced all inflation that has happened in price point pack. So hopefully, when commodity comes off, the [indiscernible] economics of that portfolio in many parts will get restored. And -- but as needed, where relevant, we will restore [indiscernible] to consumers. At any point in time, we will be competitive with our offerings at price-value equation to our consumers.

[Operator]

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

[Shirish Pardeshi, analyst]

Indeed, congratulations for the good set of numbers.

[Sanjiv Mehta, executive]

Thanks, Shirish.

[Shirish Pardeshi, analyst]

I just wanted to understand, Ritesh, if you can help me, I'm a bit puzzled that 6% volume growth. Indeed, it is very high. But if you can give some quantitative or qualitative remarks. And to my understanding, soaps and detergent is a big portfolio for us. So is that the growth -- volume growth, which is driven more by the downtrading, which we have seen people would have downgraded to maybe from Rin to detergent Wheel? Is that understanding correct? Or the growth, 6%, what we have got is across all the 3 segments?

[Ritesh Tiwari, executive]

Yes. So the growth that we have -- volume growth, you're right, it's across the segments. So we have a pretty comprehensive volume growth performance across Beauty & Personal Care, Home Care and Foods & Refreshment. So it's absolutely broad-based. And soap as a category, we have seen much higher impact in terms of [indiscernible] market to start with [indiscernible] category has seen much higher inflation and extremely unprecedented level of inflation and which has had an impact on the overall market category volume, which have declined.

When we quoted that we have 5% to 6% volume decline of market -- FMCG market in June quarter, and categories like soap are a good contributor to the decline, just a sheer amount of inflation which has happened. What we are seeing is there are 2 different behaviors: downgrading and downtrading. Downtrading is where a consumer who's buying the larger pack buy the smaller pack. And hence, that's downtrading where smaller amount of volume gets consumed and gets sold in the period. And consumers do [indiscernible] consumption in that time, and that's downtrading.

We have not seen many examples of downgrading where the consumer goes down the price tier. Point in case, we had quoted for financial year '21-'22 and including our current June quarter, our premium portfolio has grown at twice the pace the rest of the portfolio, overall average of the business growth. So we have seen premium portfolios growing. We live in India, which is Winning in Many Indias as a strategy we call out in different parts of the country.

And there are different consumers. There are consumers who are able to afford even in such high inflationary times, the product that they love to consume, and we have seen those sales remaining intact. And hence, I would say overindex growth that we have seen in the premium portion of the portfolio.

So yes, so there are many puts and takes in the portfolio. And that's a benefit of having a business like HUL has, which has multiple categories, multiple brands and multiple price points, and we are able to use our portfolio to get best outcome for our stakeholders.

[Shirish Pardeshi, analyst]

That's really helpful, Ritesh. Just one last question. Referring to Sanjiv's comment on the HFD, we did see that last 2 years, the HFD category has not gone up as per our expectation, while our investment has gone up out of proportion. So just wanted to understand what's happening in the category. I mean, if you can say last 1 year, what is the price-led growth and volume-led growth? And where do you think -- I mean, we have invested significantly, but this sampling, what we have done is there is some recovery we are seeing in terms of conversion and activation?

[Ritesh Tiwari, executive]

Yes. So there are 3, 4 subparts, Shirish Pardeshi. Let me just go one by one. First, let me talk about market. I'm not talking [ Horlicks ], I am talking market for HFD. So HFD market, it's one of the categories which you've seen is the discretionary categories. I quoted earlier the amount of kitchen inflation that consumers are facing in times like that they do prioritize essential items. And hence, discretionary items like health food drinks category, it has taken impact where the total amount of cost has gone up.

Sanjiv has quoted an example, a cup of Horlicks [indiscernible] give a cup of Horlicks, which, of course, is a fabulous Horlicks product with milk added to it. With milk inflation coming in, we've seen a significant amount of increase of the cup of Horlicks, more because of the cost of mix which has increased in the process. So that has had an impact in the earlier phase that Sanjiv called out when the schools were all virtual and in the household, there were more than one options of nutrition. And now schools have opened up, but at the end of day, the inflation, which is biting has started -- has also hurt the amount of consumption possibility of this category.

Now as far as we are concerned, we are very bullish on this category. We know with micronutrient deficiency in India, this is a category of future. We would see consumption building up. It's a low-penetrated category. Penetration of HFD is more like 20-ish percentage, which means there is a tremendous headroom for growth and which is why we are doing more than one thing, be it expanding portfolio with the range as we spoke about, also that matter, doing home-to-home sampling and doing market development or launching and activating to the INR 5 price point to give more access price packs to consumers to come in the category. Also that matter, launching [ poly bags ] and ensuring we're able to give more value [ nutrition ] to consumer.

So a lot of those actions we have deployed to ensure that we're able to build on penetration and do market development of the category. We've done some very good job in terms of giving strong foundation to category in the last 2 years since we acquired the business of driving extremely good savings across the business of health and food drinks, be it supply chain savings or synergies, [indiscernible] on overheads and cost management of the business. And what we have done is a good portion of that thing we have deployed in terms of investment in the category.

And one of the examples we've quoted out was exactly that, that we invested in this category a good portion of the savings that we have generated. So that's our play. It's something that we will be fully invested in and any market development. And remember, we are in COVID times in the last 2 years' time, and we are trying to build the category. And these actions, they don't yield result in short term. And we have seen the way have done for Hair Care, the way we have done for laundry, it takes time for us to build categories and then improve penetration. And that's exactly what our strategy is also with helpful things.

[A. Ravishankar, executive]

We'll now pick up a few questions from the web. I'll start with a few questions that Richard has asked, Richard from JM Financial. I think we have answered already, Ritesh, you just answered the question on health food drinks. So Richard, I think that's been answered. And Sanjiv spoke earlier about what our strategy will be when prices come down. So I think both of those questions have been picked up. Richard has a specific question on F&R margins. Ritesh, if you would like to comment on it.

[Ritesh Tiwari, executive]

Yes. So F&R margins, Richard, you've seen, its down 200 bps year-on-year. And there are 2 elements. First, we have invested more in A&P. One of the examples I was quoting to Shirish earlier that we have invested in multiple categories. Within F&R, our A&P investments have been stepped up to drive growth and to drive competitiveness. So that's one and that's one reason why our margin is lower year-on-year.

And second is also for this quarter, impact of mix. We have seen a very stellar growth, as we called out, in ice cream. And because of that stellar growth of ice cream, and I see margin as compared to margin progression of the F&R portfolio, that mix impact has also had an impact in the quarter for F&R.

[A. Ravishankar, executive]

Thanks, Ritesh. Question from Latika on tea business. More color on our performance on tea. Do we see any challenge from locals as tea commodity costs have started deflating? And linked question on whether the recent weather changes, the Assam flood has any impact on tea prices?

[Ritesh Tiwari, executive]

Yes. So Latika, overall tea prices, as I speak today, year-on-year, we do see a deflation. And so far so good, crop has been good. Yes, there has an impact in June of flood in Assam, [indiscernible] just see how balance as when the situation improves, how overall production pans out, and we will have a good sense in next month or 2. So that's on the tea crop. As of now, we do see year-on-year deflation, and this is what our strategy has been.

As we called out, we have cemented our leadership in tea category. As you know, we are both value and volume leader in tea category. And we have a fabulous portfolio across price points in be tea with Taaza at the mass end or a premium Taj Mahal at other end, and it's a pretty strong portfolio. With tea deflation coming in, the point that Sanjiv was making earlier, we have done what is required to be done in terms of pricing. We were very measured, and we took in small-stepped price increases when tea inflated tremendously. And but as tea market has come up, we have done equal job of [indiscernible] ensuring that the price-value equation remains intact and remains competitive for our consumers. So a later set of actions that we have done on Taaza is exactly in line with that.

It will happen that there were certain players when the tea commodity was at peak, we did see that's getting vacated. And we -- of course, we do expect players will come back with tea deflation happening. But we will do what's required to ensure that we hold on to most of the gains that we have got competitively as shares we have gained during this period. So that would be our [ tea ] strategy.

I would say we are pretty pleased with the kind of performance that we have done in tea, and our portfolio remains extremely strong across price points. And the kind of agility that we have with our decision-making, we will ensure that remains potential...

[A. Ravishankar, executive]

One other quick question from Latika was on employee costs and whether the reduction is a sustainable one for the future?

[Ritesh Tiwari, executive]

There are 2 drivers, Latika, in terms of employee costs. When you look at our current quarter, you have seen there year-on-year, overall [indiscernible] cost has come down. And there are 2 reasons for that. First, in the base period, June quarter '21, we had COVID-related expenses, which we had incurred. Those were incurred because we were at the peak of wave 2. And of course, those expenses [indiscernible] need to incur today as situation is much better in the country. So that is one reason why there's a cost in the base, which has not got incurred currently, and hence, year-on-year benefit.

And second is growth leverage. We've got 19% growth that we have for all fixed costs, everything has been equal. It also gives a good amount of growth leverage. Those 2 elements put together, you see not only employee costs, but we also saw in the bucket of other expenses. Both put together, we have a 270 bps tailwind in the margin as we have lost in price versus cost 330 bps in cost of goods sold. These are the 2 elements which we have -- which have worked in our favor driven, I would say, largely because of growth leverage and there are other individual elements in [indiscernible].

[A. Ravishankar, executive]

There are a few other questions on the web, but most of them have already been answered. And if there's anything further, please reach out to any of us in the investor team. We'll be happy to address them.

So with that, we have now come to the conclusion of the session. Before we end, let me remind you that the playback of the event will be available on the IR website in a short while, and you can go back and refer to it. A copy of the results and the presentation is also on our website.

With that, we would like to draw the call to a close. Thank you for your participation, and have a great evening.

[Ritesh Tiwari, executive]

Thank you so much, everyone.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Hindustan Unilever Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.