Hindustan Unilever Ltd

NSE:HINDUNILVR

Earnings Call Transcript 2022-Q4

[Operator]

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

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

[A. Ravishankar, executive]

Thank you, Stanford. Good evening, ladies and gentlemen. Welcome to the conference call of Hindustan Unilever Limited. We will be covering this evening the results of March quarter and financial year ended 31st March 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 hope that you are staying safe and healthy. We'll start the presentation with Sanjiv talking about our performance in this financial year and the progress we have made on our strategic priorities. Then Ritesh will share deeper insights into our in-quarter performance 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. Always a pleasure to interact with you all. And let's first look at the full year '22 performance, and what a year it has been. To begin with, I'm absolutely delighted to report that we have crossed the INR 50,000 crore turnover mark in this fiscal. Our growth at 11% was significantly ahead of the market. We consistently grew our consumer franchise and gained both value and volume market shares in large part of our business, on L3M as well as an MAT basis.

Our EBITDA margins for the year were at a healthy 24.8%, and almost flat versus last year, an extremely commendable performance of balancing growth and profitability. Profit after tax and earnings per share grew 11% in such a challenging context. A robust performance is reflective of our strategic clarity, the strength of our brands, our execution progress and our agility and adaptability. Our belief that sustainable and purposeful business drives superior performance is clearly reflected in the strong performance that we have delivered while also making significant progress on our sustainability agenda.

In calendar year '21, we have become plastic neutral, that is we have collected and safely dispose more plastic waste than what we use in packaging our finished products. We are building a strong business. Even in such a difficult year, we made good progress on our strategic thrust areas. This has not only helped us deliver a solid end year performance, but have also made us a much stronger business, which is much better prepared to win in this fast-changing world.

In the next few slides, I'm going to talk to you about each of the thrusts. The first is, of course, winning with our portfolio. We have a wide and resilient portfolio of more than 50 purposeful brands, spanning 15 FMCG categories. In 80% -- in more than 80% of our business, we are a strong market leader. In such difficult times, consumers tend to stick to large and trusted brands that offer better price value equation.

Another distinguishing strength of our portfolio is that our brand straddle the price benefit pyramid, offering consumers the choice at relevant price points. This ensures that we are able to cater to the needs of consumers looking to upgrade to products with higher order benefits and also to consumers who are trying to manage their household budget in times of inflation.

While we already have a wide portfolio, we are tapping into new demand spaces. A strong marketing and R&D capabilities enable us to quickly pick up consumer trend and address them. Our ability to do market development at scale positions us well to build these categories of the future. In the last couple of years, through sharp focus on portfolio choices, we expanded our play in premium beauty and hair care, functional nutrition foods, detergent capsules and dishwash products. These are great products from trusted brands and are already finding good traction with consumers.

We have 16 brands with turnover of more than INR 1,000 crore. And together, those brands make up more than 75% of our top line. Surf Excel and Brooke Bond lead the pack, with each contributing more than INR 5,000 crores. Surf Excel has also become the largest fabric solution brand in India. Three of our brands, Vim, Rin and Dove joined the INR 2,000 crore club this year. Further, our ice cream brand, quality was crossed the INR 1,000 crore turnover mark. Overall, we added a very sizable INR 5,000 crores to our top line this fiscal year. Importantly, INR 900 crores came through innovations clearly showing our agility in responding to the evolving consumer trends.

Consumers continue to be increasingly discerning looking for highly effective products. To meet the growing consumer needs, we are creating more superior products, bringing the best of our marketing insights and R&D together. We now have 2x more superior products when compared versus 2019. It does not mean that the rest of our products are inferior. It just means that the others are at par with competition on functionality. Bringing alive the magic of marketing we created impactful campaigns, it not only helps strengthen brand salience, but also won many external accolades. Dove Stop The Beauty Test won a silver line at the Cannes Festival of Creativity. We were the most supported advertiser at EMVIES, winning a total of 31 awards for various media campaigns, were also recognized as the best media client of the year.

3 campaigns from actual or part of the WARC 2022 world's most awarded campaigns and we won 7 awards at the Festival of Media. Clearly, we are winning with the brands and the force for good, powered by purpose and innovation.

Let me now talk about execution. With 29 factories, 35 depots and over 3,500 distributors, we sell our products to 9 million stores. Our operations are spread across the length and breadth of the country. It is important that despite the massive size of operations, we remain agile, adaptable and resilient. We are debottlenecking our capacities and increasing the number of formats, manufacture per site. Through shorter production runs and smooth changeover, we are able to manufacture 80% of SKUs are 3 days.

Almost the entire production happens locally in India, providing supply certainty and cost effectiveness. We are manufacturing closer to where the demand is. As a result, the distance traveled by our products is down 8% on a Y-o-Y basis. We have expanded our distribution and assortment, taking it to 1.15x of pre-COVID level. With the increase in footfalls, modern trade stores are bouncing back, and we are partnering with them for a joint marketing plan and providing consumers the best shopping experience.

Now this chart summarizes the challenge that we have been facing in terms of material cost inflation and how we navigate this with the agility to grow our consumer franchise and at the same time, protect our business model. These are the 2 most important imperatives at this stage. Til now, our practice has been to quote market inflation numbers with external numbers before any cost savings that we made. However, with the dramatic inflation we thought it will be useful to give you a sense of material cost increase that we see in the business through the lens of NMI, or net material inflation.

NMI's net absolute inflation after adjusting for the benefit of our buying efficiencies, hedging, product design or redesign to value and other savings. In NMI that we have seen in March quarter '22 was 4.5x of the NMI in June quarter '20. In fact, the NMI and full year '22 has been higher than the cumulative NMI we have seen in the last 5 years. Despite this unprecedented level of inflation, we've been able to keep our margins almost flat versus last year and have grown significantly ahead of the market. In fact, our market share gain this year is the highest Y-o-Y market share gain we have seen in more than a decade.

Through dynamic financial management, we grew our consumer franchise and protected our business model. We reduced costs by driving savings harder at -- which stood at 7% of our turnover. Using our WIMI strategy, we captured opportunities to premiumize resulting in 2x growth for the premium portfolio versus rest of the portfolio. The strength of our brands enabled us to take calibrated price increase.

We also ensured our brands are well supported by investing competitive levels of A&P and ensuring that the share of oil to remain ahead of share of market. Reimagining HUL, as all of you know, has been a key pillar of our growth strategy. We have spoken about in detail in our earlier conversations. And today, I just want to give an overview of the key actions that we have taken in this space.

Let's talk first about consumer ecosystem. As part of our digital first journey on Lakmé, we are leading brand building online, whether it be through influencer marketing and scale of pioneering new initiatives like influencer commerce. We're already India #1 beauty brand on Instagram with 2.3 million followers. Lakmé is also leading the chart on making beauty shopping easier online through beauty tech solutions like a virtual try-on, foundation finder or skin analyzer. All of these technologies use artificial intelligence to help consumers find the right products and even try it on virtually replicating an offline experience.

We had more than 2 million unique triers of our beauty tech in the last year, and the conversion and average order value for these consumers is 2x of average. We are scaling up e-commerce capabilities. Our D2C website already has 25 million annual websites and -- website visits. And together with e-commerce platform, our annual -- our online sales today contribute 30% of our Lakmé business.

From a customer ecosystem lens, we are leveraging technology and digital solutions across channels and customers. You've heard from us about our e-B2B app Shikhar and the work we are doing to digitize general trades. As of March '22, we have crossed more than 800,000 stores, adding 1,000 stores every day in this fiscal.

Our e-commerce business continues to grow ahead of rest of the channels. Design for channel is a key strategic priority for us as we increasingly design our portfolio to meet the requirements of different channels. We're also reaching out to consumers directly through our own D2C platforms, providing them with a unique shopping experience. It is good to see that our digital initiatives are scaling up fast. In March quarter '22, digitized demand capture across our future-ready platform was more than 20%. This also gives us a unique ability to re-run our demand generation activities in a disruptive way.

Talking about digital operations, our Home Care factory in Dapada has joined the World Economic Forum, prestigious lighthouse network. It is the first FMCG manufacturing site in India to have received this status. The network includes sites that have implemented end-to-end digitization across the value chain, pushing boundaries of technological advancement. This recognition is a testament to our sustained focus on making our supply chain future fit as part of our Reimagining HUL agenda.

Our nano factories help us to produce niche and on-trend products in smaller batch sizes. We now have 3 nano factories, which can produce around 100 SKUs. These provide us with greater speed and agility. Samadhan, our advanced fulfillment center is a classic example of how we are rethinking about each node in our operation system to find efficiencies and optimize the process by integrating data and technology. Samadhan allows us to reduce our end-to-end fulfillment 5-day time. These are some examples of the significant progress we are making in our Reimagining HUL journey.

Let me cover a bit more on the progress of our sustainability agenda. We are decarbonizing operations by using alternative sources of energy such as wind, biomass, solar and have completely eliminated the use of coal across all our manufacturing operations. Further, we are deploying energy-efficient technology, leveraging our load more, travel less strategy to reduce distance traveled by a product. These actions have helped us achieve 94% reduction in CO2 emissions across operations when compared to our 2008 baseline.

We all know that India is a water-scarce country. Through the Hindustan Unilever Foundation, we are supporting and amplifying scalable solutions to help address India's water challenges. Till date, the foundation has delivered accumulative and collective water potential of over 1.9 trillion liters across thousands of villages to underscore the importance of the water potential created by HUL, it is more than the drinking water needs of India's entire population for a year.

Promoting good health and well-being is another focus area for us. During the year, we launched 3 more Suvidha centers, and we now have 7 such community health and sanitation centers in Mumbai. The recently launched center in Dharavi is one of the largest community toilets in India, catering to the needs of 50,000 people. These centers provide a life of dignity to our slum dwellers.

We have further expanded our Shakti initiative and now support over 160,000 rural women entrepreneurs. We are creating a larger social impact by training them on nutrition awareness, waste recycling, women empowerment, et cetera. We're helping them become a beacon of social change at the village level. These are only a few examples of the extensive work that we are doing in the area of sustainability.

We will shortly be sharing a full suite of ESG commitment across the 3 compass pillars of improving the health of the planet, improving people's health confidence and wellbeing and contributing to a fairer and more socially inclusive world.

Now before handing over to Ritesh to take you through our financials in more detail, I would like to say that this has been a remarkable year. Despite a very challenging external environment, we have delivered strong all-around performance across the INR 50,000 crore turnover mark. I'm sure that is one of the many milestones that we will continue to craft in a journey. I'm equally happy to report the excellent progress we have made on our strategic thrust areas to build a purpose-led and future-fit organization. This suits us very well for long-term value creation for all our stakeholders.

With this, over to you, Mr. Tiwari.

[Ritesh Tiwari, executive]

Thank you, Sanjiv, and good evening, everyone. I will now walk you through our in-quarter performance and our future outlook. We had a strong close of the year with a good all-round delivery in March quarter. Turnover grew 10% with flat underlying volume growth. Growth was competitive with more than 75% of our business gaining value and volume share across both MAT and last 3-month basis.

Talking about underlying volume growth, let me reiterate the impact of price point back, which we had spoken during our December quarter results. Almost 30 percentage of our business comes from PAT that cooperated in magic price points at INR 1, INR 5 or INR 10. In this PAT, our preferred mode of taking pricing increase is by reducing [indiscernible]. As a result, even the same number of units sold leads to a volume decline. This had a circa 2% to 3% impact on our UVG.

Moving to our bottom line performance. Sequentially, inflation has worsened in the quarter as we had anticipated and called out earlier in DQ results. This has resulted in a 290 bps sequential and 330 bps year-on-year increase in our cost of goods sold. In the backdrop of this unprecedented input cost inflation, I am pleased that we have dynamically managed our business to deliver a healthy EBITDA margin of 24.6%, a marginal decline of 20 bps year-on-year.

Our laser sharp focus on driving savings across all lines of P&L, coupled with calibrated pricing, while investing behind our brands competitively has been a driver of this strong performance. Profit after tax, but before exceptional items, was up 9%. Our net profit at INR 2,327 crores increased 9% versus MQ '21.

Now let me give you a breakdown of the growth across the 3 divisions. Home Care sustained its very strong double-digit growth momentum, growing at 24%. Duty and Personal Care grew ahead of the market at 4%, led by Skin Cleansing. Foods & Refreshment delivered a strong performance, growing at 5% on back of an exceptionally high base. We will kick down to talk about performance within each of the division in subsequent slides.

Now let me talk on the innovations we landed in the quarter. Lifebuoy has launched powdered hand wash at a price point of INR 10, which makes 200 ml of liquid hand wash. It is our country's most affordable liquid hand wash.

Dove's new hair therapy help prevent hair breakage and is made without sulphates that gives gentle nourishing care. Sunsilk have added onion and jojoba oil shampoo to its franchise, while Lakmé Absolute has launched new eye makeup range that includes long-lasting explore pencil, a range of 10 pencils in matte and metallic finishes.

Ahead of summer, Kwality Wall's has launched exciting new icecream flavors like Trixy Blueberry Cheesecake, Royal Kulfi, Black Forest Feast and Cassatta Cake.

Talking about a few marketing campaigns this year in IPL, Boost is celebrating newcomers and emerging superstar of the game for the grid, determination and relentless perseverance. Dove's activated its new campaign on body wash, while Dove and Comfort activated campaigns in South India. Surf Excel came up with its new Holi campaign and Cornetto launch, a delightful film, making the first movie, featuring Alia Bhatt.

Home Care had another strong quarter of double-digit growth, enabled by robust performance in both Fabric Wash and Household Care. Both categories grew in strong double digits with all part of the portfolio performing well. Home Care grew volumes in mid-single digit, reflecting the strength of our brands to price up in inflationary conditions.

Liquids and fabric conditions continued its exceptional momentum and grew handsomely. Further, Surf Excel has become the largest fabric solutions brand in India in this fiscal. With more input cost inflation, we have continued with our calibrated pricing approach in both fabric wash and household care.

Beauty & Personal Care grew competitively at 4 percentage, amidst slowdown in market growth due to impact of higher inflation on discretionary consumption. Skin Cleansing delivered double-digit growth driven by pricing and led by strong performance in Lux, Dove and [indiscernible]. Hair care continued its strong competitive performance in the quarter with all brands gaining shares.

In Skin Care, premium portfolio grew in double digit. Glow & Lovely, Talc and Color Cosmetics had soft quarter due to COVID wave 3 and market slowdown.

Let me now turn to Foods & Refreshment. F&R grew 5% on a very high base of 36% in MQ '21. Tea continued its robust performance and grew competitively on an exceptionally high prior year comparator. We expanded our value and volume market share in the quarter. Coffee grew in double digits. In Health Food Drinks, we continued our focused market development actions to build category relevance and penetration. During the quarter, we did more than 10 million home-to-home connects. We also launched new perspective communication in both Horlicks and Boost. In the context of moderating market growth for the category due to its discretionary nature, these actions have helped us continue gaining market share and penetration.

Foods delivered a high double-digit growth with all parts of the business doing well. Our recent Foods innovation, peanut butter and Mayonnaise continue to gain traction and good for consumers. Ice Cream had a very strong quarter with high double-digit growth. I've spoken earlier about exciting range of innovation we launched for this year's summer.

In summary, our performance has been strong, both on top line and bottom line. While I covered most lines, let me give you quick highlights on a few other items. We continue to invest competitively in A&P. Sequentially, they stepped up A&P by INR 100 crores or about 60 bps. Our marker has been to ensure that our share of voice is ahead of our share of market and our brands are well supported.

Both employee cost and other expenses see the benefit of turnover leverage to year end, apart from benefits of bear-savings programs. Exceptional items includes gains from sale of an old factory land, offset by normative restructuring expenditures.

Our ETR for the quarter was 25.6%, which takes our full year ETR to 24.9%. Sanjiv has already spoken in detail about our full year delivery. Let me quickly recap the numbers. Top line grew 11% in financial year '22. Our turnover crossed INR 50,000 crores, and we added more than INR 5,000 crores during the year. underlying volume growth for the year was 3%.

Moving to bottom line performance. Despite unprecedented levels of inflation through the year, we have dynamically managed the business and delivered a healthy EBITDA of 24.8%, declining marginally by 20 bps year-on-year. We delivered a net profit of INR 8,818 crores, translating to a strong double-digit EPS growth.

Our track record of strong cash generation continued. We delivered about INR 11,700 crores of cash from operations. This chart gives you a snapshot of our segmental performance on a full year basis. As you can see, growth has been broad based and overall segmental margins also continue to be healthy across the 3 divisions. Considering our strong performance, the Board of Directors have proposed a final dividend of INR 19 per share, along with interim dividend of INR 15 per share, the total dividend for this year is INR 34 per share. The total dividend amount for the year is INR 7,989 crores.

Now before moving to external context on our outlook, let me summarize what we have covered till now. It was a solid all-around performance in the year. We became a INR 50,000 crore turnover company, grew top line at 11 percentage, significantly ahead of the market. Our dynamic financial management helped us strike the right balance of competitive top 10 growth and managing healthy margin in the face of unprecedented input cost inflation. We delivered double-digit EPS growth.

We continue to strengthen our market leadership with highest market share gains that we've had in more than a decade. It was comprehensive market bidding performance with share gains in all 3 divisions, across price segments, across region, both in urban and rural. We have made excellent progress on ESG and on our digital transformation agenda.

Now moving on to HUL environment and our outlook. Operating environment remains challenging. Commodity inflation continues to be a significant headwind for the industry. The recent developments have added further volatility to commodity markets, pushing prices for greener commodities, including brent, crude, vegetable oils, every commodity is even higher. CPI inflation has also been increasing, has now reached our threshold for the last 3 months in a row.

Latest inflation survey by RBI clearly indicates houses are feeling the pressure of inflation with 71% respondents expecting more inflation in the coming months. This is also influencing consumer behavior as they try to manage their household budgets. Consumers are looking for better value across their purchase basket and food and kitchen items are being prioritized over discretionary categories. They are titrating volumes and preferring the trusted brands.

Due to unprecedented inflation, FMCG market value growth has significantly slowed down and volumes are declining in high single digits. The impact is more pronounced in rural, where even value growth has started declining. Consumers are tightening volumes and essentials are being prioritized over discretionary categories.

Let me spend some time elaborating about the impact of inflation on our material cost. We use a measure called net material relation, which is net absolute inflation after factoring in all savings and efficiencies. Our NMI in March quarter '22 was 4.5x of June quarter '20. This does not take into account the recent surge.

If things remain same, we expect sequentially more inflation in next 2 to 3 quarters. We will continue to dynamically manage the situation in a similar way we have done in the past several quarters. As you know, we have a very robust savings program. Let me give you a few examples of what we're doing to bring it alive for you. We are generating buying efficiencies by leveraging our global scale and strategic partnership with suppliers.

Our media deployment is sharply focused on attributing every spend to driving more growth. We are debottlenecking capacities in our supply chain to drive manufacturing efficiencies. With better planning and producing closer to the market, we are reducing our distribution costs. We're light-weighting our bottles, which not only reduces packaging costs, but will also be good for the planet.

Using our principles of net revenue management, we will continue to take calibrated pricing actions whilst ensuring we remain competitive and provide the right price-value equation to the consumers. We are revisiting our offerings at certain price points and are adding bridge path to provide better value to our consumers while ensuring affordability. Our WiMI strategy helps us find opportunities for driving faster growth in premium portfolio.

Looking ahead, in the near term, operating environment will remain challenging. We expect to see more sequential inflation, growth will be predominantly price-led. We will continue to drive savings harder and take calibrated pricing actions while ensuring we protect and grow our consumer franchise. Our margins will decline in short term as price versus cost gap increases.

In terms of our brand, a wide portfolio starting the price-benefit pyramid and a robust business model will hold us in good stead. We remain confident of a, outpacing FMCG market growth; and b, recovering our margins in a phased manner.

Moving to mid-to long-term perspective, Indian FMCG sector continues to be very attractive. Favorable macros, like large young working population and rising affluence, coupled with lower FMCG penetration and per capita consumption, continue to provide huge runway for growth. For HUL, the drivers of value creation remain the same. We will grow our top line ahead of the market by growing core competitively, premiumizing our portfolio and doing market development at scale. We will deliver modest margin expansion and continue with our track record of strong capital discipline. At the same time, we will continue to build a purpose-led, future-fit HUL by delivering on our ESC commitment and leading digital transformation. We are focused to deliver 4G growth, growth that is consistent, competitive, profitable and responsible.

With this, let me hand over to Ravi to begin the Q&A session.

[A. Ravishankar, executive]

Thank you, Sanjiv. Thank you, Ritesh. With this, we will now move on to the Q&A section. [Operator Instructions] In addition to the audio, as always, our participants have an option to post the questions through the web, and we will take these questions just before we end.

With that, I'll hand over the call back to Stanford. Stanford, go ahead, please.

[Operator]

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

[Abneesh Roy, analyst]

Congratulations on good numbers in a current context. My first question is on palm oil. Yesterday, a Indonesian minister had allowed CPO. Today, it seems that there is a flip flop. The Chief Economic Adviser of Indonesia has said that CPO also is likely to be banned. My question is if the ban is there for, say, a few weeks, in the extreme situation of that ban, what happens to your soap business? It's a sizable business. You are the #1 player. And secondly, on the smaller players, what could be the impact to smaller soap players? If you could elaborate on these points?

[Ritesh Tiwari, executive]

Yes. Abneesh, thank you so much. On palm oil, the situation has been volatile. And as you know that the conversation which happened first on restriction of sales which was later on called out only to remain and remain localized to the cooking oil component, which is palmolein part of that and CPO supplies to continue.

Overall, if I just -- as a context, if Indonesia produces 100 kg of palm oil, the country only consumes 1/3 of it. 2/3 of the volume, country ends up exporting, and this is one of the largest sources of revenue for the country. So overall, if I see there might be impact in short term -- but looking at the amount of excess production compared to the local needs that Indonesia produces, I do believe that these sales of palm oil ex Indonesia will continue, number one.

Number two, as you know, what we consume and the largest component of our input increase in PFAD. And PFAD gets manufactured, the moment you refine CPO to produce ultimately palmolein or palm steering. And the PFAD, which gets consumed, there are a few sources only when PFAD gets utilized. One of the large source of that is soap industry. And hence, we do believe that PFAD supplies would continue for us to get. That's number two.

Overall, vegetable oil market, it is tight in terms of pricing. And as you've seen, the amount of significant inflation this basket has seen over the last couple of years. So I do expect the price volatility to continue as the situation gets completely bottomed out.

Last but not least, as you know, of course, in long term, India has leaned in terms of giving you more amount of support through what we need to do as a country to achieve in times to combine sufficiency and investments have gone into in this area. I assure what we are doing is to also look at we had the revenues. There are more than one way for [ submission ] soap. So looking at alternatives, looking at our own efficiencies and the mix that we end up using in terms of producing soap.

So in summary, I don't expect this to be a long-term issue given the amount of excess palm that Indonesia produces given continuity of supplies from other palm producing nations and given the flexibility that we do have in our formulations and our alternate methods of producing. In my mind, we should continue.

But what we've given, in my mind, of this point in time is price volatility, which will continue. We are also in the season, as we speak of palm and palm production, as you know, starts peaking from April onwards. So let's see as to where the season comes out and what kind of volumes are getting produced, that will also be a good determinant of overall demand-supply situation and the price stable of this commodity.

[Abneesh Roy, analyst]

Sure, that's helpful. My second and last question is on the recent development in the ad campaign. HUL not to target children under 16 in ad campaign, how much relevant this is to India? I understand the Unilever global relevance. In terms of India relevance, what is -- how much is relevant? And what's the impact on food and ice cream? And doesn't your ad campaigns become a bit competitively disadvantaged given your competition doesn't face this issue. So how do you overcome that disadvantage?

[Sanjiv Mehta, executive]

I think, Abneesh, this is all about responsible marketing. And it is not that we are going to stop advertising. Our focus would be on mothers and fathers, the parents. And we don't see in any way getting disadvantage.

[Operator]

The next question is from Chirag Shah from CLSA.

[Chirag Shah, analyst]

At the outset, congratulations on navigating through such a tough backdrop so very well. My question is on the BPC segment. Can you just touch upon the progress on the digital-first business segments that we have? And staying on BPC, if you can just also touch upon the other 2 levers, which is basically growing the core and premiumization and market development, please?

[Ritesh Tiwari, executive]

Yes. So thanks, Chirag, for the question. Starting with digital-first brands. Overall, we have spoken in the last few quarters of results that on digital-first brands, we have launched our own D2C brands, be it Simple, be it Love Beauty & Planet or be it [indiscernible]. And as I called out earlier, there are 2 very clear objectives out here: a, a portfolio, which is our digital-first brand; and b, set of capabilities, which help us to drive digital-first brand, be it performance marketing with the analytics which go behind generating online revenue. And all of that is very clearly installed with us.

Along with that, let me let talk on digital-first brand. Let me also then go back to talk about our own digital sales footprint. Between e-commerce, e-B2C, e-B2B, D4C website and Shikhar, where we do directly sell online to many of our retailers, and all this put together today what digital demand capture, it has now in this quarter gone beyond 20 percentage. So more than 20% of Hindustan Unilever still gets digitally captured.

When -- in time such as when lower channel transformation happens, in my mind, one of the most significant ways to look at are we making progress is to look at how much amount of sales that have been captured digitally. This, then also provides us a platform to do demand generation and demand fulfillment in a very different manner. So that's on the digital first brand.

So coming to the portfolio, both core, premium and market development, our growth algorithm is very clear. First clear focus is to grow the core, and growing the comes from some various fundamentals of growth that we called out many times. We designing our portfolio for channel, be it making innovations in the portfolio, also that matter, driving distribution and reach of the products that we have, number one.

Number two, for us is very clear focus on making our portfolio more premium. And in this financial year, our premium portfolio has grown at twice the pace as the rest of the portfolio. So there's a second clear component of our growth algorithm. And the third component of growth algorithm, exactly to your point is market development.

The categories that we operate in, many of them still have low penetration and low per capita consumption. And then, there's a huge runway for us for growth going forward, which is why we do focus at scale to do market development across our portfolio. I hope that gives you a sense about the kind of approach we have on driving growth and profitability in the business.

[Chirag Shah, analyst]

Yes, that's very helpful. And the second question is on the nutrition part of the business. Now that the integration largely seems to be behind, what is the direct coverage target that we have for the Nutrition business? And also, is it now a good time to start looking at getting into the adjacencies?

[Ritesh Tiwari, executive]

Yes. So on Nutrition, we have now completed the entire transition and from all elements from people, from factories, from capabilities for manufacturing and also go-to-market operations. across all elements, we have completed our integration. Where we are today with our direct distribution is twice the number of outlets now, we reach directly as compared to pre-integration. So that objective is also very clearly met. The single biggest source of growth and value creation, Chirag, for us is to do market development at scale. We had called out that it's a very attractive category, but low penetration to start with, and which is why 1 of the fundamental driver of growth will be market development, and we are doing market developing at scale.

Past couple of quarters where we had very peak of COVID Wave 1 and COVID Wave 2, we have continued our job of market development. Even in this quarter, March quarter '22, we have done more than 10 million consumer connects.

Now talking about agents and adjacencies. What we have done is we activated our plus portfolio, which has been activated of high science, be it protein plus or be it diabetes plus, that is one clear portfolio that we've activated and ensure that, that starts to do the job of more broadening the offering that we have under Horlicks.

Equally, both Horlicks and Boost, we have launched our media campaigns, very clearly focused on food equivalents and driving the point of how does both Horlicks and Boost ends up doing the job of fulfilling the gaps in micronutrients in consumers. So that job for us absolutely continues. So the growth strategy for Horlicks is encompassing all 3 elements, activity in the core that we have, number one; number two, market development; and then keep growing portfolio around it, including the plus range.

[Chirag Shah, analyst]

Got it. If I can just slip one small question. On the LUP side, you mentioned that reducing grammage is the first option or any pricing action. Now obviously, we have a very large LUP portfolio. And given the inflationary pressures, I'm just wondering how much more leverage do we have in terms of taking pricing actions through reducing grammages?

[Ritesh Tiwari, executive]

Yes. So overall, when it comes to pricing, before I come to LUP, as Sanjiv called out earlier that the first route of cause that we have is always to drive savings hard. Drive saving hard across all the lines of the P&L, so that the net cost that you need to deal with in a smaller number and which is what we end up taking calibrated price increases.

Now coming to price point portfolio, we have roughly 30 percentage of our portfolio which is price locked. There, we have done action. We had spoken about it earlier as well that to an extent we can tighten volumes, we have than that. The second job that we started to do now is to start developing Bridge packs and activating that portfolio.

Let me give an example of Lifebuoy. We have Lifebuoy, a soap at INR 10. The next price spot in Lifebuoy is at, say, INR 35, INR 36, the soap bar. And what we announced that is we launched a price point in between these 2 price points, both in volume, in terms of grammage and in terms of price. What this does, the unit economics of this bridge pack, gives a, a better value to consumer and hence, consumer is still able to source good brands at an affordable price point. And for us, it gives us scale and also the unit economics gives us better value as well as manufacturers and producers and sellers. So bridge pack is what we're trying now to do across all the commodity impacted categories.

[Operator]

The next question is from Latika Chopra from JPMorgan.

[Latika Chopra, analyst]

Sanjiv, I just wanted to check your thoughts on the renewal growth trajectory. We saw at the March quarter on an aggregate basis was lower than the previous quarter. But are you seeing any green shoots sequentially in the agri economy as you exited the quarter? Any thoughts?

[Sanjiv Mehta, executive]

Yes. No, thank you, Latika, for that question. If you were to look at the hard numbers, we are clearly seeing that the last 3 months, both the value growth and volume growth in urban and rural has been lower than the MAT growth, yes? While there is -- one has to understand that there is a base period impact. But on a total basis, we are seeing the decline happening.

And if you were to recall, in the first year of the pandemic, rural growth was going ahead, growing much ahead of urban. And because urban movement was curtail and tea was more or less closed. And then in the second period -- second year, we saw rural open picking up when they came back as things started to open up.

Now your question on rural, are we seen green shoots? I believe that there are a few factors which could contribute to rural recovery. First is a good harvest. We are seeing that the Rabi harvest should be good from all counts. Second is the indicators are that the rainfall should be decent. The third is with the agri prices moving up, there would be benefit to the farmers.

What we need to assess whether that will get neutralized by input price increase or there would be a net benefit to the farmers. If it is a net benefit to the farmer, it would be fabulous because we are seeing that the government procurement has been much lower because farmers are selling it in the open market.

And then last but not the least, there's government spending of INR 7.5 lakh crores on CapEx. And if that is front-ended, which I believe it should be then we should start seeing a recovery happen. And if the geopolitical crisis settles down, then we will definitely see a tapering of the commodity price increase, which all together could result in the revival of demand and revival of growth. So I am hopeful, but very difficult to put our finger on when this will happen.

[Latika Chopra, analyst]

Sure. No, that's helpful. My second question was you definitely talked about market share improvements across 75% plus off of your portfolio. But could you tell us how our market shares across the 3 segments behaving for you on the e-commerce front? I remember earlier you talked about e-commerce market shares are more than modern trade, more than general trade. But how is the trend now there, particularly on the e-commerce front for your key segments?

[Sanjiv Mehta, executive]

Yes. No, thanks for that question. First is we are growing market share from a Nielsen perspective, in urban and rural, in value and volume. We are increasing market shares across the 3 divisions: Beauty & Personal Care, Foods & Refreshments and Home Care. We are increasing our market share in large packs, mid pack and small packs. And we are increasing our market shares across geographies and when you look at it from a lens of premium, mid-tier and BOP. So it is a market share gain across segments and -- both from a breadth perspective and from a depth perspective, it's been a great story. Now as far as e-commerce is concerned, is whatever we measure, we get information. We are very pleased with the progress that we are doing as far as e-commerce is concerned.

[Operator]

The next question is from Percy Panthaki from IIFL.

[Percy Panthaki, analyst]

My first question is, generally, when there is a lot of pressure on the consumer wallet, in the past, we have seen some amount of down trading as in not just the back side, but the customer goes for sort of a slightly more affordable brand in the same product category. So have you seen that happening because you have brands across price points? So within your portfolio, have you seen people moving from a brand to a lower brand within your portfolio or outside your portfolio?

[Ritesh Tiwari, executive]

Thanks, Percy, for question. India is, as you know, not a homogeneous country. And we're seeing more than 1 shopper behavior and consumer behavior at this point in time. The overall trend of down trading where consumers are seeking value that is very clearly established. With inflation where it is now extremely significant and consumer wallet size getting compromised, they are clearly putting more priority to essentials and against over discretionary.

But when I look at our own sales at Hindustan Unilever, our premium portfolio in this year of 2021, '22 across quarters has grown at twice the pace at the rest of the portfolio, which means there are still consumers who are able to buy and who are spending to buy our products which offer higher order benefits.

And as you called out in the past, our premium products are at price point at INR 120 per index. So we have seen traction in that space as well. Now the advantage of running a extremely good WiMI machinery, Winning in Many Indias Machinery, we are able to surgically find pockets of opportunities across the country, across channel and across price segments where we can drive growth disproportionately. And this is what has really helped us in times like this to grow not only in premium, but also in mass and also in popular.

So growth has been broad based, where we have gone a little differently on different pockets of growth opportunities. But overall trend does remain at this point in time, the consumers are seeking value. If the small price points are seeking value, they're going there, if the large packs are giving more value they're doing there. So we're seeing value-seeking behavior across categories.

[Sanjiv Mehta, executive]

Yes. But just to, Percy, it's absolutely the right question you pose to us. But increasingly, what we have done, we have also made a premium pack accessible. So in, say, laundry, one of our fastest-growing brand remains Surf Excel.

[Percy Panthaki, analyst]

Right. Got it, got it. My second question is a continuation of what Latika asked in terms of market share within sort of the D2C brands. So some work I've done on this and rough understanding I have from media articles, et cetera, that if we take the top 7 to 10 D2C brands in India, they're clocking a turnover of somewhere in the region of about INR 2,500 crore plus. This works out to approximately close to 15% of your BPC ex Oral Care sales. And these brands were close to INR 0, 5, 6 years ago.

So I mean, there is obviously some amount of opportunity in the market, which is being taken by these brands, and they are no longer small in the aggregate. So what are your thoughts in terms of how do you sort of plan to increase market share in this space? Do you want to -- like you've launched Simple and Love Beauty Planet, will it be through brand proliferation? Or will it be through launching subcategories within the existing brands, et cetera? How do you approach this entire sort of space, which is really exploding and you need to get your fair share of growth there?

[Sanjiv Mehta, executive]

First, I think, Percy, people often forget, but it's worth reminding that we have added INR 5,000 crores of turnover this year. And when we talk about digital landscape, all the growth that you see in digital is not always incremental, yes. Many of them are a channel shift that happened. And our ploy today is not just the digital-first brands only because I think one must remember that we have great mega brands, and you have seen how we have progressed to INR 5,000 crores, INR 2,000 crores, INR 4,000 crores, INR 1,000 crores.

And our first port of call will be to have the consumers access these brands. And what we are doing is, for us, design for channel is a very important initiative. How do we design our products? Even our existing brand, not just the Simple's and Love Beauty and Planet's of the world, but existing brand so that they meet the needs of the digital consumer. So that's the first port of call.

The second -- the way we look at it is brand extensions of existing brands, where we are catering to the needs that we are able to capture and with speed of many of the digital-first consumers, for instance. And then we are looking at the digital-only brand. So us is a multifaceted strategy that we are going to play. And just like many of the digital brands after a while they look at moving to off-line, yes. Because after that, the footprint gets reduced, if they just remain to digital. So for us, the play is going to be multichannel. And the important bit is on an aggregate and in the channels, which are growing fast, we would want to have not only a fair share, but improve our share. And I think that strategy for us is working pretty well.

[Operator]

The next question is from Kunal Vora from BNP.

[Kunal Vora, analyst]

Congrats for a good quarter, sir. My first question is on the digital demand capture, which you mentioned. From 20% now, where do you see yourselves getting to in the next 2, 3 years? And can you talk about the benefits as these numbers move up? Would it mean lower employee requirement at distributor level? And are there any other cost benefits? And how are you ensuring that Shikhar is -- continues to remain referred over EB2B competition which is coming in?

[Sanjiv Mehta, executive]

Yes. First is, that's a good question. Thank you for that question. I have always maintained that good competitors keep us on our toes. We are now into our fourth version of Shikhar. And when we did the benchmarking study on Shikhar's used by retailers and ease of use and the functionality, it came in right on top. So we are very pleased with the way Shikhar has progressed. And by far, it would be the biggest app adopted by the retailers.

And now our trust is how do we customize the assortment for each store. So that for a store on a -- it makes it much easier to navigate, and we can give them the offering which we feel rightfully should be sold through those outlets.

The other important bit, which I want to harness about, for us, it is not just about demand capture. We want to be the -- very clearly the most intelligent consumer goods enterprise. So the way we are harnessing the 3 ecosystems of consumers, customers, and operations. And the entire idea is that across the value chain, we need to use data technology.

And today, whether it is decision-making, whether it is S&OP planning, whether it is factories, whether it is demand capture, whether it is a fulfillment centers, which are highly automated across the value chain we are bringing in technology. And even the decisions that we make on pricing, on promotions, on investments, increasingly we are using intelligence so that [Technical Difficulty].

[Operator]

Excuse me, this is the operator. Sir, we can't hear you. Your voice is breaking.

[Sanjiv Mehta, executive]

Yes, it became suddenly mute from here.

[Operator]

Okay. We can hear you.

[Sanjiv Mehta, executive]

All right. So increasingly, we want to ensure that across the value chain we are able to use technology and on every area we are bringing in the principle of attribution to growth. So we are -- as far as technology and all is concerned, we are highly focused, and these are what we are creating would be the new moats around us.

[Kunal Vora, analyst]

Sure. Sir, second and last question. On the LUPs, you mentioned that you're introducing some bridge packs, but will you also be vacating some of the price points. And how do you see the net impact of this introduction of bridge packs versus vacation of certain LUP price points?

[Sanjiv Mehta, executive]

Yes. This is a very good question again because first is -- let us be very clear, we are not going to lose consumers. And we are going to do it in a manner where the consumer gets incentivized to move to a bridge pack. Yes, so that's what we would do. So moving to a bridge pack for the consumer would be creating value.

[Operator]

The next question is from Harit Kapoor from Investec.

[Harit Kapoor, analyst]

So my first question is on the margin side. Just trying to kind of crystal ball these into the next 12 months. On one hand, you have a challenge of a weaker demand environment and you still have to keep passing on price increases, albeit calibrated. On the other hand, you also have a challenge where some of the discretionary categories are a bit weaker as compared to the base categories, which again implies a slightly weaker mix something that we saw in fiscal year '21 also during COVID.

I just wanted to understand how do you then kind of take pricing decisions in such context. Is there a kind of a margin band that you look at -- you will look at to kind of maintain based on which you'll take a pricing call? I just wanted to get your sense on how you'll navigate this environment from a broader perspective.

Because over the last 3 years, you've seen a 24%, 25% margin. In the past, it's been even lower. So is there a broad margin band that you look at? Or it's going to be very market related and you have to keep taking a call every month or 2 depending on how things are panning out from a demand perspective?

[Ritesh Tiwari, executive]

Harit, thanks for the question. Absolutely a very important question in the times that we are in this point in time. So our strategy has 2 components. Number one is to protect our business model, and number two is to grow our consumer franchise. If these are the 2 objectives achieved, we will know that all the work that you've done has been successful. And this has been done in last several quarters as we have been in a very challenging atmosphere, be it COVID, be it the latest geopolitical crisis or be it inflation that we have seen unprecedented, and the number which I quoted earlier from JQ'20 of 100 base to 4.5x in MQ'22.

In all this period, what we did was the first port of call is to keep driving savings hard across the length and breadth of the P&L. At Hindustan Unilever, we have a very strong savings culture, where savings is generated and done by everybody in the organization, be it colleagues in supply chain, be it colleagues in marketing or colleagues in sales. So all lines of the P&L, we try to bring maximum efficiencies.

And I quoted certain examples earlier to you of supply chain, even on products, where we design to value, if there's more amount of weight to a bottle, can we manufacture our bottle with a little lesser lightweight. It will help environment. It will also help the cost. Media attribution to growth, and hence, the kind of ROI we want to generate. So that's the first port of call.

And after that, as you rightly called out, we do, and we have taken calibrated price increases. Now, the kind of inflation we have seen in commodity, as you've seen, the very fact we've been able to negate a good portion of that, and hence, we have been able to maintain a margin in a healthy range and do price increase up to a scale of 10 percentage, which as you can see, is much lower compared to the amount of commodity, which has increased. So that's number one.

Number two, this is also where our portfolio comes into play, where we have portfolio across price points from mass, from premium, from mid. And I pointed out earlier that even in these times, there is a segment of population in premium where we are able to sell higher price -- higher -- other benefit products. And the growth of that portfolio has been twice the growth of the rest of the portfolio. So that is something which has also helped us in times that we are in today.

So strategy is mix of that pricing, and of course, driving in terms of cost, and of course, holding our consumer franchise. But what we're not [indiscernible] to invest behind our products in well behind our brands. One of the example I quoted earlier that our product superiority today is twice as much as it was in the base of 2019. So 2x we have more superior product compared to 2019.

Media, we spent INR 100 crores more in this quarter to ensure that our salience and our media reach is not getting compromised, and we continue to remain our share of spend ahead of our share of market. So that gets very squarely done. I mean, short-term, as I called out, we will see stress in margins, and margins will decline in short-term. And why that will happen because the price versus cost gap.

When you have certain huge amount of inflation in input costs, it takes a little time for us to then mitigate that through cost synergies and pass on the incremental impact of calibrated price increases. And which is why what we mentioned that there will be short-term impact on margins as price versus cost gap increases, but we are very confident that we will build it back in a phased manner back in the P&L. But what -- we are very clear what will not be compromised is our own will to ensure that we're able to grow our business ahead of FMCG market growth. So that's the overall strategy of the business.

[Sanjiv Mehta, executive]

I'll just add a bit more flesh to the bone to the comprehensive answer that Ritesh has given. We also measure the elasticity, yes, how much is the volume impact that we will have. But we must remember that there is nothing like a perfect elasticity or perfect inelasticity. The second important bit is that when your brands are superior, whether from a mental reach perspective or brand power or from a product superiority, when your capacity to take price increase is much more because the consumers don't always look at absolute price, they always look at price-value equation. So that factor also gets into account.

And then we look at the portfolio from a lens of how do we -- from a capacity to pay perspective how do we protect the low price point packs and where do we have more capacity where people would be having more disposable income in their wallet to spend on our brands, that's where we take it. So there are many variables that get into it. And increasingly, we are using a lot of data and analytics to help take our decision.

[Harit Kapoor, analyst]

The second is a much shorter question. Actually, I just wanted to get your sense on -- in your view, do you expect, say, media intensity over the next, say, few months also to keep trending downwards? I'm not talking about your share of voice, but from an aggregate perspective, given probably peers who have lower market shares in regional, et cetera, might be even more stretched than you are, who don't have some of these levers. Do you expect that, that media intensity impact will also keep coming down progressively, at least until the inflation impact is severe?

[Sanjiv Mehta, executive]

See, it has come down by nearly about 20% if you look at the [DRCs] on a total basis. But let me be emphatic. We have -- our share of voice is more than a share of market. And for us, it is -- we play for the long-term. We don't play for the short-term. If we see media intensity goes up, we will unblinkingly invest more behind our brands.

[Operator]

The next question is from Shirish Pardeshi from Centrum Capital.

[Shirish Pardeshi, analyst]

Really congratulations for beating our numbers.

[Sanjiv Mehta, executive]

Thank you.

[Shirish Pardeshi, analyst]

Two things. I'm referring Slide 30. And on that -- that is the full-year performance I'm referring. So when you reported full year INR 14,000-odd crore for Food & Refreshment, and the growth is about 6.8%. Since we have completed 1 year of GSK acquisition, could you -- I mean, I don't want to get in too much detail, but if you can broadly tell me what is the growth? And what is the contribution from GSK portfolio?

[Ritesh Tiwari, executive]

Yes. So overall, as you've seen that the growth that we have in Food & Refreshment is very healthy. And there are 2 dimensions to that growth. A, the growth is comprehensive in terms of the portfolio that we have. But more importantly, as we called out, Shirish, earlier, that growth is extremely competitive. And when we have gained market share and we have further improved penetration.

And I was speaking a little earlier about kick down on Horlicks within that. So we have successfully integrated Horlicks. Our reach now, direct distribution, is twice what we had pre the period. Our market development at scale has been also done. So when it comes to growth of Horlicks, as I mentioned earlier, the key job to be done out here is to do -- continue to do market development at scale and support the market growth.

Now, Horlicks within that is a discretionary category. The point I was making earlier with significant amount of inflation that consumers are witnessing in their kitchen, they are putting more priority at this point in time to essentials against discretionary categories like HFD, categories like skin care. But our job is very clearly cut out, which is to keep doing market development.

Fundamentally, it's a very attractive category with a low penetration, and hence, our idea is to ensure that we are doing the job of building a portfolio, improving penetration and improving market share. Within March quarter and overall, as I mentioned, that our momentum is very strong there. And we have gained market share, while the category has seen decline in terms of market.

We have further gained penetration as well. So it's, I would say, a good set of results as we started to see impact of market development in early phase. But this is not a short 1- or 2-quarter journey. We will be active because the runway for growth is much higher and our job of building penetration is long-term.

But overall, within F&R, if I didn't call out certain other categories, we've seen very good growth across our Foods & Refreshment, our Foods portfolio. Tea, we've seen again very good competitive growth. We now have both value and volume leadership in our tea portfolio. You heard us speaking about coffee having a double-digit growth in the quarter. So it's a pretty broad-based performance and -- in the Foods & Refreshment portfolio that we have today.

[Shirish Pardeshi, analyst]

Okay. That's helpful, Ritesh. Just 1 follow-up here. You did mention in the beginning that the entire integration front and at the back end is done for the GSK full merger, which has happened. And I did see from the margin perspective, the segmental margin for Foods & Refreshment has gone up by 200 basis points. So the question here is that with the full integration now behind, do you think this another 200 -- I mean, I'm not saying number, but you see that the further expansion on the segmental margin can happen now onwards, despite the inflation part is different?

[Ritesh Tiwari, executive]

Yes. So, Shirish, from the cost synergy front, we had mentioned earlier that we made very significant progress. Entering the first 1.5 years, we've already achieved our ambition that we had on cost synergy for the first 3 years in the business case. A good portion of that generation in terms of cost synergy, we have invested back in the business to keep driving market development and in the business.

But if you ask me, is there a further headroom for us to gain synergies and grow further in terms of margin headroom for Horlicks portfolio, answer is absolutely yes. The areas which we'll further get savings will be in the area of supply chain and distribution. What we have now finished doing is full integration of our go-to-market structure.

The point I was making that our direct outlet coverage is twice what we had earlier. Areas like media, overhead costs, those synergies we have already realized. But in terms of distribution, when I say DPs, depots, in terms of factory manufacturing, there is further headroom that we have to realize. And we have clear line of sight as well of those. It's just that we've been sequencing also what we should first dial-up and then which is the second and third port of call we should go in terms of driving synergies. So yes, there's further headroom for growth, and we have a very clear line of sight over the next 2, 3 years to keep driving that.

[Shirish Pardeshi, analyst]

Understood. And my last question, when I look back since the time I'm tracking this company, what I understand, you did mention that we are ahead of share of market in terms [indiscernible] is much higher. But just an observation having worked in the industry, what I find that, when we have done the activation and the rural penetration and through the access pack and you did mention that LUP is also a big number.

What I'm trying to say here in the volatile demand condition in the last 2, 3 quarters, Sanjiv did mention that rural is slowing down, so we did pick up that. But in the context when the demand is not coming and when our prime goal is to improve the frequency of usage, do we think that to gain further market share or to maintain ahead of the curve, even if the rural is not coming back, at some point of time in next 4 quarters, we'll have to up the investments in advertising?

[Sanjiv Mehta, executive]

Yes. Advertising, we look at it from a couple of lens. One is, of course, competitive. We want to be ahead of our market share. The second is we'll also look at it from a reach perspective. Because let's also accept that we are not -- FMCG doesn't operate in isolation. We operate for the eyeballs with other industries as well, so we need to have a minimal reach to ensure that the brands remain salient. We do that.

The third thing also, we must accept that market development when we invest in it, these are generally first purchased by early adopters. And early adopters are people who have more disposable income within. So market development, we believe, will continue to grow at a pace faster than rest of the market, which we have seen over the last several years, and it will continue to be so. And we will not cringe away from investing in market development, yes.

So we have very clear portfolio. While our overall imperative that Ritesh articulated remains and which we have been very consistent that in case of this kind of volatile hyperinflation environment, protecting our consumer franchise, not only protecting but growing and protecting our business model are the 2 big imperatives, but we play for the long-term. And we will not do anything, which in any way will hurt our business from the long-term perspective.

[Shirish Pardeshi, analyst]

I hope FY '23, you will break the previous record. All the best to you.

[Sanjiv Mehta, executive]

Thank you so much.

[Ritesh Tiwari, executive]

Thank you.

[A. Ravishankar, executive]

We will take some questions on the web now.

[Sanjiv Mehta, executive]

yes.

[A. Ravishankar, executive]

I'll start with a question from Avi Mehta from Macquarie. The question is we traditionally look to maintain EBITDA margins in the 24% to 25% range as we play all lines of P&L to offset inflation. Would it be fair to expect margins to move to the lower end of this range in the near term and move back ahead ensuring that FY '23 margins are in this range?

[Ritesh Tiwari, executive]

Yes. Thanks, Avi for the question. This is the point I was clarifying and giving more details earlier. We do expect in next 2 to 3 quarters sequentially inflation to further go up in terms of commodity cost and input cost inflation. As I mentioned, the strategy is very clear, protecting the business model with a very clear objective to grow our consumer franchise. And the point that we made that we'll keep investing for getting the job done. Hence, near -- next 2 to 3 quarters, we will see margin to decline.

And why that will happen? Because the price versus cost gap. When you have certain increase in cost, and you continue to do the job in terms of reducing the cost impact through savings, but the increase, which is so substantial in short-term, it will lead to in short term a price versus cost gap, and that's what will end up impacting margins in short-term.

But as I mentioned that in our mind, it's very clear that we will build this margin back in a phased manner over quarters after that. So that's our clear strategy of -- from a margin perspective. I hope that is a very clear understanding of where do we see margins for the next few quarters.

[A. Ravishankar, executive]

Thank you, Ritesh. Sanjiv, there's a question on how we assist product superiority.

[Sanjiv Mehta, executive]

Yes. Product superiority, we do blind test. And -- because if we were to do branded test, we will have an unfair advantage. So we do very clear blind test to test attributes, which are most relevant for the consumer. And that's how we assist the product superiority.

[A. Ravishankar, executive]

There's a question from Richard Liu. The question is on understanding the strong spike in other operating income in Q4. That is one part of the question. The second is for a little bit of color on the CapEx numbers and how much of this is PLI related?

[Ritesh Tiwari, executive]

Yes. Let me, Richard, pick up the first question on the other income. There are 3 reasons why the number is higher compared to periods earlier. Number one, as we had announced that we do have now a participation in PLI scheme, and this is -- as part of that this is the first year. And [Audio Gap] to get revenue of OTC income, which again gets accounted in this line. And hence, with the business, which has happened there, it has seen better income compared to same period in the prior period. That's the second reason.

Thirdly, as you know, we host global cost centers and global capabilities, which we invoice globally to Unilever and that is for further increase in the quarter in terms of investment in those capabilities. And hence, since we host them, we also invoice in the earned income through markups [Audio Gap]. Other income is higher compared to what you saw earlier.

CapEx, yes, very clearly, we have stepped up investments, and the investments we stepped up in CapEx in a few areas. To start with, you've seen UIL, we have blown product capacity that we are checking it up. And a part of that investment has been called out a couple of years back. That is accounted in UIL books and hence also comes in the consolidated P&L. There is a blown product capacity in [indiscernible] that we are checking up with the kind of growth that we've seen in Home Care, I'm saying there's no surprise that we're setting up further capacities to support the growth that we're seeing. That's one.

But also other pockets of investments that we have done, be it our distribution centers, be it the Nano factories, which we spoke about, the way we've digitized that factory and we invested in those capabilities offer it. But ice-cream cabinets, this is also the time for us with a good season for ice-cream, as you know, in our March quarter, we called out, we had pretty good strong growth in ice-cream.

In fact, our business in ice-cream now is higher compared to pre-COVID levels. So those are the areas where we have done investment in our CapEx, and hence, we've seen the number inching up. In the COVID period, we were measured with our cash expenditure and our capital discipline. And now with growth coming in and we have appropriately leaned in to ensure that, the last thing that we want is growth getting compromised for not having invested. Investment be it in CapEx or investment be it in BMI or for this matter product superiority across the board we do ensure that growth in no way gets compromised. So that's the reason why you see increase in CapEx expenditure in this financial year.

[A. Ravishankar, executive]

There are a few questions on pricing and LUP, which we have already covered, so I'm going to skip over them. There is a question from Chirag on what has led to secure the strong margins in Foods business. Also, what has led to a strong performance in Fabric Care and also Home Care?

[Ritesh Tiwari, executive]

So the margin on the food business has picked up when we look at the performance in Fabric Care and Home Care. So in the food business margin, of course, there are 2 broad drivers of that. One, as you know, the F&R business includes the Nutrition business, and we give them a ratio of the kind of margin we have driven because of cost synergies with nutrition. That is one clear driver.

And of course, teeth, we know that we had a very high amount of commodity at 1 point in time. And as we speak now, though commodity is still elevated over 2019, but year-on-year, now the inflation is not as high as you've seen in the past period. In fact, year-on-year, the costs have come down of commodity. So there are 2 factors, but I would say the predominant factor is the kind of work we have done in Horlicks.

Beyond Horlicks, beyond Tea, of course, overall, as I mentioned, that the job that we keep doing in driving cost synergies across the board by driving various operating synergies, be it on distribution by traveling less kilometers per product movement or for that matter cost synergies of media or promotions or other suppletion elements. So there's lots of amount of work which happens in the P&L across the board that also benefit you see within F&R as well. So those are the 3 reasons I would say why we're seeing better profitability compared to what we have seen in the past.

[Sanjiv Mehta, executive]

And just to add to what Ritesh had said as to why Home Care has done so well. I mean, first, we need to step back and take a bit of a macro picture that in the last about 9 years we have added INR 25,000 crores to our turnover, yes, which is doubling our business and which is more than the absolute turnover of any other FMCG company.

The second is we have tripled our EBITDA during this period. And market cap, you guys monitor more closely than I do and leave it to you. And during this period or even if you look at it during the last couple of years, we have -- that is the strength of our portfolio, not any category will keep growing at a linear phase. That doesn't happen.

But if you look at it in recent times, we've had a great journey with Tea, where we have taken not only value leadership, but volume leadership and phenomenal growth. When you look at our hair care, where we have got record shares right now, and we have -- where we have created markets, an amazing journey we have. And similarly, on Home Care, it's been a consistent delivery of superior products with great brands and consistency of engagement platform.

Now, dirt is good is something with its improved different manifestations, we have been running this engagement platform for years to come. And that is how we built this great property. And product superiority, brand power, brand salience, distribution progress, our Re-imagine HUL agenda, these are all contributing in different ways to ensure that we have a rhythm on growth and have ensured that we make such a robust business model. And that's the reason I say that many times people talk about niche brands. They will always be there. But at our scale and size, adding INR 5,000 crores as delta turnover in a year, that gives a sense of the kind of strong business that we have created with Hindustan Unilever.

[A. Ravishankar, executive]

Thank you, Sanjiv. With that, we will now come to the end of the Q&A session. If there are any further unanswered questions, please feel free to reach out to us in the IR team, and we'll be happy to clarify.

Before we end, let me again remind you that the payback of the event will be available on the IR website in a short while. A copy of the results and the presentation, if not with you already, it is on the website as well.

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

[Sanjiv Mehta, executive]

Thank you.

[Ritesh Tiwari, executive]

Thank you.

[Operator]

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.