Hindustan Unilever bets on gradual recovery, steps up investments to drive sales

As consumption sentiment picks up, Hindustan Unilever Ltd (HUL) is doubling down on investments across growth channels while sharpening its core portfolio. With early signs of a recovery and portfolio expansion under way, the company expects the first half of FY26 to outperform the second half of FY25. In an interview with Moneycontrol, chief financial officer Ritesh Tiwari said gross margins are expected to improve sequentially, though any gains will be ploughed back into the business. He also outlined the progress on the proposed demerger of HUL’s ice cream division, something slated for a  shareholder vote on August 12.

Edited excerpts:

Does Q1 mark a turning of the tide after a few tepid quarters ?  

We have seen these ups and downs and in the last two years we have gone through a phase where disposable income got impacted because of high cumulative inflation and as real wage growth did not keep pace with increased inflation.

We saw that for one, overall inflation across the country, including food inflation, has come down. Second, with the repo rate stabilising and liquidity improving, mortgage interest have fallen, which supports consumption. There’s also been some relief on taxation. All of this starts adding up, especially for the mass and middle-income categories. Equally important is the agricultural outcome. Last year we had a good monsoon, and this year the view is also firming up that it’ll be another good season. That should help drive rural demand.

Consumer sentiment plays a significant role in FMCG consumption. So, with better disposable income, improving sentiment and supportive macro conditions, we believed that from the June quarter onwards, we would start seeing a consumption uptick—and the industry has, in fact, been gradually recovering. We do believe that this gradual recovery that has happened should be sustained.

Will the current underlying volume growth (UVG) of 4  percent in this quarter get to maybe 6 percent or 7 percent by the end of this fiscal? 

With an improving consumption climate and the portfolio expansions which we undertook, we expect the first half of this fiscal to be better than the second half of last fiscal. We believe that’s the space we will be in, and I don’t see there will be acceleration from here. What we expect is that this gradual recovery will be sustained.

You mentioned staying competitive on pricing and passing on benefits to consumers, along with a strategy focused on volume-led growth. But that seems to be weighing on your gross margins. Do you see margins dipping further, or do you expect them to stabilise as volumes pick up? 

The transitory cost versus price impact due to actions taken in the tea, home care and core categories like Horlicks will reverse to some extent, going forward.

After the June quarter, we expect gross margins to improve. But we are also clear that this improvement of sequential gross margin from the June quarter will be deployed back and we’ll invest back in the business across different lines of the P&L (profit and loss account).

Our operating margin outlook, i.e., EBITDA (earnings before interest, taxes, depreciation and amortisation) outlook, is in the 22 to 23 percentage range. But we’ll see that the price versus cost gap will start to reduce sequentially from the September quarter itself.

How do you see the competitive landscape evolving in India? A few years ago, there was a lot of buzz around regional brands challenging players like HUL, but that seems to have quietened down. Now, large players and listed companies are entering the space more aggressively. 

We have large Indian listed businesses with strong business models that we compete with. There are a multitude of local and regional players with very good brands and they are strong in the geography that they operate in. We know Indian conglomerates also have now entered into FMCG, so we compete with them. And there is the D2C (direct to consumer) industry for the last five to six years.

We compete with all verticals and competing with all these verticals in the last four to five years, we’ve gained 250 bps (basis points) in turnover- weighted corporate market share.

This share gain has happened in both inflationary and deflationary period. So that’s the face of the competition and we always maintain that while we track competition, we’re always more obsessed about consumers. Given the $50 per capita consumption of FMCG in India, there’s enough headroom for multiple players to coexist and create value.

Hence, the primary importance for us is that we remain consumer-focused and keep developing the market. Given where penetration and consumption is, there’s very good headroom for multiple businesses to coexist and grow.

With the demerger nearing completion, could you share the latest update on the process and any key developments? What has been the market response so far?

We are trying to get the demerger and listing process completed by Q4 of this financial year. We have engaged with many investors and have received encouraging responses. There is a shareholder vote on August 12, and after that, there are other regulatory approvals needed to complete the process. Once the whole process is done, we will end up demerging the company, post which listing typically takes. two months’ time.

The company (Kwality Wall’s India Limited) will get listed. We expect the shares to start trading by Q4FY26.  However, during these two months from demerger till listing, the shares will be frozen. The entire capital table of HUL will become the cap table of Kwality Wall’s India Limited, on record date, and then the company will be listed.

Will the new company have its own CEO and management team appointed separately?  

Once the shareholders approve the demerger, we’ll start appointing the leadership. We have already identified the management representation on the board. But, more importantly, we will start appointing independent directors on the board. We will do all of that prior to listing and then we will share the information memorandum in the public domain.

The memorandum will have a lot more information in addition to what we have already shared—more financial information, the composition of the board, including both management and the independent directors we want to appoint on the board. We aim to put all this information in the public domain by the end of this calendar year.

The entire management team of the ice cream business in India that we have today will be the management team by and large, with some changes, to lead the ice cream business.

Is the asset division completed, or are you still working through parts of it? 

That’s the process we’re doing… A separation process. For example, we have to set up an ERP system for Kwality Wall’s India Limited separate our ice cream factories, and carry out other separation activities. The appointed date of this separation will be the effective date as per the scheme. People involved in ice cream operations will get transferred from Hindustan Unilever Limited. We have 600 factory employees and around 600 office employees. That’s roughly 1,200 people to be transferred from Hindustan Unilever to Kwality Wall’s India Limited, with the same terms and conditions.

The current royalty contract that we have with ((parent) Unilever for access to brand and technology will move to Kwality Wall’s from HUL on the same terms as we have today with Unilever. We will take all these steps to establish the company. Asset division will be by operation of the scheme of demerger and will be duly certified by our auditors.

Do you foresee the possibility of new investors, financial or strategic, coming into the India business? Is anything along those lines being considered? 

On day one it will be mirror shareholding. We will start engaging with our top investors ahead of the effective date of the demerger so that they get a full understanding of the ice cream opportunity in India. We will have to work with existing and new investors to ensure that there is a robust cap table for the company. The global company will continue to remain the main shareholder. Given it is a mirror demerger, Unilever will have 61.9 percent shareholding in Kwality Wall’s India Limited, same as their shareholding in HUL. They (Unilever and The Magnum Ice Cream Company) have executed a share purchase agreement under which The Magnum Ice Cream Company  (the global ice cream company spun off from Unilever)will acquire 61.9 percent shares in Kwality Wall’s India Limited from Unilever.