Hindustan Unilever Ltd (HINDUNILVR) Q1 FY23 Earnings Concall Transcript

Hindustan Unilever Ltd  (NSE:HINDUNILVR) Q1 FY23 Earnings Concall dated Jul. 19, 2022

Corporate Participants:

A. Ravishankar — Group Finance Controller and Head of Investor Relations

Sanjiv Mehta — Chief Executive Officer & Managing Director

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Analysts:

Abneesh Roy — Edelweiss — Analyst

Vivek Maheshwari — Jefferies — Analyst

Latika Chopra — JP Morgan — Analyst

Avi Mehta — Macquarie — Analyst

Percy Panthaki — India Infoline — Analyst

Amit Sachdeva — HSBC — Analyst

Kunal Vora — BNP Paribas — Analyst

Harit Kapoor — Investec — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Hindustan Unilever Limited Conference Call for the Results for June Quarter 2022. [Operator Instructions]

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 — Group Finance Controller and Head of Investor Relations

Thank you, Steven. Good evening, everyone, and welcome to the conference call of Hindustan Unilever Limited. We will be covering this evening the results for June quarter ended June 30, 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 will start the presentation with Sanjiv sharing an overview of our performance in this quarter and 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 — Chief Executive Officer & Managing Director

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 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% remained 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 the strong momentum with 11% EPS growth, clearly reflecting the strength of our brands, the capabilities that we have, the strategic clarity and 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 a 10-year medium price, you will notice that Brent crude, caustic soda, polyethylene and parley have all inflated by more than 50% and the prices are at an historic high. Palm oil which has seen more than 100% inflation has softened in the recent days from its peak. We saw extremely high inflation in 2021, since then has cooled off from the peak, but it’s still at relatively high level. The other source of inflation has been the currency depreciation. With dollar strengthening and the USD/INR rate that was relatively stable around INR74, INR75 is now hovering around INR80. So very clearly there are two 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 base categories that we operate in. In June quarter, markets have grown at mid single-digit driven by price growth. Volumes continue to decline. Rural growth continues to lag growth in urban market. 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 the second wave of COVID. However, when we look at the market growth on a three-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 growths also remain in the same trajectory. In such, inflationary scenarios, it is worked naturally for consumers to feel the pinch of increased pressure on their wallets and they do have just volumes and prioritize essentials over discretionary to manage the household budgets. In this difficult time as we have articulated in the past we have two 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 with HUL and deliver on our 4G growth agenda. We are making great progress on the five strategic choices that I had covered in detail during our 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 trust over the year are over indexed to the market. We are investing behind the brands and in and in market development of under-penetrated categories. We continue to upgrade the consumers to higher order benefits, thereby growing a premium portfolio twice the growth rate of the rest of the business. Second, win with our brands as a force for good, powered by purpose and innovation. Our focus is on providing value to the consumers through superior products and impactful innovations. Third, leading the chain the channels of the future. We continue to expand our presence in e-commerce and drive digital adoption through the eB2B 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 de-average India and find growth opportunity. And the last one is to build a purpose-led future fit organization and a growth culture by empowering our people, giving them the environment to thrive and now to perform.

Talking about purpose, we have taken a big step in this quarter and announced a full suit of ESG commitments across our three focus pillars, of planet, people and the society. Unilever globally has always stood out as being the pioneers in sustainability with a 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 announced 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 and 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 to improve the health of the planet, we have taken the target to achieve zero emission 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 are 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 board, tea, etc. Contribute to creating a water potential, a cumulative water potential of three trillion litres in India by 2025 and by 2025 100% of our 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 and 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 provide 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 opportunity. 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 a very competent CFO, Mr. Ritesh Tiwari, to talk about the performance of this quarter and our outlook in detail.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thank you, Sanjiv and good evening, everyone. I will now walk you through our June quarter performance and our outlook. We had a strong start to the year with a robust 19 percentage top line growth and an underlying volume growth of 6%. Growth has been ahead of 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 at INR2,289 crores grew 11%. There is 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 light how we are navigating this challenging environment to 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 brand 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 relatively weak base [Phonetic]. This is in 30% absolute rupees crore increase year-on-year.

Second is investing in our products and giving better value to the consumers. Our products superiority continues to be 2 times of pre-COVID levels. Third, we continue to take calibrated pricing actions. Our UPG for the quarter was 12 percentage, a step-up off from 10% in March quarter of ’22. And the most important thing is to drive savings harder and optimize all non-consumer facing [Phonetic] cost. Through this frugal mindset and growth leverage, we have delivered a 270 bps deduction within other expenses and employee costs.

Moving onto performance across our three segments. Home Care, delivered yet another quarter of robust performance growing at 30%. Beauty and 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 saving, 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 and 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 relative to other categories like health food drinks and tea. We will sit down to talk more about performances in 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 two variants, damage recovery and moisture boost. It is a premium offering in Clean Beauty space. Our premium natural brand Love Beauty and Planet has expanded its portfolio with three new products for hair fall reduction and deeply nourished hair, taking a strong ironic [Phonetic] 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 forms that is a facial silicone facial brush that gently exfoliates. In April, Vaseline launched a new range of body serums especially designed for India in summers. The launch was followed with focused activation across TV, digital and influencer marketing. Our fabric conditioners brand Comfort has launched a new variant Delicate, which protects delicate fabrics 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 daughters lives. Glow & Lovely’s new campaign is bringing forth the product benefit relevant for its consumers. And lions [Phonetic] believe that games is about stamina not gender, Boost sponsored the Women’s T20 Challenge and deployed various on ground activation, including the stamina meter. Boost [Indecipherable] is talking about it’s great aroma that is hallmark of a perfect cup of coffee.

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-digit with all parts of the portfolio performing well. Supported by our strong market development actions, liquid detergent and fabric conditioners continue to outperform and lead growth for the business. Our dish wash 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 to grow 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 lead double-digit growth. Beauty & Premium soaps continued to outperform. Demand for hand hygiene products moderated on a relatively high base. Hair Care grew in high double-digits. Our premium brand, TRESemme and Dove are performing very well and are in the forefront of driving consumer accredition to higher order benefits. Further, we are seeing good performance from our innovation such as TRESemme serum and mask, Dove mask, Sunsilk Onion and Clinic Plus egg protein ingredients. In skin care, Ponds and Lakme delivered robust growth and are significantly ahead of pre-COVID levels. Glow & Lovely and Talc was impacted due to slowdown in discretionary consumption. Color cosmetics had a very strong growth and a soft base and is marginally below pre-COVID levels. In Oral Care, Close Up continues to grow consumer franchise.

Let me now turn to Foods & Refreshment. F&R grew 9% with the 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 gaining market share and penetration. As we had mentioned earlier, the category growth have 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 Solution business. Ice cream delivered another stellar performance with very strong growth across brand and formats. Our innovations like Trixy Cheesecake and Feast Black Forest have found good traction with consumers and done extremely well in this quarter. Our home delivery solution Ice Cream Now continues to gain relevance and is a significant source of growth for us in this category.

Now let me summarize, our performance has been strong, both in top line and bottom line. While I have covered most lines, let me pick up 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 what is the terms of GSK, sales product 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 INR40 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 owned 26%.

Now moving onto 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 the 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 deficiencies. As a percentage of our total material costs, 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 JP ’21. Given that the correction in some commodities like palm happened in last couple of weeks of June, we will have higher cost pipeline inventory that was contracted earlier. The consumption of this inventory and SKU [Phonetic] ]and major commodities like crude oil, caustic soda and plastic remain elevated year-on-year as to 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 action. However, cost of goods sold will be higher in September quarter as price versus cost gap widens.

And the softening that we are lately seeing in commodity 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-lead, 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 along with consumption of higher cost pipeline inventory will result in our SQ margins to remain under pressure. The recent softening of commodities [Indecipherable] and at this pace, it will positively impact our sequential margin from December quarter ’22 onwards.

Our two 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 a journey to create a purpose-led future credential 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 till 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 shares. Despite the unprecedented level of inflation, our EBITDA margin remain healthy at 23.2% as we continue to drive savings harder and take calibrated pricing actions. In the near term, growth will be price-led. 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 commence our Q&A session.

A. Ravishankar — Group Finance Controller and Head of Investor Relations

Thank you, Sanjiv and thank you, Ritesh. With this, we’ll now move on to our Q&A section. We request you to kindly restrict the number of questions to a maximum of two at a time. In case you have further questions, please do join the queue again. In addition to the audio, as always, participants have an option to post the questions through the web option on your screen and we will 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.

Questions and Answers:

Operator

Thank you very much sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss — Analyst

Thanks and 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 a INR10 handwash powder to liquid. Competition had come out with INR15 and now competition has come out with a INR45 disrupted pricing product. So my question is, what do these kind of disruptive innovation do to the category minimization and margins because ideally, you would have liked to grow that at — 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?

Sanjiv Mehta — Chief Executive Officer & Managing Director

Abneesh, thank you so much. Talking about innovation, Abneesh, remember we called out in our full year results ’21-’22 that we had INR900 crore delta turnover that we added because of driving innovation across the length and breadth of the portfolio. Innovations continues to remain an extremely important element for us to drive competitive growth. Be it in skin cleansing or for that matter any of the category in the business.

Second element for us equally important of innovation is also to drive market development and market development being driven through price point impacts, through different formats and albeit different innovations which we are able to bring market development. Now every category, which today has 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 me examples that you quoted are examples like that and across multiple categories, we keep doing that, be it innovation, you heard, many examples, I was quoting today on premium products and clean beauty. So wherever we do see demand spaces 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 — Edelweiss — Analyst

Sir, but one follow-up there, margins in these disruptive innovations would be similar to your solid soap, solid body wash right? So margins won’t improve because of this?

Sanjiv Mehta — Chief Executive Officer & Managing Director

Yes. So what happens, Abneesh, from many innovations, for example, when we do innovations in premium category, they will be margin accretive, but there will be also premium products, 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 objective that we have defined that we want to do. Ultimately for any innovation or market development, the first single biggest objective is to grow and ensure that we are 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 it is 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 with the whole objective there is to ensure that we are able to gain penetration and grow our consumer franchise in that product segment.

Abneesh Roy — Edelweiss — Analyst

So that’s helpful. My second and last question is on the divergence in the performance of the category. So premium skincare is now significantly ahead of pre-COVID while color cosmetics is marginally below pre-COVID. Ideally, as a layman, I would have thought these two grow almost similar given they would depend upon mobility, colleges restarting and offices also reasonably back to normal. Is there a difference in the consumer behavior, so B2C is picking up more in cosmetic or in cosmetic, there is the mask end which is underperforming, the premium cosmetics are doing well.

Sanjiv Mehta — Chief Executive Officer & Managing Director

You know, our mask end 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 skincare, as the name alludes is primarily premium and it is very clear, Abneesh that premium has remained very resilient. If you look at the Nielsen numbers, the premium both in — is growing both in value and volume, so this is very clear and it is not counterintuitive, because premium caters to consumers who are in less than seven plus, they have more disposable income and this is a smaller part of their wallet spending as compared to the rest of the population. But we are very optimistic about our color cosmetic business and it has bounced back very strongly.

Abneesh Roy — Edelweiss — Analyst

Sanjiv sir, one last question, I know I have completed my two 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 drinks, where you are still mentioning the market share penetration gains etc. When do we see double-digit growth being mentioned here?

Sanjiv Mehta — Chief Executive Officer & Managing Director

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 works 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 price of milk going and different factors have affected the category at different point 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, price of milk going up significantly. Cost of a Horlicks with milk which used to be about INR12 earlier is now INR18, so that — all these 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 here, here, here there doesn’t phase [Phonetic] us, because our focus will be on doing the right things and the time will come when we will unlock the top line growth also within the 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.

Abneesh Roy — Edelweiss — Analyst

Sure sir. Thanks and all the best. Thanks a lot.

Sanjiv Mehta — Chief Executive Officer & Managing Director

Thanks, Abneesh.

Operator

Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.

Vivek Maheshwari — Jefferies — Analyst

Hi, good evening, everyone. Two questions. So first is on the rural demand? What is your — I mean, some of your competitors are of the view that rural is picking up, others have a view that it has bottomed out, yet to show a pickup, given that you are the market leader, what is your view on the rural — from a demand standpoint?

Sanjiv Mehta — Chief Executive Officer & Managing Director

Yes, thanks, Vivek, and good to get this question from you. When I look at market and that would 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 or 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 three 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 remain soft, but when you were to put — you would have seen from Ritesh’s chart. If you put a three-year picture together, then the distortion go away and while the value growth in urban is higher, the volume growth in 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 distortions, there is not much difference at all. In fact, quarter-on-quarter for three-year basis, rural may be — value may be a slight higher than urban. 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 INR1.5 trillion, giving more foods, free food to the rural population, primarily rural population. And monsoon saving and except the heartland where we also the forecast indicates that the rain will catch up. In the 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 the coming quarters rural bouncing back from where it is today.

Vivek Maheshwari — Jefferies — Analyst

Got it, got it. Thank you Sanjiv for that. Second, on the Horlicks, Boost portfolio, so already a question has been asked, so I will not repeat that. But you know Horlicks has been a very, very powerful brand to an extent underleverage. So when do you plan to take — make it an umbrella brand and launch more — get into more categories now that the two year period is over, there has been all the disruption hopefully behind us, once inflation, stabilizes, do you think that would be the time to start expanding into newer categories?

Sanjiv Mehta — Chief Executive Officer & Managing Director

Yes, one of the things we have done of course is streamline the portfolio. The second thing what we have done is we have 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 top line of the core portfolio stronger and lot of work on market development is happening. A lot of work is happening on market development. We are 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 — Jefferies — Analyst

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

Sanjiv Mehta — Chief Executive Officer & Managing Director

We have several plans is also looking at adjacencies. That’s what you are alluding to, because at the end of the day if this whole area of pure nutrition is vitamin, mineral supplement is focused area for us globally and certainly very relevant for India, considering the nutrition deficiency in the country.

Vivek Maheshwari — Jefferies — Analyst

Perfect, thank you very much. Wishing you all the very best.

Sanjiv Mehta — Chief Executive Officer & Managing Director

Thank you, Vivek.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thanks, Vivek.

Operator

Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.

Latika Chopra — JP Morgan — Analyst

Thank you for the opportunity. Hi team. Congratulations on the performance in a challenging market. My first question was on Home Care. The revenue strength is better, is very strong and I just wanted to understand that a little bit 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 in view of input cost inflation?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Yes. So, thanks, Latika. First of all, home care, you seen our performance has been very robust at a 30% growth, it’s a growth, which of course in short-term is price-led, but is also good performance of volume as well on behind the growth that we have. So it’s a category which has grown very well from a top line perspective both volume and value number one. Number two, the growth is also competitive, 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 and 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 you can call out fabric conditioner for example is a clear market development still for us and it’s a pretty good driver for growth for us in Home Care for us last several quarters now.

If I talk about liquid detergents that we are selling [Phonetic], again is a extremely strong contributor of growth and market development as is Home Care is concerned. So we have done the job of portfolio evolution in Home Care, which has only become stronger over last several years. And to me, that is the real hallmark of how are we able to drive growth in Home Care. Yes, there have been ups and downs in terms of various realities which impact Home Care. The latest one being significant amount of inflation that we have seen crude basket, in organics like soda ash which has impacted, of course, the fuel cost 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 put up 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, we’ve exactly done that. Our strategy is to grow consumer franchise and protect our business model and that’s exactly what we have done. You’ve seen for example our margins, where they are at 18 percentage, it’s — we’ve been able to hold year-on-year margins in Home Care with all the intervention that supports a very strong growth, which happens, gives also a good amount of growth leverage. So we think, those would be the causality of good Home Care performance and plus also a strong set brands be it Surf, be it Rin, be it Wheel, or in household care, be it Vim. So a strong set of brand performance across the portfolio.

Sanjiv Mehta — Chief Executive Officer & Managing Director

I’ll just supplement some of the things Latika, which Ritesh spoke about, one very important trust so far over the years has been product superiority and we benchmark our products versus our 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 actual strategy is winning in many India.

So our strategy is very distinct for different parts of the country and somewhere it is about improving our competitiveness, somewhere it is about upgrading powders, somewhere it is about converting powders to liquid, but it is 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 play.

Latika Chopra — JP Morgan — Analyst

Sure. No. Thanks for that Sanjiv and Ritesh, my only point that I was trying to understand is, does that mean that the market share gains for you would have accelerated in the recent thought?

Sanjiv Mehta — Chief Executive Officer & Managing Director

It has been unprecedented market share gain.

Latika Chopra — JP Morgan — Analyst

All right, good to know. The second quick question I had is on soaps, and two aspects just to get a better understanding basis, your vast experience in the past during periods of price deflation, so one is that how soon do market players start passing on commodity gains to consumer? How will you approach that? And the second is does it impact channel inventory in any way? Is there any material impact given expectations of the channel for price reductions. I’m assuming, price hikes happened in phases. So even price reductions will also happen in phases, any preliminary project [Phonetic]? Thank you.

Sanjiv Mehta — Chief Executive Officer & Managing Director

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 a macro level, in the June quarter, our commodity price inflation was 20%, our price increase has been 12%. And it gets more accentuated in certain category. 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. It doesn’t worry about having lower price inventory when the price takes up. But whereas on the reverse side, there 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 bit. 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.

Latika Chopra — JP Morgan — Analyst

Very clear. Thank you so much and all the best.

Sanjiv Mehta — Chief Executive Officer & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Hi team. I just wanted to understand, 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 etc? Or is it still some time away?

Sanjiv Mehta — Chief Executive Officer & Managing Director

Yes. First, I’ll tell you is, our focus on market shares is both on volume and value. 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 shares. So that one is very clear. It’s still today, it is not just about inflation in our categories. 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 the consumption, then the total wallet shrinks. So it is not just our 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 volume growth are pretty negative and it will take time once — and hopefully the inflation is the beginning of tapering off, and once that happens and if the Indian economy keeps growing at the same time then we should start to see the volumes come back.

Avi Mehta — Macquarie — Analyst

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

Sanjiv Mehta — Chief Executive Officer & Managing Director

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 — Macquarie — Analyst

No, no. Perfectly, I understand that. And sir lastly, on the expectation on the healthcare and it’s essentially — and because all the spaces linked a lot to inflation moderation is what I can hear the common thread 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 on EBITDA margins? Or was the comment on EBITDA that it would be moderating further in the second quarter and that’s and probably DQ [Phonetic] when you have certain uptick?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

So let me take this up, Avi. So as we called out in June quarter, we use a number called 20 percentage inflation, net material Inflation that we’ve seen in the business. 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 the 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 still $105 and $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 US dollar has strengthened and hence Indian rupee has given in 5 percentage to 6 percentage in last three months time.

There are many commodities which has brought on international food parity pricing principles also get matter the materials which are sourced locally have input ingredients which are imported. PF80 [Phonetic] in a classic example where we — with the palm oil gets imported from the [Indecipherable] of Malaysia and then in the final product we end up generating PF80. 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 because ultimately there are supply chain lead times in procuring many materials. So you have in anywhere in time anywhere from four weeks to 13 weeks of inventory of different materials depending upon the source location, demand visibility, supply visibility 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 at all, we do see that across many other commodities, then, we do expect that from December quarter onwards inflation might come off to some extent. And that should help sequential margin being getting built from December quarter ’22 onwards. September quarter, because of a higher sequential inflation of 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 priced 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 clearly follow to the extent when price drops in case happens, we will be not taking small bites, we are taking big bites, if the 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 remain, 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.

Avi Mehta — Macquarie — Analyst

Okay sir. Okay, that’s all from me. Thank you very much. Thanks.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thanks.

Operator

Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.

Percy Panthaki — India Infoline — Analyst

Hi sir. This is Percy Panthaki, here. Sir, my first question is on the pricing. So you have about 12% to 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 happened. 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 two 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 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 Director, Finance & IT and Chief Financial Officer

Yes. So, Percy, thanks for your question. Coming to pricing, as you mentioned of our growth outlook for near-term, we said we will be price-led. So there will be pricing in the business and the point I was making earlier, yes, you’re right in the base there is price, which is another phase, but we also have many commodities which are inflated and the point I was making earlier, we have a — almost 8 percentage price versus cost gap with 20% material cost inflation June quarter and 12 percentage pricing that we’ve taken. And there are many categories I mentioned earlier which has impacted. We are seeing continuous commodity inflation in fact in certain categories we see sequentially more inflation even compared to elevated level. The example I was quoting on milk extract, on coffee, soda ash, caustic soda, and stuff like that. So there will be total amount of inflation. So I do believe that we will end up doing what is right, which means categories which will see sequential commodity inflation, we will see price increases in those categories. But after having driven hard as we always kept saying in terms of driving savings first and then after that this calibrated price increases. So now in my view, it will be the case for September quarter onwards as well. There are very few select categories repeat 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, at different price points that we operate in the category.

But apart from tea, this point in time, as you see there is a pretty competency for impact across many categories. The close one that you got 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 come again. September quarter as I mentioned, we have a pretty elevated cost pipeline of inventory for many materials which have very high inflated with the two 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 — India Infoline — Analyst

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 Director, Finance & IT and Chief Financial Officer

See where we are today with our EBITDA margin.

Percy Panthaki — India Infoline — Analyst

Sorry, not pre-COVID levels. I mean, sorry, the levels you had before basically this big inflation set and which was I think somewhere around the 25% mark, you have been pretty stable at that 20% mark. So that’s the benchmark I have in my head.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

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 [Indecipherable] palm oil at a very high inflated levels of multiple commodities that will be one very important driver how commodity play out over 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’ll get to know, we currently depreciating with other commodities further inflating and ones which are at high levels like crude remaining elevated, we got to see as to how that commodity atmosphere gets pulled off in quarters down the line. If that does happen, we will start building sequential margins from December quarter onwards that’s one. Number two, when deflation that is when 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 and gross margin and pricing, it 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 spans 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 [Indecipherable] get play out. I don’t know Sanjiv, you want to add something to it.

Sanjiv Mehta — Chief Executive Officer & Managing Director

Percy, there is also one very important factor. Assume for the time being that commodities remain at an elevated level. Then that equation changes permanently. Then one of the big drivers would be 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 — India Infoline — Analyst

Sure, understood. My second question is on the detergents market share which you mentioned, we have seen unprecedented growth in market share. Could you give some more flavor on this, is it at the market share gain more accentuated towards the mass end, mid end, premium end and anymore 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 — Chief Executive Officer & Managing Director

Yes, Percy, first the good bit is, we are gaining shares across our portfolio in bars, in powders, in liquids. And the gain is across the price deal. In mask, in a popular range and the premium range. And some of the factors, if I may allude to is which I would repeat, which I was also telling Latika, one is a massive focus on product superiority. So 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 categories like laundry and tea lend itself to a WIMI play much more because your competitors are different in different pockets, 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 droid [Phonetic] in playing the WIMI game.

Percy Panthaki — India Infoline — Analyst

Very helpful, Sanjiv. Thanks, and all the best from my side.

Sanjiv Mehta — Chief Executive Officer & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Amit Sachdeva from HSBC. Please go ahead.

Amit Sachdeva — HSBC — Analyst

Hi, good evening. Thank you so much for taking my questions. Congratulation on very good set of numbers. Sir my question is on the basic makeup and skin care, part of the portfolio, and I allude to also that you are working with channels of the future and e-commerce being a clear focus. Could you give us 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 of challenge because it opens up path [Phonetic] of new entrants coming to 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 place still evolving and if I may say that there is some gap there. How do you read the skincare 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 Director, Finance & IT and Chief Financial Officer

Yes. So performance in, if I just break down into few components of beauty category you spoke about. Let me start with hair care. It’s an excellent performance for last several years now and several quarter where we are very full on portfolio across different price points and different formats and different pack sizes. And be it the premium end or hair care of Dove or TRESemme that has grown well or for that matter, premium end in ayurveda greens like Indulekha that has grown well. We had called out that of a market share gains are having one of the best in last decade, what we have in hair care. So if you talk about beauty categories, hair has done extremely well and the kind of fortunate development we have done, the kind of market development we have done over here is really leading 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 had spoken about that, we have our range which we have launched, be it the premium product of Dove or for that matter our range in this quarter also under Love Beauty and Planet, which is our B2C 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 to 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 give it up.

Coming to skincare, again Ponds has done extremely well. Our performance in there and we have seen our business coming in skin care pretty strong, good growths in the portfolio. There are parts within skin care, we yet have to see full resugents like Gal we had called out. There were elements of discretionary categories. At the end of the day with so much amount of kitchen inflation happening at consumers end, there is a clear amount of priority a consumer today gives to kitchen items and essential items. And hence to some extent, discretionary categories has taken a beating in where the market growth of these categories have come off in the last, I would say last three to four 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 is some amount of relief in the input cost inflation and the kitchen inflation should coming — 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 it is one area in the country, which has seen highest number of bite of inflation is in rural areas. And that was the point that we were articulating earlier, where you have high inflation happening that that’s the segment of the population which end up seeing more impact. But if I just take a step back, skincare is a category which is still as a category under penetrated. There are many products within skincare where the penetration levels are very low from 10 percentage 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 in skin and I quoted many examples as I was alluding today from serums to multiple area, highlighting mask on face. There are many things that we’ve launched in skin care, so portfolio is evolving and so as brands within that portfolio which are evolving. So this is the space which in our view for years to come, we would keep doing penetration and market development and keep getting growth.

Sanjiv Mehta — Chief Executive Officer & Managing Director

I’ll just give a bit more flesh to it. Some very valid question you have raised is, if I have to peer ahead while all the categories in which we operate have got massive headroom to grow, one of the fastest growing markets would be beauty and well-being segment of BPC, which is hair care, skin care and all. So the simple reason that the per capita consumption is still very low and as the country progresses, you would see a massive explosion. The second is, you are 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 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 are 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 mass feed 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 thrust. So there’ll be newer brands, there’ll be newer formats and we will — I am absolutely clear, we will build on our leadership and not see the leadership.

Amit Sachdeva — HSBC — Analyst

Sure. That’s extremely helpful, Sanjiv. And I just wanted to ask that do you need a newer brand other than Ponds and Gal just to…

Sanjiv Mehta — Chief Executive Officer & Managing Director

We have.

Amit Sachdeva — HSBC — Analyst

Although Lakme is coming in bits and pieces, but…

Sanjiv Mehta — Chief Executive Officer & Managing Director

There would be a need for more brands and you will see the space evolving, because a brand cannot be everything for everyone.

Amit Sachdeva — HSBC — Analyst

Great. Thank you so much for the detailed answers. I really appreciate and I’ve taken a lot of time and I’ll probably come back in the queue. Thank you.

Sanjiv Mehta — Chief Executive Officer & Managing Director

It was a very good question. Thank you.

Operator

Thank you. The next question is from the line of Kunal Vora from BNP Paribas. Please go ahead.

Kunal Vora — BNP Paribas — Analyst

Yes. Thanks for the opportunity and congrats for the great quarter. My question similar to last one. In your annual report, you have said that almost 30% of sales from Lakme come through digital channels. That’s a large number. Can you help us understand this and would this be entirely B2C through e-commerce or even B2B sales would be a part of that and Shikhar sales would be a part of that 30% for Lakme?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thanks for the question, Kunal. So Lakme has highest number of Instagram followers 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 — they are seeing more than 30 percentage of the turnover which comes from e-commerce pure play, Amazon, Flipkart, Nykaa equivalent. Lakme also has its own B2C site, it’s own site and we get 2 million unique visitors every month on that site. So it’s again basically a platform for us apart from pure play e-commerce, we drive sales to Lakme’s own B2C website and that’s what by and large comprise the 30 percentage digital sale for Lakme that we spoke about. As I mentioned because of the digital footprint of the brand, we were to try that. I hope that answers the question.

Kunal Vora — BNP Paribas — Analyst

Sure. Yes, On the B2C website point, like you mentioned that for premium brands, you have your own website and how about app like, are you also looking to have your own apps for that and can you help us understand your thoughts on prospects of your own B2C platform and how you’re looking to do the fulfillment?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Yes. So there are four different brands where we have our own B2C website and we keep adding where it is relevant and consumers need it, be it Lakme where we have, be it dermology color we have, with Love Beauty and Planet. So wherever relevant, or Indulekha for that matter, wherever relevant where we want to give messaging, product knowledge and of course sales and where consumers are engaged in a very different way and if relevant, we will have our B2C website, to that a 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’ll see more B2C website than you see an app 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 all our products available. If they go to 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 speak, we will have our products fully available there or for that matter they find convenience of both content and product availability through our own B2C website, we make them available as well. So all depends upon where shopper wants to go to get content and get service.

Kunal Vora — BNP Paribas — Analyst

Sure. I mean, what’s the kind of potential you see from this and how are you looking at doing a fulfillment part? I mean are you looking to get into competition with e-commerce? Or do you think that we would get small scale uplift?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

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 product, market them and then fulfill the needs of the consumers. There are various channels and vehicles to ensure that the brilliant [Phonetic] products that we make more importantly what consumers want we are able to reach them. Now if they — 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 model trade, or 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 convenient to go and shop. And as I mentioned that we still believe in potential — it will remain a dominant channel.

Equally for that matter stock keeping, be it CMC, Cash and Carry, be it wholesales within GT or be it eB2B player, 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 our priority always is 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.

Kunal Vora — BNP Paribas — Analyst

Understood. That’s it from my side. Thanks a lot for the detail answer.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thanks Kunal.

Operator

Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.

Harit Kapoor — Investec — Analyst

Yes, hi, good evening. So I do have two questions. The first is on the COVID base impact, so in categories like Ice cream, color cosmetics possibly even in Home Care to some extent, you would have had a positive impact of the base, also probably a negative impact of the hygiene category, just wanted to understand, for this quarter, my assumption is that your impact would be net positive. Do we expect — so firstly is that understanding correct and secondly, do we now have a normalized base from quarter two across most categories and it becomes a little easier to kind of judge the growth there?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

So everything else being equal, yes, you’re right we had COVID wave one, June quarter last year, and COVID wave two the year prior and over last two years two June quarters have got impacted and hence the growth that we have in this quarter is on the base of June quarter last year, where we — you are right the health portfolio we have seen moderation in consumption of those products. I expect from September quarter onwards, I think it’s all in the base. But one can never be very sure that a different dynamics of pricing and different dynamics of category growth and we will see in times to come but there is no major fall out if I see next few quarters from a base adjustment perspective.

Harit Kapoor — Investec — Analyst

Got it. So this quarter it’s a net positive is what you are saying?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Correct.

Harit Kapoor — Investec — Analyst

And the second question is on the grammage impact on UVG [Phonetic]. You have been calling that out in the earlier quarters. Just wanted to know what’s the kind of net negative impact of UVG due to the grammage [Phonetic]?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

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

Harit Kapoor — Investec — Analyst

2% to 3%. Okay.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

And what happened Harit even this quarter, June quarter with significant amount of inflation, the conversation that we had in price point impacts and the fill levels etc that is absolutely relevant and there is a 2% to 3% impact of volume on the price point impact, which is, as we had quoted earlier is 30 percentage is our part of the portfolio, price point impacts.

Harit Kapoor — Investec — Analyst

And just to follow-up on that is, do we — incrementally given that we see commodities kind of either stabilize or come off, any incremental change in pricing, would that still be a mix of price in grammage or what you’re putting into the market now or it’s more pricing than grammage, or it’s still a mix?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Yes, Harit, all the reference would be, we should not make palm oil as a headline commodity to make assumption across the portfolio of commodities. So its one of the commodities and there are multiple other commodities which are either at historical high levels in terms of inflation or they are further inflating as we speak. So, but 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 palm for that matter, we will again restore the price value equation where we need to. The point which I mentioned earlier, in the first place for many of this price point impact, we have not increased pricing because when — yes to the extent we could, I’m saying reduce grammage we have, but to the point beyond which you cannot, if a sachet of shampoo has to give a hair wash for a lady and you don’t want to ensure that amount of shampoo is left in the sachet, for that matter if a INR2 Horlicks sachet has to give a cup of Horlicks, there is no way, you 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 impact.

So we have not fully priced all inflation that has happened in price point impact. So hopefully when commodity comes off the — the unit economics of that portfolio in many parts will get restored. And, but as needed, where relevant, we will be restore back value to consumer. At any point in time, we will be competitive with our offerings and price value equation to our consumer.

Harit Kapoor — Investec — Analyst

Got it. That’s it from me. Thank you and all the best.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thanks, Harit.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Yes, hi, good evening. Thanks for the opportunity. Indeed congratulations for the good set of numbers.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thanks Shirish.

Shirish Pardeshi — Centrum Broking — Analyst

I just wanted to understand, Ritesh, if you can help me, I am 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, soap — soaps and detergent is a big portfolio for us. So is that the growth — volume growth, which is driven more by the down trading which we have seen people would have downed it to maybe from Rin to detergent or say Wheel, is that understanding correct? Or the growth 6% what we have got is across all the three segments?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Yes. So the growth that we have, volume growth, you are right, it’s across the segment. So we have pretty comprehensive volume growth performance across Beauty & Personal Care, Home Care and Foods and Refreshment. So, it is absolutely broad based. And soap as a category, we have seen much higher impact in terms of — if I talk about market to start with, soap as a category has seen much higher inflation and extremely unprecedented level of inflation and which has had an impact on overall market category volume which have declined.

When Sanjiv 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 the sheer amount of inflation which has happened. What we are seeing is there are two different behaviors, downgrading and downtrading. Downtrading is where a consumer who is buying the larger pack buy smaller pack. And hence that’s downtrading where smaller amount of volume gets consumed and gets sold in the period and consumers do tighted consumption in that time, and that’s downtrading. We have not seen many examples of downgrading, where a consumer goes down the price here. 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 business growth. So we have seen premium portfolio growing. We live in India, which is living in India 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 over index 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 the benefit of having a business like HUL had, 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 — Centrum Broking — Analyst

That’s really helpful, Ritesh. Just one last question. Referring to Sanjiv’s comment on the HFD, we didn’t see that last two 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 one year, what is the price-led growth and volume-led growth and where do you think, I mean, we have invested significantly, but the sampling what we have done is — there is some recovery we are seeing in terms of conversion and activation?

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Yes. So there are three, four of parts Shirish to your question, let me just go one by one. First, let me talk about market. I’m not talking [Indecipherable], I’m talking market for HFD.

Shirish Pardeshi — Centrum Broking — Analyst

Sure.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

So HFD market, it is one of the categories which you’ve seen is a discretionary category. I quoted earlier the amount of kitchen inflation that consumers are facing. In times 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 was quoting an example, if a cup of Horlicks, if I now quote example of Hindustan Unilever, 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 significant amount of increase of the cup of Horlicks, more because of the cost of milk 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 option of nutrition and now schools have opened up. But at the end of the day, 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 micro nutrient 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 tremendous headroom for growth and which is why we are doing one than thing, be it expanding portfolio with plus range as we spoke about. Or for that matter doing home to home sampling and doing market development or launching and activating INR2, INR5 price point to give more access price packs to consumers come into category or for that matter launching poly packs and ensuring we are able to give more — good value equation to consumer. So lots of those actions we have deployed to ensure that we are able to build on penetration and do market development of the category.

We did some very good job in terms of giving strong foundation to category in last two years since we acquired the business of driving extremely good savings across the business of Health & Food Drinks, be it supply chain savings or synergy which Hindustan Unilever on overhead 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 example we had quoted out was exactly that that we’ve invested in the 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 last two years time, and we are trying to build the category and these actions, they don’t yield results in short-term and we have seen the way we have done for health care, the way we have done for laundry, it takes time for us to build categories and improve penetration and that’s exactly what our strategy is also with health food drinks.

Shirish Pardeshi — Centrum Broking — Analyst

That’s really helpful Ritesh, and thank you and all the best to you.

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

Thank you, Shirish.

A. Ravishankar — Group Finance Controller and Head of Investor Relations

We will now take up few questions from the web. I’ll start with a few questions that Richard has asked. Richard from JM Financials. 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 Director, Finance & IT and Chief Financial Officer

So F&R margins, Richard, you see, it’s down 200 bps year-on-year and there are two elements. First, we have invested more in A&P, one of the example I was quoting to Shirish earlier that we have invested in multiple categories within F&R, our yield investments have been stepped up to drive growth and to drive competitiveness, so that’s one and that’s one reason why margins lower year-on-year. And second is also for this quarter impact of mix. We have seen very stellar growth as we called out in ice cream and because of that stellar growth of ice cream and ice cream margins as compared to margins of rest of the F&R portfolio that mix impact has also had an impact in the quarter for F&R.

A. Ravishankar — Group Finance Controller and Head of Investor Relations

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

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

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 been impact in June of floods in Assam. We’ll just see how balance as weather situation improves, how overall production pans out and we will have a good sense in next month or two. 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 tea be it Taaza, at the mass end or a premium Taj Mahal at other 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 steps price increases when tea inflated tremendously and — but as tea market has come up, we have done equal job of also ensuring that the price value equation remains intact and remains competitive for our consumers. So we will need a set of actions that we have done at Taaza is exactly in line with that. It will happen, but there were certain players when the tea commodities was at peak, we did see that 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, shares we have gained during this period. So that would be our key 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 potentially now.

A. Ravishankar — Group Finance Controller and Head of Investor Relations

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

Ritesh Tiwari — Executive Director, Finance & IT and Chief Financial Officer

There are two drivers Latika in terms of employee costs, when you look at our current quarter. As you have seen there year-on-year, overall employee cost has come down and two experience — two 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 in the peak of wave two and of course those expenses that’s what we don’t need to incur today, as situation is much better in the country. So that is one reason why there is a cost in the base, which has not got incurred currently and hence year-on-year benefit. And second is growth leverage. With 19% growth that we have for all fixed cost, everything else being equal. It also gives a good amount of growth leverage. Those two elements put together, you see not only employee cost, 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 two elements which we have — which have worked in our favor, driven which is largely because of growth leverage and there are other individual elements as I called out.

A. Ravishankar — Group Finance Controller and Head of Investor Relations

There are 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 will be happy to address them. So with that, we have now come to the conclusion of this 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. 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 Director, Finance & IT and Chief Financial Officer

Thank you so much, everyone.

Operator

[Operator Closing Remarks]