HUL increases advertising expenditure, raises outlay by Rs 679 crore

31 Oct 2023 , 12:35 PM

Hindustan Unilever (HUL) upped its advertising budget in the July- September quarter by ₹679 crore. After nine quarters, it brings it back to March 2021 quarter levels of 11–12% of sales, which HUL, the biggest advertiser in India, now wants to maintain going ahead because of heightened competitive intensity, according to chief financial officer Ritesh Tiwari.

Over the previous nine months, the war in Ukraine and inflation have agitated markets. Big businesses like Britannia and HUL have mentioned the threat posed by direct-to-consumer brands that sell mostly online as well as resurfacing small and regional firms that left the market during the height of inflation.

During the September quarter earnings call, Tiwari informed analysts, ‘When you look at tea or detergent bars, smaller players are growing significantly ahead of large players.’ Additionally, there has been a noticeable uptick in media attention. In comparison to the same time last year, aggregate media deployment in our category climbed by more than 20%.’

In the September quarter, HUL spent Rs 1,720 crore on advertising and promotion costs, a 65% increase over the previous year. For the largest FMCG company in the nation, this is one of the biggest sequential rises in advertising spend for a minimum of 18 quarters. HUL recorded revenue from product sales of Rs 15,027 crore during the most recent quarter.

According to Tiwari, the business has been progressively raising its advertising expenditures over the past few quarters, rising from 7.2% to 8%, 8.8%, 9.9%, and 11.4% in the September quarter, to nearly its pre-inflation benchmark levels. ‘And the way I see, this number will remain firm, given the amount of competitive intensity,’ he stated.

In the September quarter, HUL’s gross margin increased 700 basis points year over year to 52%, a number that is also back to pre-inflationary levels. 0.01 percentage points make up a basis point. HUL last reported a proportion of advertising and promotional costs to sales of more than 11% in the quarter ending in March 2021.

In order to pass on the savings from decreased input costs, the firm further reduced prices in both fabric wash and household care during the most recent quarter. At the same time, Tiwari added, advertising expenditures in these categories were increased in order to maintain the company’s competitive position.

‘In the September quarter, contribution margins increased year over year in all segments. ‘Further margin improvement will be driven by product cost-led initiatives and commodity price normalization,’ Havells India chairman and managing director Anil Rai Gupta had told analysts during the company’s calls for earnings. He indicated that the company will continue to spend money on advertisements.

During the first nine months of current fiscal year, Nestle India increased its advertising and sales promotion expenses by 1.3 times the levels of 2017, compared to 1.5 times in fiscal 2021 and 1.4 times in fiscal 2022, the company stated in an investor presentation.

The fiscal year of the company is determined by the calendar year.

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