Hindustan Unilever Boosts Capex to 3% of Turnover to Fuel High-Growth Expansion

Hindustan Unilever Ltd. (HUL) has announced a strategic shift in its capital allocation, raising its productive capital expenditure (capex) to 3% of turnover, up from approximately 2%. The move is designed to accelerate growth through capacity expansion and targeted entry into emerging consumer categories. This decision, unveiled during the company's recent Capital Markets Day, underscores a broader effort to reshape its portfolio while maintaining a focus on 100% cash conversion and a medium-term EBITDA margin range of 22% to 24%.

The company’s strategy centers on a "fewer, bigger bets" approach, moving away from broad-based consolidation toward high-growth segments where it can leverage its existing distribution and brand power. HUL has identified several key areas for potential expansion, including male grooming, masstige skincare, fragrances, vitamins, minerals, healthy snacking, protein, hydration, and functional deodorants. This pivot follows a period of significant portfolio restructuring, which included the divestment of the Pureit water purification business, the demerger of its ice cream unit, and the sale of its stake in Nutritionalab.

HUL’s decision to increase capex is part of a disciplined capital allocation framework that balances business investment with shareholder returns. According to the company's investor presentation, over 75% of its capex in the last five years was directed toward growth and savings initiatives. Under the new plan, this proportion is expected to rise to more than 85%. The company is targeting volume-led growth through four primary levers: driving greater consumption, accelerating premiumisation, bringing more consumers into existing categories, and expanding into new, high-growth spaces.

To ensure these investments yield returns, HUL has implemented a rigorous three-filter assessment process for all new category entries. The company evaluates opportunities based on its "right to win," the size of the potential profit pool, and the sustainability of growth. This methodology is intended to prevent the pursuit of scale for its own sake, focusing instead on areas where HUL’s operational capabilities and market reach can create a distinct competitive advantage. The company noted that its premium brands currently receive twice the investment of its mass-market portfolio, with digital channels accounting for over 60% of its media spending.

Acquisitions remain a central pillar of HUL’s growth strategy, though the company is increasingly favoring "bolt-on" deals that allow for rapid integration into its existing ecosystem. Recent transactions, such as the acquisition of a 90.5% stake in the skincare brand Minimalist in 2025 for approximately ₹2,995 crore, illustrate this focus. Minimalist, which operated in the fast-growing premium beauty segment, has seen its annual revenue run rate double since the acquisition, now exceeding ₹900 crore. Similarly, HUL took full ownership of the health and wellness brand OZiva in FY26, a brand that had previously grown fourfold over a three-year period.

This acquisition strategy is balanced by a willingness to divest assets that no longer align with the company’s long-term priorities. The exit from Nutritionalab, for instance, provided a return of more than four times the initial investment made in 2023. By simultaneously rotating its portfolio—acquiring high-growth, smaller businesses while shedding non-core assets—HUL aims to maintain its financial flexibility. The company’s management emphasized that these moves are intended to sharpen the focus on segments that offer superior growth trajectories compared to traditional FMCG categories.

The strategic pivot comes against the backdrop of a robust financial performance in the first quarter of fiscal year 2027. HUL reported a 9.8% year-on-year increase in total income to ₹17,529 crore, with underlying sales growth reaching 10%, the highest level in 13 quarters. Underlying volume growth stood at 5%, while EBITDA rose 8% to ₹3,947 crore, maintaining a margin of 23%. Although reported net profit saw a 2% decline to ₹2,680 crore, this was largely attributed to a one-off tax credit in the corresponding quarter of the previous year.

Segment-wise, the Beauty & Wellbeing division has become a significant growth engine, generating ₹14,991 crore in revenue for FY26 with 6% underlying sales growth. The Home Care segment also showed strength, with revenue rising to ₹6,554 crore. By focusing on these high-growth segments, HUL is positioning itself to capture shifting consumer preferences in India. The company’s ability to scale these smaller, science-led or wellness-focused brands using its massive distribution network remains the primary mechanism for its future growth, as it seeks to navigate an increasingly competitive FMCG landscape.

Looking ahead, HUL’s success will depend on its ability to integrate new acquisitions effectively while maintaining the momentum of its core business. The company has not provided a specific timeline for the next wave of acquisitions, but its stated intent to enter new spaces through a combination of brand extensions, Unilever global brands, and bolt-on deals suggests a continuous search for opportunities. The primary challenge will be ensuring that these smaller, high-growth brands do not lose their agility or consumer appeal as they are absorbed into HUL’s larger operational structure.

Investors will likely monitor the company’s ability to maintain its 22%-24% EBITDA margin target while simultaneously ramping up capex. The effectiveness of the three-filter assessment process will be tested as HUL enters more specialized categories like male grooming and functional nutrition, where competition from agile, digital-first startups is intense. The company’s commitment to a "fewer, bigger bets" strategy indicates a long-term shift toward quality of growth over sheer volume, a transition that will define its performance in the coming fiscal years.