Sheghi Dangle shyly swept four bars of soap off the shop table into her shopping bag at the village market and her husband Bhau Hadkya Dangle dipped into the pocket of his well-worn shirt to pay for them.

A smile on his sun-baked face, the rice farmer from the village of Nihala, around 180 km from India's financial capital Mumbai, said he had taken what the shopkeeper gave him. His only specification was that the soap be cheap.

"What use is expensive soap to a poor farmer like me?" he asked. "I just need something to wash the dirt off."

That attitude is worrisome for Hindustan Lever Ltd, India's largest consumer goods company.

HLL, which earns some 60 per cent of its revenue and 80 per cent of its income from home and personal-care products, is seeing its brands jostle for shelf space everywhere with lower-priced competition, despite an aggressive, highly efficient marketing network.

The company, which derives half of its income from such products from rural India, also faces slack demand after poor monsoons in recent years dampened demand.

It is responding to slower growth by focusing on top brands, cutting prices and banking on overall growth in personal incomes.

"The overall HLL growth story has hit a speed-breaker but is by no means over," Nikhil Vora, analyst with ASK Raymond James, said.

The arm of Anglo-Dutch Unilever Plc, whose roots go back more than 125 years, owns some of India's best-known brands, such as Lux and Lifebuoy soap, Fair & Lovely skin-lightening cream, detergents Surf, Excel and Wheel and Pepsodent toothpaste.

Responding to competition

HLL these days competes with home-grown firms like Nirma Ltd, Godrej Consumer Products, Marico Industries and the Indian units of multinationals such as Colgate-Palmolive and Procter & Gamble.

"People have become a lot more value conscious and smaller players are giving better value for money," said Rajesh Kothari, analyst with Khandwala Securities. "HLL, in the last two-three months, has been trying to follow the strategy of cutting prices."

HLL has cut prices of a few brands of detergent, toothpaste and shampoo by 13 to 25 per cent over the past five months, and introduced new aggressively priced packs.

"They were virtually boxed into a corner," Iyer said. "They have to pass on some economic value to the customer which they had not been doing for the past few years. Because of that they saw low-cost competition coming in."

HLL has a 39.2 per cent market share in detergents, where its closest competitor is Nirma with a distant 6.6 per cent share. In soaps it has a 59.1 per cent market share, followed by Nirma with 14.8 per cent.

Monsoons are key

The Indian economy, Asia's third-largest after Japan and China, depends heavily on monsoon rains as agriculture accounts for a quarter of gross domestic product and provides the livelihood of 70 per cent of the one-billion-plus population.

India's June-September monsoon arrived a week later than usual and is progressing well, but weather officials say it is too early to say how the rains will actually fare compared to the near-normal forecast.

"If we have a normal monsoon, things will definitely work well for HLL, there was a problem with spending last year," said Sridhar Iyer, analyst with B&K Securities. "Even a small improvement in the external environment will push growth."

HLL shares have jumped 26 per cent in the past four months, mainly on hopes the monsoons will lift demand but also on its price cuts. That movement compares with a rise of 18 per cent in the Bombay exchange's benchmark index.

This year to date, however, HLL shares have slipped 2.25 per cent versus a five percent rise in the index.

Focus on top brands

Like much of the sector, HLL's sales growth dipped to single digits in the past four years after double-digit numbers in most of the 1990s. It attributes this to increasing consumer spending on such things as mobile phones, education, leisure and travel and lower rural demand.

But the firm's operating margins improved with its focus on top brands since early 2001 and its phasing out of non-core businesses like seeds, animal feeds and adhesives.

Margins have grown from 21 per cent in the fourth quarter of 2000 to 24 per cent in the last quarter of 2002.

After the first quarter of 2003, however, HLL predicted there could be pressure on margins going forward. But it sees plenty of room for growth. Per capita consumption of fast-moving consumer products in India is still far lower than other countries.

In fabric wash, India's per capita consumption is 2.63 kg versus 4.71 in Thailand, 9.03 in Brazil and 13.9 in the United Kingdom. In personal wash, it is just 0.5 kg compared to 0.87 in Thailand and 1.46 in Brazil.

HLL also markets small sachets of premium shampoos and creams to make them accessible to low-income customers.

"We will compete with low-price competitors by playing to our strengths -- using our strongest brands backed by superior technology and the lowest cost supply chain," chairman M.S. Banga told the annual general meeting of shareholders this month.