New Delhi, July 20: Forecasting a nearly five per cent cut in gross margins for Hindustan Lever over the next three years, stock analyst Kotak Securities said in its latest report it expected the company to cut prices in almost all product categories due to low-priced competition. "We expect gross margins will decline to 32.5 per cent in 2005 versus 37.5 in 2002. Direct competition in some product categories suggests the required price cuts are significantly greater than what our expectation of gross margins suggests for HLL to effectively compete......we also believe adspends could fall as a proportion of sale," the analyst said in its report released last week.
Talking about competition, it cited the example of soap brand `Godrej No 1' from the Godrej Consumer Products Ltd stable, saying competition to HLL offers a better price-value equation.
Also, the report takes note of GCPL's expanding distribution in both upcountry and rural markets. "The company is adopting super-stockist and sub-stockist format to expand reach," it says about GCPL.
"GCPL's success with its fairness soap Fairglow is well documented. It now has another success (and we believe a significantly bigger one) in Godrej No 1," Kotak Securities noted, adding competition HLL is likely to heat up.
The HLL spokesperson was not available for comments.
Bureau Report