MOSL: GODREJ CONSUMER (Neutral)-Soaps drives India biz growth-Indonesia continues to underperform

​(GCPL IN, Mkt Cap USD9.9b, CMP INR967, TP INR1015, 5% Upside, Neutral)

• Godrej Consumer's (GCPL) 2QFY18 consolidated net sales grew 6% YoY to INR25b. Consol. EBITDA increased by 14.7% YoY (est. of +19%) to INR5.3b and adj. PAT by 13.8% YoY (est. of +18.3%) to INR3.7b. Consolidated comparable (adjusted for GST accounting effect) constant currency sales grew 10% YoY, with India business posting 11% growth.
• India branded business volumes grew 10% YoY. All three key domestic segments reported YoY sales growth. Household insecticides business reported comparable 4% YoY sales growth; Soaps revenue grew by 26% YoY (strong double-digit volume growth); and Hair color business sales were up by 4% YoY.
• Gross margin expanded 100bp YoY to 56.1%. Lower ad spends (-10bp YoY to 8.5% of sales) and other expenses (-80bp YoY to 15.7%) were partially offset by higher staff costs (+30bp YoY to 10.5%). Thus, EBITDA margin expanded 160bp YoY to 21.3%.
• Concall highlights: 1) Post GST, the trade channels are getting back to normal, and consumer off-take has improved. By end-3QFY18, management expects wholesale to be completely back on track. 2) GCPL was another company after Marico, Dabur and HUL to mention that rural growth was higher than urban in 2QFY18.