First-half fiscal 2016 earnings for GCPL have come in at INR 5 billion, in line with our INR 11 billion estimate for the year. Its EBIT margin also inched closer to our full-year estimate of 15.6%, at 15.5% for the first half. This is commendable, despite sales growth lagging our expectations as the company continues to pass on benefits from lower commodity costs to consumers in the form of discounts, directly affecting its pricing growth. As EBIT-margin expansion is the closest indicator of the impact on our discounted cash flow valuation for the company, our earnings forecast remains unchanged. We are however, increasing our fair value estimate for GCPL by 7.5% to INR 1225 per share as we adjust our intrinsic value to reflect the time value of money since our last update in January.
During the second quarter, organic constant currency sales grew 12% (6% volume; 3% price growth), with GCPL's largest markets of India and Indonesia (after adjusting for the food division spin-off) growing 10% each. These two markets together accounted for 71% of 2015 sales. While sales have lagged our forecast, this is in a deflationary environment, and it is hard to justify price increases in the face of intensifying local competition. We remain hopeful about the earnings capability of this narrow-moat consumer firm. The company continues to spend adequately behind its brands, spending 11.5% of its sales on average on advertising. Additionally, its core product categories of hair color (up 17% year over year) and home insecticides (up 13%) continue to grow ahead of its lowest-margin, highest-competition category of soaps (up 3%). This confirms our hypothesis of a long-term margin expansion for the firm, with a gradual shift in product mix towards higher-margin categories globally. We hold our positive outlook on the company as it continues to expand distribution of its high-margin categories in India and abroad. At current prices, however, we believe the stock is fairly valued.
