Cigarette and agri business earnings exceeded expectations, however in FMCG, hotel and paper business, performance was below expectation.
For the quarter, operating EBIT was Rs12.8 billion, a growth of 14% y-o-y and net earnings were Rs8.8 billion, a growth of 17% y-o-y, in line with our expectation.
Although tax changes in respect of excise duty have positively surprised (considering pricing has seen a significant increase in the recent past); volume, product mix and competitive challenges, in our opinion, continue to remain high.
We do not expect significant upside to our revised EBIT growth expectation of 16% for FY10-11.
Hotel business could see improvement in line with the improved economic outlook but on an aggregate basis we expect overall trends to remain in line with our previous expectations.
The stock is trading above its recent valuation averages and at a fair premium to international peers. This in our opinion has, to a large extent, factored in the benign excise duty move of the government.
VAT changes and GST implementation would be other key tax milestones to watch. Our target price for March 2010 is Rs240, based on the sum-of-the-parts approach and implies a forward P/E multiple of 20x and an EV/EBIDTA multiple of 13x.
We retain our SELL recommendation since the stock offers little upside from current levels.