Maintain 'buy' on ITC - TP Rs.260 - Geojit BNP Paribas Financial Services

- Company's operating and net earnings marginally surprised on the upside due to the non-cigarette business.

- Operating profit and PAT grew 20% yoy, in line with the trend of the previous quarters.

- FMCG and paper businesses surprised positively while the cigarette performance was marginally weaker as the impact of price hikes was not fully realized during the quarter.

- Despite the steep increase in cigarette prices post the excise duty hike, cigarette volumes were maintained in 1QFY13. Pricing and mix changes supported EBIT margin expansion of 140 bps yoy and growth of 21%.

- FMCG and paper businesses reported encouraging performance, supported by an improved mix.

- Maintain the positive stance on ITC on healthy earnings outlook. However, the stock could possibly consolidate at current levels in view of its sharp outperformance in the past six months.

- Improvement in cigarette volume, breakeven of the FMCG business and capacity additions in paper and FMCG will remain the drivers in the medium term.

- Risk to the positive stance is any legislative or taxation changes that may adversely impact volume and margin growth for the cigarette business.

Source : Equity Bulls

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