Upgrade to Buy. With better-than-expected volume growth in cigarettes (flat vs. earlier expected -4%) and better performance by the other segments, we raise our FY12e net profit 26% and upgrade the stock to Buy from Sell with a target of `205 (`126 earlier).

n       Strong revenue growth. The company reported revenue growth of 16.5% yoy. Cigarettes revenue growth came in at 15%, with volume growth at ~1%. Revenue growth in Other FMCG and Hotels were 22% and 21% respectively. Agribusiness and Paper reported revenue growth of 22% and 17% respectively.

n       EBITDA margin slightly lower yoy. EBITDA margin was 120bp lower yoy on higher 'other expenditure'. EBIT margins of all segments, excl. Agribusiness, improved. Net profit growth stands at 23% due to higher 'other income' and lower taxes.

n       Change in estimates. To factor in the better-than-expected volume growth in cigarettes and the improving performance in the other segments, we raise our net profit estimates for FY11 and FY12 by 25% and 26% respectively. Also, we introduce FY13 estimates and expect earnings growth of 20%.

n       Valuation and risks. We value the stock at target of `205 (earlier `126), based on PE of 26x FY12e earnings. Our target PE is at a 50% premium to the 12-month forward Nifty PE, against the 30% average premium in the past five years. With higher-than-expected cigarette volumes and the better performance of the other segments, we expect the premium to expand. Risks: Higher raw material prices and tax hikes on cigarettes.