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CESC
Earnings stable
Q3FY11 PAT largely in line
CESC reported Q3FY11 PAT of INR 1.10 bn, vis-à-vis INR 1.02 bn in Q3FY10,
which was slightly lower than our estimate of INR 1.18 bn. Earnings were
impacted by higher–than-expected other expenses. However, being a regulated
RoE business, on a full year basis we expect the profit to be in line with our INR
4.85 bn estimate as adjustments for costs are made in the fourth quarter.
Operational highlights and updates
• The blended PLF of 1,225 MW of operational capacities was 83.1% against
92.6% in Q3FY10 (excluding the peaking plant) despite generation jumping
14% to 2.1 bn units. This is on account of new capacity of 250 MW being
added in Q1FY11 at Budge Budge. CESC thus had excess capacity in winter
months, but was unable to sell it in the open market due to low prices.
• CESC has completed the bidding process for equipment ordering for 600
MW. L1 bidders are Shanghai Electric (Chinese) for BTG and Punj Lloyd for
BoP, same as in its Dhariwal project. The final order placement is expected
in two months on receiving the regulator’s final approval.
• Management indicated that CESC is in advanced discussions for signing
long-term PPAs for 200 MW from the Dhariwal project on bilateral basis. The
company is targeting signing 300-400 MW of this 600 MW project via such
long-term PPAs.
Spencers Retail continues to report store level profits
Spencers Retail (Spencers) is reporting a positive store level EBITDA/sq ft of INR
20, while revenue/sq ft improved to INR 1,048 in December 2010 (from INR
854/sq ft in December 2009). Current losses have a run rate of INR 110-120
mn/month compared to ~ INR 160-180 mn/month in Q3FY10.
Outlook and valuations: Steady growth; maintain ‘BUY’
We have increased our assumption of Ke to 14% due to rise in our risk-free rate
to 8%. As a result, our SOTP valuation has been revised to INR 446/share (from
INR 497/share). We maintain ‘BUY’ recommendation on the stock and rate it
‘Sector Outperformer’ on relative return basis.
Company Description
CESC is an RPG Group company. It was commissioned in 1899 and since then the
company has been offering power to consumers in its Kolkata license area which has
expanded from 5.64 sq miles to 567 sq km over the years. The number of consumers
has grown from 6,000 to 2.1 mn over time. CESC has total installed capacity of 1,225
MW from four generating units at Budge Budge (750 MW), Southern (135 MW), Titagarh
(240 MW) and New Cossipore (100 MW).
Investment Theme
CESC has a huge expansion plan and intends to increase its capacity to more than 1,825
MW, in its license area. The company has been allotted 110 MT of coal block using which
it plans setup a power plant. CESC is also seeking growth opportunities in other parts of
India in the power space by developing 600 MW power plant in Maharashtra and is also
looking at opportunities to develop ~3,000 MW in Bihar, Jharkhand and Orissa. The
company has merged Spencer’s retail with itself and plans to unlock value at appropriate
time. CESC has also bid for the Patna and Muzaffarpur distribution franchisee business.
Key Risks
Regulated returns
Our earnings estimates assume incentives on account of PLF and other normative
parameters under regulatory norm; if the company fails to earn the same, then RoE
would be lower and, hence, impact valuations.
Delay in projects
Escalation in project costs, delay in commissioning of generation projects, and long
gestation periods could impact profitability, if delays are not compensated through
tariffs.
Further cash outflow in Spencers
We have factored INR 3 bn of cash outflow in Spencer’s over FY11 and FY12. However,
equity infusion at a greater than anticipated level, due to higher losses, or due to delay
in divestment, pose risk to our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CESC
Earnings stable
Q3FY11 PAT largely in line
CESC reported Q3FY11 PAT of INR 1.10 bn, vis-à-vis INR 1.02 bn in Q3FY10,
which was slightly lower than our estimate of INR 1.18 bn. Earnings were
impacted by higher–than-expected other expenses. However, being a regulated
RoE business, on a full year basis we expect the profit to be in line with our INR
4.85 bn estimate as adjustments for costs are made in the fourth quarter.
Operational highlights and updates
• The blended PLF of 1,225 MW of operational capacities was 83.1% against
92.6% in Q3FY10 (excluding the peaking plant) despite generation jumping
14% to 2.1 bn units. This is on account of new capacity of 250 MW being
added in Q1FY11 at Budge Budge. CESC thus had excess capacity in winter
months, but was unable to sell it in the open market due to low prices.
• CESC has completed the bidding process for equipment ordering for 600
MW. L1 bidders are Shanghai Electric (Chinese) for BTG and Punj Lloyd for
BoP, same as in its Dhariwal project. The final order placement is expected
in two months on receiving the regulator’s final approval.
• Management indicated that CESC is in advanced discussions for signing
long-term PPAs for 200 MW from the Dhariwal project on bilateral basis. The
company is targeting signing 300-400 MW of this 600 MW project via such
long-term PPAs.
Spencers Retail continues to report store level profits
Spencers Retail (Spencers) is reporting a positive store level EBITDA/sq ft of INR
20, while revenue/sq ft improved to INR 1,048 in December 2010 (from INR
854/sq ft in December 2009). Current losses have a run rate of INR 110-120
mn/month compared to ~ INR 160-180 mn/month in Q3FY10.
Outlook and valuations: Steady growth; maintain ‘BUY’
We have increased our assumption of Ke to 14% due to rise in our risk-free rate
to 8%. As a result, our SOTP valuation has been revised to INR 446/share (from
INR 497/share). We maintain ‘BUY’ recommendation on the stock and rate it
‘Sector Outperformer’ on relative return basis.
Company Description
CESC is an RPG Group company. It was commissioned in 1899 and since then the
company has been offering power to consumers in its Kolkata license area which has
expanded from 5.64 sq miles to 567 sq km over the years. The number of consumers
has grown from 6,000 to 2.1 mn over time. CESC has total installed capacity of 1,225
MW from four generating units at Budge Budge (750 MW), Southern (135 MW), Titagarh
(240 MW) and New Cossipore (100 MW).
Investment Theme
CESC has a huge expansion plan and intends to increase its capacity to more than 1,825
MW, in its license area. The company has been allotted 110 MT of coal block using which
it plans setup a power plant. CESC is also seeking growth opportunities in other parts of
India in the power space by developing 600 MW power plant in Maharashtra and is also
looking at opportunities to develop ~3,000 MW in Bihar, Jharkhand and Orissa. The
company has merged Spencer’s retail with itself and plans to unlock value at appropriate
time. CESC has also bid for the Patna and Muzaffarpur distribution franchisee business.
Key Risks
Regulated returns
Our earnings estimates assume incentives on account of PLF and other normative
parameters under regulatory norm; if the company fails to earn the same, then RoE
would be lower and, hence, impact valuations.
Delay in projects
Escalation in project costs, delay in commissioning of generation projects, and long
gestation periods could impact profitability, if delays are not compensated through
tariffs.
Further cash outflow in Spencers
We have factored INR 3 bn of cash outflow in Spencer’s over FY11 and FY12. However,
equity infusion at a greater than anticipated level, due to higher losses, or due to delay
in divestment, pose risk to our estimates.
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