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CESC 4QFY11/FY11 numbers were in-line with estimates. Operating performance was impacted in 4Q as generation
was down 6% YoY, despite capacity addition of 250MW in Feb 10. This is given ~10% QoQ fall in demand (flat YoY).
Power exports stood at just 128MUs and were impacted by lower power exchange prices / higher fuel costs. Higher
operational other income boosted profits.
Projects under construction / development stands at 2.5GW (current installed capacity of 1.2GW) and major clearances
obtained / equipment orders placed for initial 1.2GW capacity. Possible equity funding stands at ~Rs30b, while
CESC has till date invested Rs5b. Part of the balance amount (~Rs10b) is planned to be raise through PE at Power
HOLDCO, contingent however on obtaining fuel linkages for 1.2GW Orissa project.
Spencer Retail is now embarking gradually on a growth path, post consolidation over the past few quarters and sales
area has increased 10% QoQ. Operational performance is also improving with same stores sales at Rs975/sq ft in
4QFY11, up 16% YoY. The company plans to add 0.3msf in FY12 (currently 0.95msf, 1.2msf by FY12E end), and
total cash losses in FY11 stood at Rs1.5b. Though the management plans to ramp-up the total are under operation
to 2.5msf over next 2 years, it is contingent on fund raising. While the cash losses in FY12 is expected to decline to
Rs1.1b, capex on new stores (0.3msf) is expected at Rs400m entailing cash outflow of Rs1.5b.
CESC trades ~8x PER and 0.9x P/BV on FY13E basis. Though Spencer Retail continues to be near term drag, we
believe that fund raising in both power vertical and retail could be key triggers for the stock. The scenario however
remains challenging. Maintain our Buy rating with TP of Rs439/sh.
Results in-line, operational other income boosts PAT:
During 4QFY11, CESC reported revenues of Rs8.8b (up 14% YoY), EBIDTA of
Rs2.5b (up 23% YoY) and net profit of Rs1.1b (up 12% YoY), in-line with our estimates.
For 4QFY11, the operational other income stood at Rs310m, higher than run-rate of
Rs150-160m of last 8 quarters. This is due to additional income from meter rentals,
higher fly ash sales, etc. For FY11, reported PAT stood at Rs4.9b (up 13% YoY) and
adjusting for prior period arrears of Rs200m (booked in 2QFY11), the net profit stood
at Rs4.7b, in-line with our estimate.
Fuel cost for CESC stood at average Rs1.63/unit in FY11, up from Rs1.37/unit in
FY10, given full impact of price hike by CIL in November, 2010 (on Grade A / B coal).
Management indicated that the recent price hike by CIL (February, 2011) would have
full impact in FY12, and average fuel cost could possibly go up by ~Rs0.2/unit to
Rs1.80/unit. CESC currently procures ~40% of its requirement from CIL.
Interest cost has been lower at Rs580m in 4Q, vs Rs690m in 3Q and Rs770m in 2Q,
as Budge Budge debt repayment has commenced.
Operating rates lower, as demand trend down QoQ; likely to improve in 1Q
Power generation stood at 1,823m units during 4QFY11, down 6% YoY despite addition
of 250MW Budge Budge in Feb 2010. Major plants reported decline in PLF, both on
YoY and QoQ basis. Average PLF for the quarter was 68%, as company took
maintenance shutdown for Budge Budge units for 10 days.
Lower operating rate is attributable to near flat load/demand in 4QFY11 YoY. Overall,
we calculate demand is down by ~10% QoQ. While the scenario looks perplexing, we
believe that this could be one-off and demand is likely to strengthen again in 1QFY12
due to on-going elections in West Bengal and thus, the operating rates would improve.
Despite lower load and higher available capacity, the export of power was muted at
~130MUs in 4QFY11 due to higher fuel cost (Rs1.63/unit) and lower demand during
off-peak hours. T&D losses declined to 13.0% during 4QFY11 as compared to 13.6%
in 3QFY11.
Update on projects under development, exploring fund raising options
2.5GW of generation projects are at advanced stages of development / have entered
the construction phase, with all initial clearances (water, environment, etc) and land
acquisition largely in place. These comprise of 600MW project each at Haldia and
Chandrapur and 1.3GW project in Orissa.
In addition, project pipeline stands at 3.3GW, comprising of (1) 1GW in Jharkhand,
with captive coal mine; land acquisition has just commenced, (2) 1GW in Bihar, where
land acquisition has just commenced, and (3) 1.3GW expansion in Haldia is in initial
stages with TOR approved recently.
Fuel linkages are available for Haldia and Chandrapur, while Orissa project has score
of 90 out of 100, as appraised by CEA and thus has higher chances for getting linkages
in next meeting of standing linkages committee (SLC) for 12th plan.
Additionally, CESC has invested 10% in Resources Gen, which is developing mines in
South Africa and potentially provides access to 2mtpa of coal. Phase-1 mine
development is expected to be completed by 2013, with production of 6mtpa.
Equipment order for Chandrapur project has been already placed, and international
competitive bidding (ICB) is completed for Halida project. West Bengal Electricity
Regulatory Commission (WBERC) has already accorded in-principal approval for the
project. In terms of project commissioning, Chandrapur project unit-1 is expected by
August 2013, Haldia Unit-1 in 2014 and Orissa in 2015.
CESC plans to raise Rs10b through PE deal in power HOLDCO and is contingent on
obtaining fuel linkages for Orissa power project. .
Spencer area under operation increased 11% QoQ, Same store revenues
up; Expansion plans to be reviewed in FY12
In 4QFY11, Spencer has added 0.1msf and increased its area under operation (up
11% QoQ and 6% YoY), to 0.95msf. Addition during the quarter has mainly come
from Hyper store where-in it added 3 stores. As on FY11 Spencer operated 210
Stores v/s 206stroes in 3QFY11 vs 215 stores as on FY10.
Over the past 18 months, Spencer has rationalized overall area under operations by
closure of small format Daily and Express stores, down 16% YoY to 158 stores. Given
non festive season, sales/Sq feet has gown down 6% QoQ to Rs987/sq feet in March
2011. However the sale/sq ft is up by 16% YoY. QoQ variation is owing to seasonality
impact (Durga pooja in 2Q, Diwali/festivals in 3Q, etc)
Currently, CESC plans to add 0.3msf of Retail area in FY12 and take total area under
operation to 1.2msf (vs 0.95msf as at Mar-11). Management expects cash losses in
Spencer at Rs1.1b in FY12E and capex on 0.3msf of new stores at Rs400m. Though
the company plans to ramp-up area under operation to 2.5msf over next 2 years, this
would be contingent on fund raising.
Valuations and view
We expect CESC to report standalone net profit of Rs4.9b in FY12E (up 3% YoY), Rs5b
in FY13E (up 2% YoY). The stock trades at PER of 7.9x FY12E and 7.8x FY13E on
standalone basis. Maintain Buy.
Company description
CESC, an RPG Group Company is one of the oldest
integrated power utilities in India with presence in mining,
generation, and distribution of power. Installed generation
capacity stands at 1.2GW and distribution network
encompasses 2.3m consumers in Kolkata and Howrah
region. 1.2GW of generation projects are under construction
and additional 4.3GW of projects are in pipeline. CESC
has presence in retail business "Spencer" which has
0.95msf area under operations.
Key investment positives
Assured return from existing generation / distribution
business provides steady cash flows (regulated profit
at Rs3b+ pa)
600MW project in Maharashtra has achieved financial
closure, equipment award, etc. Part capacity can be
retained on merchant basis, which would boost overall
project returns.
Consolidation and restructuring at Spencers has led to
reduction in operational losses to Rs1.5b in FY10, vs
Rs3.5b earlier. Further reduction in losses/value
unlocking opportunity is possible.
Project pipeline of 4GW provides growth opportunity
going forward.
Key investment risk
Continued losses at Spencer retail and funding through
standalone cashflows of CESC.
Fuel availability for Chandrapur project and partially
for Haldia project.
Recent development
Financial closure for Halida power project and ICB is
completed.
Spencer area under operation increased 11% QoQ to
0.95msf in 4QFY11.
Valuation and view
We expect CESC to report standalone net profit of
Rs4.9b in FY12E (up 3% YoY), Rs5b in FY13E (up
2% YoY).
The stock trades at PER of 7.9x FY12E and 7.8x
FY13E on standalone basis. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CESC 4QFY11/FY11 numbers were in-line with estimates. Operating performance was impacted in 4Q as generation
was down 6% YoY, despite capacity addition of 250MW in Feb 10. This is given ~10% QoQ fall in demand (flat YoY).
Power exports stood at just 128MUs and were impacted by lower power exchange prices / higher fuel costs. Higher
operational other income boosted profits.
Projects under construction / development stands at 2.5GW (current installed capacity of 1.2GW) and major clearances
obtained / equipment orders placed for initial 1.2GW capacity. Possible equity funding stands at ~Rs30b, while
CESC has till date invested Rs5b. Part of the balance amount (~Rs10b) is planned to be raise through PE at Power
HOLDCO, contingent however on obtaining fuel linkages for 1.2GW Orissa project.
Spencer Retail is now embarking gradually on a growth path, post consolidation over the past few quarters and sales
area has increased 10% QoQ. Operational performance is also improving with same stores sales at Rs975/sq ft in
4QFY11, up 16% YoY. The company plans to add 0.3msf in FY12 (currently 0.95msf, 1.2msf by FY12E end), and
total cash losses in FY11 stood at Rs1.5b. Though the management plans to ramp-up the total are under operation
to 2.5msf over next 2 years, it is contingent on fund raising. While the cash losses in FY12 is expected to decline to
Rs1.1b, capex on new stores (0.3msf) is expected at Rs400m entailing cash outflow of Rs1.5b.
CESC trades ~8x PER and 0.9x P/BV on FY13E basis. Though Spencer Retail continues to be near term drag, we
believe that fund raising in both power vertical and retail could be key triggers for the stock. The scenario however
remains challenging. Maintain our Buy rating with TP of Rs439/sh.
Results in-line, operational other income boosts PAT:
During 4QFY11, CESC reported revenues of Rs8.8b (up 14% YoY), EBIDTA of
Rs2.5b (up 23% YoY) and net profit of Rs1.1b (up 12% YoY), in-line with our estimates.
For 4QFY11, the operational other income stood at Rs310m, higher than run-rate of
Rs150-160m of last 8 quarters. This is due to additional income from meter rentals,
higher fly ash sales, etc. For FY11, reported PAT stood at Rs4.9b (up 13% YoY) and
adjusting for prior period arrears of Rs200m (booked in 2QFY11), the net profit stood
at Rs4.7b, in-line with our estimate.
Fuel cost for CESC stood at average Rs1.63/unit in FY11, up from Rs1.37/unit in
FY10, given full impact of price hike by CIL in November, 2010 (on Grade A / B coal).
Management indicated that the recent price hike by CIL (February, 2011) would have
full impact in FY12, and average fuel cost could possibly go up by ~Rs0.2/unit to
Rs1.80/unit. CESC currently procures ~40% of its requirement from CIL.
Interest cost has been lower at Rs580m in 4Q, vs Rs690m in 3Q and Rs770m in 2Q,
as Budge Budge debt repayment has commenced.
Operating rates lower, as demand trend down QoQ; likely to improve in 1Q
Power generation stood at 1,823m units during 4QFY11, down 6% YoY despite addition
of 250MW Budge Budge in Feb 2010. Major plants reported decline in PLF, both on
YoY and QoQ basis. Average PLF for the quarter was 68%, as company took
maintenance shutdown for Budge Budge units for 10 days.
Lower operating rate is attributable to near flat load/demand in 4QFY11 YoY. Overall,
we calculate demand is down by ~10% QoQ. While the scenario looks perplexing, we
believe that this could be one-off and demand is likely to strengthen again in 1QFY12
due to on-going elections in West Bengal and thus, the operating rates would improve.
Despite lower load and higher available capacity, the export of power was muted at
~130MUs in 4QFY11 due to higher fuel cost (Rs1.63/unit) and lower demand during
off-peak hours. T&D losses declined to 13.0% during 4QFY11 as compared to 13.6%
in 3QFY11.
Update on projects under development, exploring fund raising options
2.5GW of generation projects are at advanced stages of development / have entered
the construction phase, with all initial clearances (water, environment, etc) and land
acquisition largely in place. These comprise of 600MW project each at Haldia and
Chandrapur and 1.3GW project in Orissa.
In addition, project pipeline stands at 3.3GW, comprising of (1) 1GW in Jharkhand,
with captive coal mine; land acquisition has just commenced, (2) 1GW in Bihar, where
land acquisition has just commenced, and (3) 1.3GW expansion in Haldia is in initial
stages with TOR approved recently.
Fuel linkages are available for Haldia and Chandrapur, while Orissa project has score
of 90 out of 100, as appraised by CEA and thus has higher chances for getting linkages
in next meeting of standing linkages committee (SLC) for 12th plan.
Additionally, CESC has invested 10% in Resources Gen, which is developing mines in
South Africa and potentially provides access to 2mtpa of coal. Phase-1 mine
development is expected to be completed by 2013, with production of 6mtpa.
Equipment order for Chandrapur project has been already placed, and international
competitive bidding (ICB) is completed for Halida project. West Bengal Electricity
Regulatory Commission (WBERC) has already accorded in-principal approval for the
project. In terms of project commissioning, Chandrapur project unit-1 is expected by
August 2013, Haldia Unit-1 in 2014 and Orissa in 2015.
CESC plans to raise Rs10b through PE deal in power HOLDCO and is contingent on
obtaining fuel linkages for Orissa power project. .
Spencer area under operation increased 11% QoQ, Same store revenues
up; Expansion plans to be reviewed in FY12
In 4QFY11, Spencer has added 0.1msf and increased its area under operation (up
11% QoQ and 6% YoY), to 0.95msf. Addition during the quarter has mainly come
from Hyper store where-in it added 3 stores. As on FY11 Spencer operated 210
Stores v/s 206stroes in 3QFY11 vs 215 stores as on FY10.
Over the past 18 months, Spencer has rationalized overall area under operations by
closure of small format Daily and Express stores, down 16% YoY to 158 stores. Given
non festive season, sales/Sq feet has gown down 6% QoQ to Rs987/sq feet in March
2011. However the sale/sq ft is up by 16% YoY. QoQ variation is owing to seasonality
impact (Durga pooja in 2Q, Diwali/festivals in 3Q, etc)
Currently, CESC plans to add 0.3msf of Retail area in FY12 and take total area under
operation to 1.2msf (vs 0.95msf as at Mar-11). Management expects cash losses in
Spencer at Rs1.1b in FY12E and capex on 0.3msf of new stores at Rs400m. Though
the company plans to ramp-up area under operation to 2.5msf over next 2 years, this
would be contingent on fund raising.
Valuations and view
We expect CESC to report standalone net profit of Rs4.9b in FY12E (up 3% YoY), Rs5b
in FY13E (up 2% YoY). The stock trades at PER of 7.9x FY12E and 7.8x FY13E on
standalone basis. Maintain Buy.
Company description
CESC, an RPG Group Company is one of the oldest
integrated power utilities in India with presence in mining,
generation, and distribution of power. Installed generation
capacity stands at 1.2GW and distribution network
encompasses 2.3m consumers in Kolkata and Howrah
region. 1.2GW of generation projects are under construction
and additional 4.3GW of projects are in pipeline. CESC
has presence in retail business "Spencer" which has
0.95msf area under operations.
Key investment positives
Assured return from existing generation / distribution
business provides steady cash flows (regulated profit
at Rs3b+ pa)
600MW project in Maharashtra has achieved financial
closure, equipment award, etc. Part capacity can be
retained on merchant basis, which would boost overall
project returns.
Consolidation and restructuring at Spencers has led to
reduction in operational losses to Rs1.5b in FY10, vs
Rs3.5b earlier. Further reduction in losses/value
unlocking opportunity is possible.
Project pipeline of 4GW provides growth opportunity
going forward.
Key investment risk
Continued losses at Spencer retail and funding through
standalone cashflows of CESC.
Fuel availability for Chandrapur project and partially
for Haldia project.
Recent development
Financial closure for Halida power project and ICB is
completed.
Spencer area under operation increased 11% QoQ to
0.95msf in 4QFY11.
Valuation and view
We expect CESC to report standalone net profit of
Rs4.9b in FY12E (up 3% YoY), Rs5b in FY13E (up
2% YoY).
The stock trades at PER of 7.9x FY12E and 7.8x
FY13E on standalone basis. Maintain Buy.
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