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Expanding steadily…
We met the management of CESC to get an insight into the business
model and understand its future growth strategy. The company has an
operational capacity of 1225 MW (100% regulated). The company has
~2520 MW under construction. The capex for Kolkata’s distribution
business is | 500 crore per annum (equity requirement: | 150 crore).
Stable power business
CESC mainly supplies to the cities of Kolkata and Howrah. The
regulated equity for this business is | 2300 crore. Core RoE is 21–
22% per annum. The total requirement for the distribution business
is ~ 1900 MW increasing at 3% per annum. The company imports ~
800 MW as on date every year.
Total 1200 MW under construction, stake buy in Resource Generation
CESC has two projects under construction: Chandrapur (600 MW),
Haldia (600 MW). By FY14, the company is expected to add 1200
MW. In addition, the company is planning to add ~5860 MW. For
Haldia and Chandrapur power plants, the total capex requirement is
| 6050 crore. Capex incurred till date would be | 600 crore (| 200
crore equity & | 400 crore debt). Currently, the company imports
10% of its fuel requirement. Due to capacity addition, to secure fuel
linkage, the company (in association with group company ICML) has
acquired a 10.8% stake (CESC share 4.8%) in Resource Generation
(import of 3.5 MTPA from FY13)
Retail losses to come down in next two years
Currently, retail losses are | 7 crore per month. For the last two
years, the retail business has shown a significant improvement.
Revenue per sq feet has increased by 13% while losses at the
corporate level have come down.
CESC Properties – constructing premium mall in Kolkata
CESC Properties, a 100% subsidiary, is developing a premium mall
in Kolkata at a capex of | 200 crore (FY13) with a debt equity of
60:40. The management expects to earn | 50 crore per annum from
this venture.
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At the CMP of | 305, the stock is a trading at P/BV of 0.8x FY11 (one of the
cheapest power utility stocks in India). We believe improving retail
profitability and stake sale in the power business could re-rate the stock.
We do not have any rating on the stock.
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