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India Equity Research Reports, IPO and Stock News
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We were joined by Mr. Pankaj Kedia, Senior Manager - Investor Relations,
who shared his outlook on the industry and company
Key highlights
n Power business consistently performing well - CESC has current generation capacity
of 1,225MW (Regulated equity - Rs11.4bn) and Kolkata T&D assets (Regulated equity
Rs11.4bn) and has been earning a ROE of 20-21% consistently. There were no
significant changes in the new WBERC tariff regulations announced recently. About
3,000MW under construction/development is on track, except 600MW (revised)
Jharkhand project stuck due to land issues (tribal issues - management expects to
resolve them soon). We expect distribution circle capex of Rs5bn every year.
n Chandarpur (600MGW) plant to commission in May 2013 and Haldia (600MW) to
commission in May 2014. Lot of new projects under development phase. The most
important one is Orissa (1320 MW). CESC is awaiting coal allocation but management
highlighted that it remains the No. 1 project in the waiting list with highest marks
(90%).
n Has invested $20mn in Australian Coal Company to acquire 11.6% stake and supply
commitment of 102mt of coal o ver next 37 years. This investment provides exciting
prospects and CESC plans to further subscribe to the company's equity in order to
maintain its equity interest.
n Retail expected to break even in FY14E - After breaking even in FY11 at the store level,
the overall break even at PAT level to happen in FY14E. Current store level profits are
~Rs10mn/month but corporate overheads (Rs50mn/month), distribution expenses
(Rs50mn/Month) and advertising expenses (Rs20mn/Month) are leading to losses. In
FY11, losses stood at about Rs110mn/month or Rs1.3bn for the full year. Key initiatives
taken to cut losses - (1) moving from fixed rentals (Rs57/sqft) to revenue sharing
rentals for new stores (thus reducing rentals when revenues are low). On an overall
basis, we expect the company to maintain rentals to revenues ratio of 6%, (2) same
store sales growth is on focus with FY11 already showing 14% growth and (3) plan to
increase floor space from 0.9mn to 2.5mn sq.feet by FY14E with focus on large format
stores. Further, in the event of FDI in multi brand retail being allowed, CESC has option
to dilute minority stake in retail.
n CESC is constructing a mall at Park Street in Kolkata on about 3 acres with retail area
of 0.4mn sq.feet and parking area of 0.3mn sq.feet. It expects lease rentals of ~Rs100/
sqft. Overall, the project is 60:40 debt equity funded and should easily deliver 25%
ROE.
n Stock is trading at attractive valuations of 0.8xFY12E consensus book. Key triggers -
(1) milestone achievements in under construction generation projects, (2) consistent
improvement in retail business (can give large upside) and (3) stake dilution in the
retail business. Key risk - continued losses at similar levels in retail.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr. Pankaj Kedia, Senior Manager - Investor Relations,
who shared his outlook on the industry and company
Key highlights
n Power business consistently performing well - CESC has current generation capacity
of 1,225MW (Regulated equity - Rs11.4bn) and Kolkata T&D assets (Regulated equity
Rs11.4bn) and has been earning a ROE of 20-21% consistently. There were no
significant changes in the new WBERC tariff regulations announced recently. About
3,000MW under construction/development is on track, except 600MW (revised)
Jharkhand project stuck due to land issues (tribal issues - management expects to
resolve them soon). We expect distribution circle capex of Rs5bn every year.
n Chandarpur (600MGW) plant to commission in May 2013 and Haldia (600MW) to
commission in May 2014. Lot of new projects under development phase. The most
important one is Orissa (1320 MW). CESC is awaiting coal allocation but management
highlighted that it remains the No. 1 project in the waiting list with highest marks
(90%).
n Has invested $20mn in Australian Coal Company to acquire 11.6% stake and supply
commitment of 102mt of coal o ver next 37 years. This investment provides exciting
prospects and CESC plans to further subscribe to the company's equity in order to
maintain its equity interest.
n Retail expected to break even in FY14E - After breaking even in FY11 at the store level,
the overall break even at PAT level to happen in FY14E. Current store level profits are
~Rs10mn/month but corporate overheads (Rs50mn/month), distribution expenses
(Rs50mn/Month) and advertising expenses (Rs20mn/Month) are leading to losses. In
FY11, losses stood at about Rs110mn/month or Rs1.3bn for the full year. Key initiatives
taken to cut losses - (1) moving from fixed rentals (Rs57/sqft) to revenue sharing
rentals for new stores (thus reducing rentals when revenues are low). On an overall
basis, we expect the company to maintain rentals to revenues ratio of 6%, (2) same
store sales growth is on focus with FY11 already showing 14% growth and (3) plan to
increase floor space from 0.9mn to 2.5mn sq.feet by FY14E with focus on large format
stores. Further, in the event of FDI in multi brand retail being allowed, CESC has option
to dilute minority stake in retail.
n CESC is constructing a mall at Park Street in Kolkata on about 3 acres with retail area
of 0.4mn sq.feet and parking area of 0.3mn sq.feet. It expects lease rentals of ~Rs100/
sqft. Overall, the project is 60:40 debt equity funded and should easily deliver 25%
ROE.
n Stock is trading at attractive valuations of 0.8xFY12E consensus book. Key triggers -
(1) milestone achievements in under construction generation projects, (2) consistent
improvement in retail business (can give large upside) and (3) stake dilution in the
retail business. Key risk - continued losses at similar levels in retail.
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