CESC::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Fuel cost already approved, revised tariff petition pending approval
 CESC has already got the approval to pass on the fuel price increase effected by
Coal India and has raised its tariffs by INR0.46/unit.
 It has filed the year-end tariff petition for FY12, where it seeks an increase of
~INR0.6/unit. The final outcome of this petition is awaited.
1.2GW under construction projects on track, development pipeline of 5.3GW
 The 600MW Haldia project has received debt sanctions. The project cost, including
~80km of transmission corridor, stands at INR33b. 70% of its fuel requirement will
be met through linkages (granted from MCL) and 30% through coal imports from
Resource Generation.
 450MW of the Haldia project capacity will be sold to its own distribution business,
for which CESC has received approval from the state regulator.
 600MW Chandrapur project, the total cost is estimated at INR30b (including premium
paid for acquisition). Construction work is in full swing, with major orders in place.
 CESC plans to sell ~300MW of power from the Chandrapur project through Case-1
bids on LT basis, while the balance capacity can be sold to SEZ industrial consumers,
or group company (engaged in distribution of power in Noida / Greater Noida).
Resource Generation stake
 CESC has recently acquired 11.8% equity interest in Resource Generation (an
Australian company with mining interests in South Africa). This will entitle CESC to
procure 139m tons of coal over 38 years.
 Depending on the future development, CESC could increase stake in the venture,
but not beyond 20%.
Cash infusion of INR1.5b in Spencers in each of FY12 and FY13
 Improvement in gross margins and reduction in operational losses led to lowering
of Spencer losses to INR1.7b in FY11. CESC expects the losses to further go down
to INR1b in FY12.
 Apart from funding losses, Spencer will require capex of INR0.4b and INR0.5b for
planned addition of 0.3msf and 0.5msf of area in FY12 and FY13 respectively.
 Sales for its retail operations improved to INR1,042/sf in 1QFY12, and further to
INR1,100/sf in July 2011.
Valuation and view
We expect CESC to report a net profit of INR5b (up 3%) in FY12 and INR5.3b (up 4%) in
FY13. The stock trades at 7.4x FY12E and 7.1x FY13E EPS. Buy.