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Inexpensive Generating Asset
CESC is one of the most efficient power utilities that
operates at more than 85% PLF. We believe a robust
base business would generate sufficient cash to fund
capex of the consolidated entity and Spencer’s losses.
Even at our SoTP-based TP of Rs346/share, the base
generating business will be available at 0.8x FY13
implied book. This makes CESC the most attractive
generator in our coverage universe. We initiate
coverage with a BUY rating on the stock.
Nearly doubling capacity by FY15
CESC targets to nearly double its installed capacity to 2.4GW
by FY15 by adding 600MW each at Chandrapur and Haldia. It
plans to sell power from these projects on both long-term and
short- term basis.
Regulated model and fuel security are two key positives
Unlike peers, CESC currently has no merchant exposure and
operates all existing units under a regulatory framework. This
helps it generate steady cash flows. Additionally, all power
generated is sold to its distribution arm, which reduces the
backing-down risk. Further, it undertakes projects that are
comfortably placed for fuel.
Spencer’s – still burning cash
Spencer’s continues to be a drag on the parent. We estimate
the business to turn around by FY16 as the company focuses
on higher-margin products and larger-format stores. We expect
CESC to infuse Rs1.2bn during FY12.
VALUATIONS AND RECOMMENDATION
We expect CESC to trade at discounted valuation as the parent
continues to fund Spencer’s losses and capex of subsidiaries.
We expect FY16 to be the key year as 1) capacity nearly doubles
and 2) Spencer’s would turn around for the first time since
acquisition in FY08. We value the generation businesses using
FCFE and ascribe nil value to its retail business to arrive at our
SoTP-based target price of Rs346/share. Initiate coverage with
a ‘BUY’ rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Inexpensive Generating Asset
CESC is one of the most efficient power utilities that
operates at more than 85% PLF. We believe a robust
base business would generate sufficient cash to fund
capex of the consolidated entity and Spencer’s losses.
Even at our SoTP-based TP of Rs346/share, the base
generating business will be available at 0.8x FY13
implied book. This makes CESC the most attractive
generator in our coverage universe. We initiate
coverage with a BUY rating on the stock.
Nearly doubling capacity by FY15
CESC targets to nearly double its installed capacity to 2.4GW
by FY15 by adding 600MW each at Chandrapur and Haldia. It
plans to sell power from these projects on both long-term and
short- term basis.
Regulated model and fuel security are two key positives
Unlike peers, CESC currently has no merchant exposure and
operates all existing units under a regulatory framework. This
helps it generate steady cash flows. Additionally, all power
generated is sold to its distribution arm, which reduces the
backing-down risk. Further, it undertakes projects that are
comfortably placed for fuel.
Spencer’s – still burning cash
Spencer’s continues to be a drag on the parent. We estimate
the business to turn around by FY16 as the company focuses
on higher-margin products and larger-format stores. We expect
CESC to infuse Rs1.2bn during FY12.
VALUATIONS AND RECOMMENDATION
We expect CESC to trade at discounted valuation as the parent
continues to fund Spencer’s losses and capex of subsidiaries.
We expect FY16 to be the key year as 1) capacity nearly doubles
and 2) Spencer’s would turn around for the first time since
acquisition in FY08. We value the generation businesses using
FCFE and ascribe nil value to its retail business to arrive at our
SoTP-based target price of Rs346/share. Initiate coverage with
a ‘BUY’ rating on the stock.
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