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CESC (CESC)
Utilities
Stable returns in power, clarity on retail losses key to stock performance. CESC
reported another quarter of stable earnings from its core power business, with net
income of Rs1.1 bn from its distribution business at Kolkata. We maintain our BUY
rating with a revised target price of Rs400/share—factoring lower availability and higher
cost for coal at CESC’s 600 MW project in Chandrapur. At 0.8X P/B and 6.5X P/E on
FY2013E net worth and earnings, CESC remains a preferred pick among the utility
coverage with extant operation not facing any risk on fuel availability and pricing.
Stable core operations yield in-line results
CESC reported revenues of Rs12.2 bn (12% qoq, 5% yoy), operating profits of Rs2.4 bn (-20%
qoq, -4% yoy) and net income of Rs1.1 bn (-26% qoq, 3% yoy) against our estimate of Rs12 bn,
Rs2.6 bn and Rs1.2 bn, respectively. Marginal miss on operating profit was primarily on account of
higher-than-estimated overheads of Rs1.9 bn against our estimate of Rs1.2 bn. However, higherthan-
estimated other income yielded an in-line net income. Operations remained stable with CESC
selling 2.3 BU (4% yoy, 4% qoq) during the quarter. We note that sharp yoy decline in EBITDA
and PAT is on account of expense write back during the same period in the previous year.
Extant operations drive our fair value estimate, retail losses factored in
We continue to remain optimistic on CESC’s core power business and note that it accounts for
85% of our fair value estimate of Rs400/share. CESC’s near-term earnings are relatively immune to
concerns over financial health of state electricity boards (SEBs), while its dependence on coal
through linkages is also minimized on account of an operational captive block (extant production
of 3 mtpa) owned by the promoter group. We do not ascribe any value to the growth portfolio
apart from under-construction Dhariwal project (Rs38/share). Further, we estimate a cash outflow
of Rs5.6 bn (Rs45/share) to fund retail losses.
Reiterate BUY with a revised target price of Rs400/share
We reiterate our BUY rating on CESC with a revised target price of Rs400/share (previously
Rs440/share) as we reduce our PLF assumption and increase coal prices for the Dhariwal project.
Our target price comprises (1) Rs348/share for Kolkata business, (2) Rs38/share for 100%
ownership in DIPL for capacity of 600 MW and (3) Rs22/share for cash and investible surplus on
books. We estimate an outflow of Rs5.6 bn to fund the losses in retail business. We have revised
our EPS estimate to Rs38/share (previously Rs41/share) for FY2012E and Rs41/share (previously
Rs49/share) for FY2013E as we (1) adjust for annual report for FY2011 and (2) marginally shift the
commissioning timeline of the Dhariwal project as well as reduction in utilization rates as well as
cost of coal.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CESC (CESC)
Utilities
Stable returns in power, clarity on retail losses key to stock performance. CESC
reported another quarter of stable earnings from its core power business, with net
income of Rs1.1 bn from its distribution business at Kolkata. We maintain our BUY
rating with a revised target price of Rs400/share—factoring lower availability and higher
cost for coal at CESC’s 600 MW project in Chandrapur. At 0.8X P/B and 6.5X P/E on
FY2013E net worth and earnings, CESC remains a preferred pick among the utility
coverage with extant operation not facing any risk on fuel availability and pricing.
Stable core operations yield in-line results
CESC reported revenues of Rs12.2 bn (12% qoq, 5% yoy), operating profits of Rs2.4 bn (-20%
qoq, -4% yoy) and net income of Rs1.1 bn (-26% qoq, 3% yoy) against our estimate of Rs12 bn,
Rs2.6 bn and Rs1.2 bn, respectively. Marginal miss on operating profit was primarily on account of
higher-than-estimated overheads of Rs1.9 bn against our estimate of Rs1.2 bn. However, higherthan-
estimated other income yielded an in-line net income. Operations remained stable with CESC
selling 2.3 BU (4% yoy, 4% qoq) during the quarter. We note that sharp yoy decline in EBITDA
and PAT is on account of expense write back during the same period in the previous year.
Extant operations drive our fair value estimate, retail losses factored in
We continue to remain optimistic on CESC’s core power business and note that it accounts for
85% of our fair value estimate of Rs400/share. CESC’s near-term earnings are relatively immune to
concerns over financial health of state electricity boards (SEBs), while its dependence on coal
through linkages is also minimized on account of an operational captive block (extant production
of 3 mtpa) owned by the promoter group. We do not ascribe any value to the growth portfolio
apart from under-construction Dhariwal project (Rs38/share). Further, we estimate a cash outflow
of Rs5.6 bn (Rs45/share) to fund retail losses.
Reiterate BUY with a revised target price of Rs400/share
We reiterate our BUY rating on CESC with a revised target price of Rs400/share (previously
Rs440/share) as we reduce our PLF assumption and increase coal prices for the Dhariwal project.
Our target price comprises (1) Rs348/share for Kolkata business, (2) Rs38/share for 100%
ownership in DIPL for capacity of 600 MW and (3) Rs22/share for cash and investible surplus on
books. We estimate an outflow of Rs5.6 bn to fund the losses in retail business. We have revised
our EPS estimate to Rs38/share (previously Rs41/share) for FY2012E and Rs41/share (previously
Rs49/share) for FY2013E as we (1) adjust for annual report for FY2011 and (2) marginally shift the
commissioning timeline of the Dhariwal project as well as reduction in utilization rates as well as
cost of coal.
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