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West Bengal Electricity Regulatory Commission (WBERC), in its tariff
order dated March 6th 2012, has approved a tariff hike of 13.3% which
will increase the average realization for CESC from INR5.19/kWh to
INR5.88/kWh. The hike which has been pending for long is a definite
positive for the company as it eliminates the regulatory risk of delay in
tariff approvals. Maintain BUY with TP of INR 399/share.
Much awaited tariff hike a breather
CESC, in its 2011‐12 tariff petition filed in July 2011, had demanded a hike of INR1.11
(i.e. hike of 21%) per unit on various heads, but WBERC has allowed a hike of 69 paisa
(i.e.13.3%) with retrospective effect from April 2011. Arrears for the past 12 months
would have to be recovered via 48 monthly installments, going forward. The hike
which was much needed due to increase in costs has come at a time when the
company was mulling legal recourse as the last resort. The tariff order is a definite
positive given that the State, under political duress, has been strongly resisting any
increase in power tariffs.
Outlook and valuations:Cloud over cashflow vanishes;maintain ‘BUY’
With the current tariff hike, the near term overhang of regulatory approvals and its
impact on cash flows has been addressed. However, clarity on FDI in multi‐brand retail
will provide the much awaited impetus for the stock. We have revised our numbers to
incorporate the tariff revision (expect the company to book a differential income of
INR5.86 bn during Q4FY12) that will enable recovery of its fixed costs for the year. The
company has also stepped up its capex program for distribution entity from earlier INR
5bn to INR 6.5bn annually which will enhance earnings. With the regulatory risk easing
off we have revised our P/B multiple for regulated equity to 1.2x from 1.1 earlier.
Maintain ‘BUY/UP’ with revised SOTP of INR 399/share (INR 372/share earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
West Bengal Electricity Regulatory Commission (WBERC), in its tariff
order dated March 6th 2012, has approved a tariff hike of 13.3% which
will increase the average realization for CESC from INR5.19/kWh to
INR5.88/kWh. The hike which has been pending for long is a definite
positive for the company as it eliminates the regulatory risk of delay in
tariff approvals. Maintain BUY with TP of INR 399/share.
Much awaited tariff hike a breather
CESC, in its 2011‐12 tariff petition filed in July 2011, had demanded a hike of INR1.11
(i.e. hike of 21%) per unit on various heads, but WBERC has allowed a hike of 69 paisa
(i.e.13.3%) with retrospective effect from April 2011. Arrears for the past 12 months
would have to be recovered via 48 monthly installments, going forward. The hike
which was much needed due to increase in costs has come at a time when the
company was mulling legal recourse as the last resort. The tariff order is a definite
positive given that the State, under political duress, has been strongly resisting any
increase in power tariffs.
Outlook and valuations:Cloud over cashflow vanishes;maintain ‘BUY’
With the current tariff hike, the near term overhang of regulatory approvals and its
impact on cash flows has been addressed. However, clarity on FDI in multi‐brand retail
will provide the much awaited impetus for the stock. We have revised our numbers to
incorporate the tariff revision (expect the company to book a differential income of
INR5.86 bn during Q4FY12) that will enable recovery of its fixed costs for the year. The
company has also stepped up its capex program for distribution entity from earlier INR
5bn to INR 6.5bn annually which will enhance earnings. With the regulatory risk easing
off we have revised our P/B multiple for regulated equity to 1.2x from 1.1 earlier.
Maintain ‘BUY/UP’ with revised SOTP of INR 399/share (INR 372/share earlier).
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