CESC (2QFY15) : Steady performance continues. Maintain BUY :: HDFC Sec, link

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Steady performance continues
CESC’s 2QFY15 PAT of Rs 1.92bn was higher than our
estimate of Rs 1.62bn due to lower than estimated
fuel cost. Spencer’s performance was strong with YoY
SSG of 8% (3% QoQ) and same store EBITDA of 82/sq.
feet (74 in 1QFY15 and 69 in 2QFY14).
Reducing capex intensity and narrowing of losses in
retail business will lead to further re-rating of the
stock as the overhang of cash utilisation from
Kolkata business reduces. While its coal block at
Sarsathali has been de-allocated, we do not see
material long term impact on the company as it is a
regulated utility with cost pass through PPA.
We remain positive and increase our SOP based TP to
Rs 845/sh (from Rs 727/sh). Tie up of 500MW untied
power capacity at Chandrapur and/or value
unlocking in the retail business are key positive
triggers. Retain BUY.
 The company is liable to pay a levy of Rs 10bn by 31st
Dec, 2014 as directed in the Supreme Court’s verdict
dated 24th Sep, 2014 (which led to de-allocation of all
coal blocks allocated since 1993). Management is
confident of recovering this amount from beneficiaries.
The company has moved SC for a review.
 Both units of Chandrapur (2X300MW) have been
commissioned. Supply of 100MW to TANGEDCO has
not yet started due to transmission constraints. With
long term bids floated by AP, Telangana, Karnataka and
Kerala, we believe the plant will be able to tie up
balance untied capacity in FY16.
 Long term advances have gone up by Rs 3.3bn in
1HFY15 due to equity infusion in Surya Vidyut (26MW
wind farm under construction) and cash support to
Chandrapur and Spencer’s.
 We reduce our FY15/16 EPS by 6% to adjust for QIP of
Rs 4.9bn. Retain BUY with an increased SOP based TP
of Rs 845/sh as we (1) Increase target multiple for
Kolkata business to 1.9x BVPS from 1.8x BVPS (2) Value
Chandrapur at book value vs. 0.5x earlier due to
improving visibility on capacity tie-up and (3) Roll
forward of TP to Mar-16.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009831