CESC Ltd. Bottoming out: Initiate at OW -Barclays Capital

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CSEC Research: Monthly Strategy April 2015

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Kotak Sec, CESC: Boils down to Dhariwal

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

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CESC Ltd.|Q2FY15 Result Update | CMP : Rs.757 | Rating : NR | Strong set of number, EBITDA margin expanded by 243 bps YoY :: IndiaNivesh

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Technicals-Jindal Saw, JSW Energy, GVK, KPIT , CESC, Castrol, Unitech :: Business Line

CESC (CESC.BO) Upgrade to Buy – Four Solid Reasons to Buy the Stock  Citi Research

CESC (CESC.BO)
Upgrade to Buy – Four Solid Reasons to Buy the Stock
 Upgrade to Buy — And we increase our target price to Rs369 to factor in: EPS
revision; increase in target P/BV multiple to 1.0x (0.85x) on RoEs expanding from 7.6%
in FY12 to 12% in FY15E and roll forward of target P/BV to Sep14E (Mar14E earlier).
Our target P/BV is well supported by cons EPS CAGR of 28% with average RoE of
10%. The key reasons for our upgrade are……
 Reason # 1: Underperformance — Post FSL acquisition in Oct 12, the CESC stock
has declined 13% and underperformed the BSE Sensex by 16%. This
underperformance more than makes up for the unrelated diversification. It might be of
interest to investors that pre-FSL in the first ten months of CY12, the stock had
outperformed the BSE Sensex by 42% (with absolute gains of 63%), which implies, ex-
FSL, investors were rewarding the business performance.
 Reason # 2: Unrelated diversification is EPS accretive — The FSL diversification
might not be positively viewed (and overall valuations might be better off without the
same), but unlike retail: (1) the businesses is not a cash guzzler, (2) is EPS accretive
from FY13E itself. We expect FSL to contribute 5-15% of CESC’s consolidated profits
over FY13E-15E post acquisition interest cost and (3) should generate a return on
investment of 18-20% from FY14E onwards.
 Reason # 3: Pessimism on parent business — In 9mFY13 the parent has averaged
Rs1.2bn/quarter which worried investors that PAT would decline YoY in FY13E if the
same average is maintained in 4QFY13E. We believe this fear might be unfounded as
we expect PAT to rebound QoQ in 4Q to Rs2.3bn to end FY13E at Rs5.9bn up 6% YoY.
 Reason # 4: Doubling generation capacity over next 2 years— Over next 2 years,
CESC will add 1.2GW which would double the generation capacity. Unlike other IPPs
CESC has not tied itself up in unrenumerative PPAs. 600MW is on regulated RoEs and
remaining 600MW is open. Yes, on the open portion there is a possibility of losses in
the 1st year, but from 2nd year onwards this plant has the ability to generate 15% RoEs

CESC - FDI in retail - A shot in the arm ::Edelweiss PDF link

The FDI in retail is a positive development for CESC as it entails not only incremental fund requirements to come from a foreign partner, but also a benchmark value for Spencer’s (CESC’s retail arm) along with benefits from such a strategic tie-up. We believe this eliminates the overhang of earnings diversion from its power business to retail venture, thereby leading to a potential re-rating once the deal gets finalized. Maintain BUY with TP of INR431 (excl Spencer’s).

Angel Broking - CESC - RU4QFY2012- Result Updates ::PDF link

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CESC - RU4QFY2012

CESC- Higher RoE to boost future earnings ::PINC

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Higher RoE to boost future earnings
CESC on 6th March 2012 was finally awarded the tariff order for FY12 by WBERC. The commission not only
allowed CESC to raise tariffs by 13.3% for the current fiscal but also raised blended RoE to 16% for the tariff
period. We understand that the company has already started to bill its clients as per the new order from the
current billing cycle. The arrears of FY12, along with interest, will be collected over a period of 48 months. In the
retail business, we assume a further delay in its breakeven owing to a slower growth in the overall economy.
However, we believe the stock continues to offer value even after assuming increased cash infusion into the loss
making retail business. Maintain BUY on the stock with a target price of Rs350/share.
13.3% tariff hike approved
Tariff hike approved by the regulator, although late, is in our view both sentimentally and fundamentally positive for the stock.
Despite raising tariffs by Rs0.46/unit at the start of FY12 - thereby increasing tariffs to Rs5.21/unit - CESC's earnings were
marred by growing under-recoveries of its fixed costs. We believe the company had under-recoveries of Rs350-450mn for the
preceding three quarters. This latest increase of Rs0.69/unit, in our view, should adequately compensate CESC for these
under-recoveries.
Blended rate of return increased to 16%
The regulator has allowed CESC to earn 15.5% and 16.5% post tax RoE for the block FY12-14 for its generation and
distribution business respectively. We believe this a key positive as it will aid the company to earn an incremental Rs250-
300mn/year. This coupled with interest on arrears translates into 6.7% and 6.2% increase in our FY13 and FY14 earnings
estimate.
Tariff order hints at consuming lower grade coal
The tariff order highlights that CESC will consume lower grade coal going forward. Budge Budge (highest capacity) will
consume 3,476kcal/kg grade coal - lowest amongst CESC's stations compared to 3,713kcal/kg as per the 2008-11 multi
year tariff (MYT) order. Also, its New Cossipore station will consume 5,800kcal/kg grade coal - lower than 6,035kcal/kg
reported in its previous order. New Cossipore is CESC's only station which consumes high grade coal. This will lead to an
increase in coal consumption to >7mtpa.
Outlook and recommendation
CESC is one of the most efficient power generators and distributors in the country with its stations being available for over
90%. Despite this, we believe the company will continue to trade at discounted valuation given the cash infusion from its
generation business into its loss making retail venture. However, we believe the parent shall be able to generate sufficient
cash to fund Spencer's losses and other capex. We upgrade our earnings estimates to reflect higher RoE and interest on
arrears for FY12. We estimate standalone earnings to be at Rs5.0bn and Rs5.4bn during FY12 and FY13 respectively.
Maintain BUY on the stock with a target price of Rs350/share, implying 20% upside.

Buy CESC ; Target : Rs 327: ICICI Securities pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_CESC_EventUpdate.pdf


T a r i f f   h i k e   o f   1 3 . 3 %   a t   l a s t …
West Bengal Electricity Regulator Commission (WBSERC) in the order
dated March 6, 2012 approved the tariff hike for CESC by 13.3% for FY12.
Effective tariff post this hike would be |5.88/unit. For 10 months (April
2011-January 2012), the company has been billing its customers at the
tariff of |5.19/unit. We have maintained our BUY rating on the stock and
increased our fair value per share from | 302 to |327 on increase in capex
from | 500 crore per annum to |589 crore and |622 crore in FY12E and
FY13E respectively. The stock is currently valued at 0.9x FY13 adjusted
book value which is undemanding given the fact that 1) there is
turnaround in Spencer’s, FDI in retail (key catalyst), 2) back ended
capacity additions in FY14-15 and 3) no deterioration in working capital
since it buys power from SEBs (unlike other utilities). Key risks to our call
are 1) deferment of FDI in retail and 2) continuing losses in Spencer’s.

CESC : Maintain Buy – Target Price Cut on Regulatory Overhang  Citi Research

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CESC (CESC.BO)
Maintain Buy – Target Price Cut on Regulatory Overhang
 Regulated business suffers on delayed tariff order — CESC had filed a tariff
petition for FY12 with WBERC (deadline for tariff order was Dec 15, 2011). CESC
currently has a tariff of Rs5.19/kWh (after a fuel cost hike of Rs0.46/kWh) and had
asked for a hike of Rs0.90/kWh and expects a minimum hike of Rs0.25/kWh. The delay
in the tariff order has led to 9M12 parent PAT at Rs2.9bn falling 20% YoY
 If the tariff order had not been delayed — CESC would have delivered FY12E PAT
of Rs5.2bn and FY13E PAT of Rs5.5bn. However, lack of timely tariff revision implies
FY12E PAT would be Rs3.7bn. If tariff revision comes through in 4Q12/ 1Q13, it would
be affected retrospectively. However, we remain conservative and assume PAT of
Rs4.6bn in FY13E. We worry if change in political leadership in West Bengal would
continue to affect CESC’s regulated business in the future like it has affected in 9M12.
 Update on retailing business — Based on 9M12 performance management believes
retailing would deliver cash loss of Rs1.5bn in FY12E (Rs2.1bn in FY11).
 Update on Chandrapur 2X300MW — Likely commissioning (CoD) by May13 (CIRA
Dec13). Off-take not been tied up, but management believes it will not have problems
tying up the same given Maharashtra will remain in power deficit. Project has LoA for
2.73mn from SECL and expects 80% of the same post recent PMO advisory.
 Update on Haldea 2X300MW — Likely CoD by Sep14 (CIRA Dec14). 75% off-take
tied up with CESC at 15.5% RoE + cost pass through and 25% is open. The project
has LoA for 2.83mn from MCL and expects 80% of same post recent PMO advisory.
 Maintain Buy - Target price cut to Rs357 — From Rs440 to factor in (1) -13% to -
29% cut in parent EPS on adverse regulations in West Bengal and (2) cut in target P/E
multiple to 10x (13x) because of regulatory overhang and (3) roll forward of target P/E
to Jun13E (Sep12E). At our target price CESC would trade at 1.1 cons P/BV FY13E.

CESC Tariff hike: Better late than never ::Edelweiss

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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).

Sizzling Stocks: Piramal Healthcare, CESC ::Business Line

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CESC (Rs 290.5)

CESC surged 9 per cent with good volume in the previous week and is currently testing key medium-term resistance level at Rs 290. Since its 52-week low of Rs 186 marked on December 28 last year, the stock has been on a medium-term uptrend. The stock is trading well above its 50 and 200-day moving averages. Its daily indicators are featuring in the positive territory implying upward momentum.

A strong breakthrough of the stock's current barrier at Rs 290 will accelerate the stock higher to Rs 312 and to Rs 330 in the forthcoming weeks.

Next key resistance is at Rs 350.

On the other hand, inability to breach the aforesaid resistance will pull the stock down to Rs 275 or to Rs 260 in the short-term.

Only an emphatic dive below Rs 230 will mar the medium-term uptrend and pull the stock down to Rs 210 and then to Rs 186 in the medium-term.

CESC - Tariff hike: Better late than never; event update; Buy ::Edelweiss (PDF link)

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CESC (CESC IN, INR 268, Buy)

West Bengal Electricity Regulatory Commission (WBERC), in its tariff order dated March 6^th 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.  

Second rung stocks continue to outperform: CSEC Research

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Second rung stocks continue to outperform

For the second month in a row the markets closed on a positive note. February witnessed a secular rally, however, unlike January profit booking in the fag end of February clipped gains. The BSE Sensex closed with a gain of 3.3% while S&P CNX Nifty closed with a gain of 186 points at 5,385. Small and midcap stocks continued to outperform their large cap peers. The BSE Midcap and BSE Smallcap indices closed with gains of 8.8% and 6.1% respectively.  De-listing candidates Oracle Financial Services, Alfa Laval and Goodyear India attracted buying interest.

Secular uptrend; realty leads rally

Most sector-oriented indices on the BSE closed on a positive note, the BSE Healthcare index bucked the trend to close on a flat note. The Realty and Consumer Durables indices closed with double digit gains. The S&P CNX 500 gained 4.7%. Markets were skewed in favour of gainers with the advances-declines ratio at 4:1. This was particularly strong in finance, industrials and utilities. Second rung stocks in the banking, NBFC and realty spaces played catch up with larger peers. Bargain hunting continued to be at play in the realty space; however, a slowdown in momentum was noted. 

Markets reasonably valued but face headwinds

With the Sensex at 15 times FY 12 earnings, markets from a valuation standpoint remain reasonable. The headwinds that the markets face include higher oil prices and its impact on inflation combined with the risk from overseas events which have an effect on the risk appetite for Indian equities from FIIs.

Given the reasonable valuations and possibility of rate reductions which could positively impact the economy, we recommend investors to focus on companies with strong balance sheets and those with secular growth prospects as the economy grows further.

 

Regards,

CSEC Research

Initiating Coverage Buy CESC Ltd.; Target Price: Rs 371 ::Emkay

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Initiating Coverage

CESC Ltd. Reco: BUY CMP: Rs 260 Target Price: Rs 371 Triggers for valuation discount to narrow down; Buy ·      Even though CESC’s valuations have always been cheaper vs. peers, discount (60%) has increased. While other IPP stocks have rallied 5-20% post 80% FSA directive, CESC is down 4% ·      This is despite CESC holding 100% LOAs (5.6mnMT) for both its under construction projects – Haldia (600MW) and Chandrapur (600MW) - with all other clearances in place ·      Expect 44% earnings CAGR over FY12-15E owing to 1) under-construction projects contributing from FY14E, 2) consistent 19% ROE from distribution business, 3) declining losses in Spencer’s and 4) enough accruals to fund equity requirements ·      Given significant LOAs and reducing retail losses, we expect the valuation gap to narrow down. Multi brand FDI remains added trigger; Recommend Buy with TP of Rs371; Key risks – lower tariff hike for distribution & higher losses in Spencer’s

Click here to read report: Initiating Coverage (CESC)

Kotak Sec:: PDF link: Coal India, SBI, Sun Pharma, RPower, Cipla, suzlon, CESC, Castrol, IDFC, Cummins,

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily14022012.pdf


Contents
Special Reports
Initiating Coverage
Cummins India: Very strong business positioning but valuations cap
incremental upside

Daily Alerts
Results
Coal India: E-auctions continue to drive realizations, costs contained
State Bank of India: Margin improvement yet to boost earnings
Sun Pharmaceuticals: Higher margin leads to higher PAT; remains our top
pick
Reliance Power: Extant operations stable, fuel woes continue for future
capacities
Cipla: Poor results on all counts
Suzlon Energy: Tardy execution reflects risk, FY2013E holds hope; balance
sheet stretched
CESC: Pending tariff finalization dents earnings
Results, Change in Reco
Castrol India: Volumes continue to disappoint
Company
IDFC: Retain positive stance on the back of superior performance
Sector
Energy: Mayday, Mayday, Mayday
Industrials: Cycle may have bottomed out; improvement would be gradual

Buy CESC; Target : rs 302:: ICICI Sec

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Value play…
CESC is a unique distribution franchise play with back ended capacity
additions. Robust cash flows from the distribution business compensate
for the misadventure of diversification in retail (Spencer’s). The
operational capacity of CESC stands at 1225 MW with no merchant power
exposure. The company plans to double its capacity (FY14-15) backed by
fuel security. Unlike other power utilities, CESC is immune to the
deteriorating financial health of SEBs since it buys power from them (to
meet increasing demand for its distribution business). We believe the
current market price reflects a negative valuation of the retail venture
(Spencer’s). However, current valuations at ~ 0.8x trailing adjusted book
value fail to assign any value to 1) turnaround in Spencer’s, FDI in retail
(key catalyst), 2) capacity additions in FY14-15 & 3) possibility of acquiring
a distribution franchise (that can increase RoEs). Hence, we are initiating
coverage on the stock with a BUY rating and a target price of | 302.
Base business: A cash flow machine to fund growth plans
An integrated utility model supported by a 2.5 million customer base in
Kolkata that generates | 800-1000 crore of cash flow every year in the
standalone business. This is sufficient to support the loss making retail
venture and fund the upcoming projects of 1200 MW.
Visible turnaround in retail business to re-rate perception
Various initiatives taken by CESC’s management have helped the loss
making retail business (Spencer’s) to turn around consistently at the store
level. Though the management expects an overall turnaround by FY14,
we believe the same will happen by FY16 with reported EBITDA at | 51
crore in FY16. This will be a big boon from an investor’s perspective
towards CESC.
Valuations
Valuations at 0.8x and 0.7x FY12E and FY13E adjusted book value,
respectively, seem unjustified given the presence of a solid integrated
utility business, visible turnaround in the loss making retail venture and
upcoming power capacity. Hence, we are initiating coverage on the stock
with a BUY rating and a target price of | 302 (based on SOTP valuations).

DLF, Banks, L & T, , Philips Carbon Black, CESC, Selan, 3i Infotech, Ramky, PTC :: Reader Technical Queries:: Business Line

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Please discuss the prospects of DLF.

Jyoti Majhi

DLF (Rs 180): DLF could not really recover from the bludgeoning received in the previous market crash when it fell from Rs 1,225 to Rs 124.

The recovery that followed retraced about one-third of the decline only. This structural decline resumed from the peak of Rs 520 recorded in October 2009.

Year 2011 was also pretty difficult with the stock losing 36 per cent this year. It has closed below the critical medium-term support at Rs 275. Next long-term support for the stock is at Rs 140 and Rs 124.

Investors need to divest their holding in this stock if it declines below Rs 170.

Resistances in the months ahead would be at Rs 310 and Rs 392. But long-term outlook will turn positive only on close above Rs 545.

Subsequent targets are Rs 673 and Rs 807. The stock could remain in the zone between Rs 125 and Rs 550 over the next two years.

I would like to buy Bank Nifty. At what price should I buy it?

Ramanuj Marda

Benchmark Bank BEES (Rs 802.1): Exchange traded fund (ETF) on bank stocks is the best way for investors to take an exposure to this sector.

Benchmark Bank BEES is moving down since last October when it recorded the peak of Rs 1,484. This decline has pulled the ETF close to its critical medium-term support at Rs 780.

There are a couple of supports just below at Rs 700 and Rs 650.

Investors can buy the fund in declines as long as it trades above Rs 650.

If this level is penetrated, the slide can accelerate to pull the ETF to March 2009 trough at Rs 335.

There can be a rally to Rs 1,050 or Rs 1,220 in the months ahead. Investors with short to medium-term perspective can divest their holding at either of these hurdles.

Long-term view will turn positive once the ETF moves above the second resistance.

I would like to buy shares of Larsen & Toubro. Please advise on the price range to buy it?

Vishwanath Hadli

Larsen & Toubro (Rs 995.1): Larsen & Toubro was devastated in the September quarter with the stock losing 36 per cent in this period.

The stock is trading well below the key medium-term support at Rs 1,200.

It has also closed the gap that was formed in May 2009.

That said, the stock has psychological support at Rs 1,000.

This is also the floor of the gap formed after the 2009 elections.

Investors with a greater penchant for risk can buy the stock at current levels or in declines with stop at Rs 870.

Breach of this level can drag the stock to the 2009 low at Rs 556.

The short- as well as medium-term trends in the stock are currently down and it is not displaying any inclination to reverse higher.

Should there be an upward reversal from these levels, short-term resistances will be at Rs 1,266 and then Rs 1,450.

Investors with short- to medium-term perspective can divest their holding if the stock reverses lower from either of these levels.

Medium-term view will turn positive only on close above Rs 1,450.

Subsequent resistances are Rs 1,600 and Rs 1,745.

I am holding shares of Phillips Carbon Black purchased at Rs 140 and 3i Infotech at Rs 45. Please advise on future course of action.

Siva Prasad

Phillips Carbon Black (Rs 86.4): This stock is dropping like a stone since mid-November. This decline has pulled the stock well below the medium-term trend deciding level at Rs 109.

Next support on the charts is at Rs 56 and this can now act as stop-loss for investors who are still holding the stock. Next long-term support is way off at Rs 24.

Investors with lower risk appetite can sell the stock at this juncture and consider re-entry once it closes above Rs 107.

Key medium-term hurdle is however at Rs 160. Next targets are Rs 180 and Rs 250.

3i Infotech (Rs 11.7): 3i Infotech also took it on the chin in 2011, collapsing from Rs 60 to Rs 12, loss of 80 per cent. The stock has also declined below its long-term trough at Rs 25.

It is difficult to tell where this downward spiral will halt. Any rally from hereon will face strong hurdle at Rs 25. Investors can switch out of this stock and consider buying it again only on a firm weekly close above Rs 25.

Medium-term view will turn positive only on a close above Rs 52.

I would like to know the prospects of Ramky Infrastructure.

Chandrasekkar

Ramky Infrastructure (Rs 205.9): This stock does not have sufficient history to enable us to come to a conclusion on its long-term prospects. But it is currently trading close to its life-time low.

That the stock is unable to break the sequence of lower troughs and peaks since its listing also implies that the stock is in a long-term down trend.

There is no semblance of reversal in either short- or medium-term time-frames. Investors with lower risk appetite can switch out of this stock and consider re-investment on a weekly close above Rs 250.

Next hurdles for the stock are at Rs 330 and Rs 360.

Please discuss the medium- and long-term out look of PTC and Selan Exploration.

A Parameswaran

PTC India (Rs 38.8): The long-term trading band for PTC is between Rs 40 and Rs 200. The stock is vacillating in this band since 2004. The stock is currently near the floor of this long-term trading zone.

Its life-time low of Rs 31 recorded in April 2004 should serve as the next long-term support and the stop-loss for investors.

Investors can continue to hold on to the stock since a reversal from here has the potential to take the stock all the way back to Rs 150 or even Rs 200. Medium-term targets on an upward reversal are Rs 80 and Rs 108.

The ceiling between Rs 150 and Rs 200 will continue to act as an obstacle for long-term uptrends.

Selan Exploration Technology (Rs 229): Selan Exploration is also southward bound since the beginning of this year. The stock is currently ruling at its 52-week low. That said, the long-term trend in the stock continues to be up.

It is still trading above its long-term trend deciding level of Rs 216. Investors can continue to hold the stock as long as it trades above this level.

Breach of this level will drag the stock to Rs 140, Rs 118 or Rs 90. Medium-term resistances will be at Rs 300 and Rs 350. Key long-term resistance is at Rs 425.

What does the technical chart say about CESC? Can I enter at current level of 204?

Shankar Mayuram

CESC (Rs 203.4): The long-term uptrend that began from January 2008 peak continues to be in force in CESC.

The stock is currently nearing its long-term base at Rs 165 recorded in October 2008. Investors can continue to hold the stock as long as it holds above this level.

Resistances for the medium-term will be at Rs 276 and Rs 375. Long-term trend will however turn positive only on close above Rs 500.