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Improvement in execution
CESC’s retail subsidiary, Spencers, losses have reduced over the last two
years with the restructuring of the business and better cost control.
However, the break even still remains some years away. CESC’s existing
power business is doing well and the expansion work at Chandrapur is
also on track. The company has recently placed the equipment order for
the Haldia project and it expects to commission it by Sep 2014. Our SOTP
based TP is now Rs342/sh which factors in our new retail business
estimates and delays/lower coal availability for power projects.
Retail performing better; however still ebidta level loss in FY14
Spencer’s saw a 22% improvement in revenue per square foot and a 110bps
improvement in gross margins in FY11. This, along with control over other
costs, drove a decline in Ebitda losses from Rs2.25bn to Rs1.69bn (Rs3.03bn
in FY09). Despite some improvements in operation shown by the company,
Jaibir Sethi, our retail analyst expects the company level losses to remain
high and the break even still remains some time away with more scale and
cost efficiencies needed.
Chandrapur on track; work has just started at Haldia
Chandrapur project (2 x 300MW) is progressing well and the company is
targeting to commission the first unit of 300MW by June 2013. The company
has recently placed the main power plant equipment order for Haldia project
(2 x 300MW) on Shanghai Electric. The company would be selling 450MW
from this power plant to CESC at a regulated returns basis and would be
selling the balance in the short term market. The company expects to
commission the first unit of 300MW by September 2014.
Dependence on Coal India to increase going forward
For its current portfolio of projects, CESC sources 47% of coal from ICML
(Integrated Coal Mining – 26% owned by CESC), imports ~6% of the coal
and the balance it sources from Coal India. We note that once Chandrapur
and Haldia projects get commissioned the dependence on Coal India is going
to increase significantly for the company.
Increasing target price to Rs342/sh
We have revised our earnings estimates for the retail business post our recent
management meeting. We are also building in delays for the Haldia project
and lower coal supplies from Coal India for both Chandrapur and Haldia
project. Our SOTP based target price is now Rs342/sh. While retail business
would continue to make losses and would require support from the utility
business even in the future (we build in Rs1.5bn cash outgo from CESC), the
current valuations are attractive. Maintain Outperform.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Improvement in execution
CESC’s retail subsidiary, Spencers, losses have reduced over the last two
years with the restructuring of the business and better cost control.
However, the break even still remains some years away. CESC’s existing
power business is doing well and the expansion work at Chandrapur is
also on track. The company has recently placed the equipment order for
the Haldia project and it expects to commission it by Sep 2014. Our SOTP
based TP is now Rs342/sh which factors in our new retail business
estimates and delays/lower coal availability for power projects.
Retail performing better; however still ebidta level loss in FY14
Spencer’s saw a 22% improvement in revenue per square foot and a 110bps
improvement in gross margins in FY11. This, along with control over other
costs, drove a decline in Ebitda losses from Rs2.25bn to Rs1.69bn (Rs3.03bn
in FY09). Despite some improvements in operation shown by the company,
Jaibir Sethi, our retail analyst expects the company level losses to remain
high and the break even still remains some time away with more scale and
cost efficiencies needed.
Chandrapur on track; work has just started at Haldia
Chandrapur project (2 x 300MW) is progressing well and the company is
targeting to commission the first unit of 300MW by June 2013. The company
has recently placed the main power plant equipment order for Haldia project
(2 x 300MW) on Shanghai Electric. The company would be selling 450MW
from this power plant to CESC at a regulated returns basis and would be
selling the balance in the short term market. The company expects to
commission the first unit of 300MW by September 2014.
Dependence on Coal India to increase going forward
For its current portfolio of projects, CESC sources 47% of coal from ICML
(Integrated Coal Mining – 26% owned by CESC), imports ~6% of the coal
and the balance it sources from Coal India. We note that once Chandrapur
and Haldia projects get commissioned the dependence on Coal India is going
to increase significantly for the company.
Increasing target price to Rs342/sh
We have revised our earnings estimates for the retail business post our recent
management meeting. We are also building in delays for the Haldia project
and lower coal supplies from Coal India for both Chandrapur and Haldia
project. Our SOTP based target price is now Rs342/sh. While retail business
would continue to make losses and would require support from the utility
business even in the future (we build in Rs1.5bn cash outgo from CESC), the
current valuations are attractive. Maintain Outperform.
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