CESC reported better-than-expected Q1FY17 results on the back of higher-than-expected sales and lower finance costs. Net sales came in at | 1888 crore as per the new Ind AS. This is higher compared to estimates of | 1805 crore. The higher-than-expected revenues can be attributed to higher purchase of power from its subsidiary Haldia Energy. CECS’s own generation was down 7.8% YoY while power purchase went up 36% YoY .Reported absolute EBITDA came in at | 387 crore vs. our estimate of | 377 crore. This was on the back of lower other expenses despite the fact that power purchase was at | 684 crore vs. our estimate of | 570.1 crore. Higher-than-expected revenues and EBITDA led PAT to come in at | 174 crore vs. our estimate of | 167 crore.

Valuation : However, factoring in the two scenarios of recovery and non-recovery of | 230 crore annual loss (for negative bidding of | 470/tonne) we have valued CESC on both base and bear scenario by assigning an equal weightage to both cases. Accordingly, we assign a 80% weightage to the base case and 20% to the bear case valuation to arrive at an SOTP revised target price of | 645 for CESC (earlier | 623). However, the price has run up from our last update. Hence, we downgrade the stock from BUY to HOLD recommendation