CESC Ltd. share price target

CESC's management indicated that power demand in Kolkata (key area of operation) has normalised and impact of COVID-19 (lower PLF-related incentive) has passed; company has guided for 9% y-o-y growth in PAT in H2FY21. Turnaround of Dhariwal Infrastructure (guided for PAT of Rs. 75-80 crore for FY21 versus loss of Rs. 10 crore in FY20) to sustain as PLF of Chandrapur plant has improved. Rajasthan DF losses would reduce in FY21 and is expected to turn profitable by FY22. Consistent improvement in performance of subsidiaries would aid gradual re-rating of CESC. Concerns of higher receivables (at Rs. 2,000 crore as of September versus normal levels of...

CESC's management indicated that power demand in Kolkata (key area of operation) has normalised and impact of COVID-19 (lower PLF-related incentive) has passed; company has guided for 9% y-o-y growth in PAT in H2FY21. Turnaround of Dhariwal Infrastructure (guided for PAT of Rs. 75-80 crore for FY21 versus loss of Rs. 10 crore in FY20) to sustain as PLF of Chandrapur plant has improved. Rajasthan DF losses would reduce in FY21 and is expected to turn profitable by FY22. Consistent improvement in performance of subsidiaries would aid gradual re-rating of CESC. Concerns of higher receivables (at Rs. 2,000 crore as of September versus normal levels of...

Discoms in key states Rajasthan, Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra, J&K; and Telangana account for 79% of the total overdue to gencos. Disbursements under the Atmanirbhar scheme have been very slow due to the reluctance or delay on the part of state governments to adhere to the stringent norms put forth by the PFC and the REC. So far, total loans of Rs1.18tn and Rs311bn have been sanctioned and disbursed to discoms by the PFC and the REC, respectively. We are of the opinion that discoms' overdues could take a while to moderate with the revival in demand that could further increase power offtake. However, the improvement in...

Energy sold during Q2FY21, in the standalone business, fell 10.9% at 260.2 crore units vs. our estimate of 290.2 crore units while realisation was at | 7.6/kWhr vs. our expectation of 7.7 kWhr. Total generation was down 10.1% YoY at 154 crore units. PLF of the Budge Budge and southern plants for Q2FY21 were at 93% (94% in Q2FY20) and 0% (36% in Q2FY20) respectively. Revenues came in at | 1989 crore vs. our estimate of | 2234.9 crore, mainly on account of lower than expected energy sold. On the other hand, consolidated revenues came in at | 2990 crore, flat YoY indicating pick...

CESC Limited's (CESC) Q1FY2021 standalone PAT declined by 38.2% y-o-y (down by 46.4% q-o-q) to Rs. 134 crore, below our estimate of Rs. 193 crore due to lower plant-load factor (PLF) based incentive income as volume slumped by 30.7% y-o-y to 2,118 million units and higher per unit cost of electricity purchased (up 15% y-o-y). However, the decline of 14.7% y-o-y in the consolidated PAT to Rs. 198 crore was much lower as compared to the decline in PAT for the standalone business due to: 1) better profitability of Dhariwal Infrastructure (PAT of Rs. 24 crore versus a net loss of Rs. 24 crore in Q1FY2020) and 2) reduction in losses at distribution franchisee...

This, given the lack of a revised tariff order, impacted efficiency Consolidated PAT decreased ~15% YoY to INR2.0b in the quarter, partly supported by an improved performance at Dhariwal. Dhariwal reported profit of INR240m (v/s loss of ~INR240m in 1QFY20) on account of a new PPA signed and the pass-through of higher coal cess in tariff. Dhariwal had signed a 185MW PPA with Maharashtra in 3QFY20, and the same has been extended up to 31 Losses at DFs in Rajasthan declined to INR330m in 1QFY21, from INR530m in 1QFY20, despite lower demand. The stock trades at an attractive ~6x FY22E P/E, even as earnings visibility at Dhariwal improves, and factoring the tightening of norms at Haldia and S/A. We also expect the performances of DFs to improve as it gains a better understanding of the circles and leverages from its experience in CESCs generation assets generate healthy FCF.

Loss at Dhariwal Infrastructure reduced to Rs. 10 crore in FY2020 as compared to Rs. 93 crore in FY2019. Loss at distribution franchisee shrunk to Rs. 38 crore in FY2020 as compared to Rs. 60 crore in FY2019....

CESC reported a decent operational performance in Q4FY20. Revenues were in line with estimates while lower other expenses led to a beat in EBITDA. However, a shortfall in other income negated the EBITDA beat. Consequently, PAT was marginally lower than estimates. However, on the subsidiaries front, the performance of all generation and distribution...

CESCs 4QFY20 results highlight the benefit of improved performance for its distribution franchisee (DF) and Dhariwal businesses with consol. On the other hand, S/A PAT declined 19% YoY, leading to While the muted power demand environment could impact profitability in the near term, the longer-term story remains intact. Despite factoring in the tightening of norms at Haldia and for the S/A, the stock trades attractively at 7x FY21E In 4QFY20, S/A PAT declined ~19% YoY to INR2.5b (20% below est. Consolidated PAT increased ~7% YoY to INR4.4b in the quarter, largely on the back of improved performance for its DF and Dhariwal businesses. Despite factoring in the tightening of norms at Haldia and for the S/A, the stock trades attractively at 7x FY21E Further, the un-tied generation capacity and scale-up in DFs has the potential to boost earnings.

Q4FY20 earnings are expected to be disappointing in Emkay's power coverage universe. Demand across India fell significantly in the second half of March after the country was locked down to contain the spread of Covid-19. Thus, PLF across stations was impacted, but availability picked up due to improved inventory levels. However, the power ministry's move to provide a moratorium on bill payments is likely to impact discoms' collection efficiency and would stretch its working capital. This is likely to have a cascading impact on the electricity chain of discoms, transmission, gencos and eventually the banks, all of...