CESC Ltd. share price target

28 December 2018 CESCs power distribution includes Kolkata, Noida (49% stake) and three franchisee (DFs) circles in Rajasthan. The generation portfolio includes installed capacity of ~2.5GW, of which only 300MW is without any long-term PPA. The regulated distribution business of Kolkata and Noida generates a healthy RoE of ~20%. Noida, which is a new circle, has grown at CAGR of ~21% over FY13-18 and we expect ~11% CAGR over FY18-21. The DFs are in the initial years of operation. We expect a meaningful contribution from DFs only after a couple of years. Generation capacity under long-term PPA generates healthy double-digit RoE on the back of efficient operations and favorable norms. CESC, in its new form, reported PAT of ~INR8.3b in FY18, up ~55% YoY, driven by the full benefit of Noida PPA at Dhariwal power plant. PAT is partly dragged by initial losses in the DFs (~INR1.

ICICI Securities Ltd | Retail Equity Research Revenues came in at | 2220 crore, up 6.3% YoY vs. our estimate of | 2367.8 crore. Energy sold in Q2FY19, in the standalone business grew 7.6% to 296.4 crore units vs. our estimate of 311.6 crore units while realisation was at | 7.5/Kwhr vs. 7.6/Kwhr in Q2FY18 During Q2FY19, power sold at Haldia Energy was up ~9% at 127.3 crore units while Chandrapur plant reported improved generation to 64.5 crore units in Q2FY19 compared to 57.2 crore units in Q2FY18...

CESC's net profit grew by 9.7% YoY to Rs2.7bn in 2QFY19 primarily owing to recognition of regulatory revenue of Rs370mn along with 7.3% YoY growth in unit sales to 2,964mn units. While its revenue grew by 6.3% YoY to Rs22bn, EBITDA grew marginally by 1.1% YoY to Rs5.5bn. Realisation remained flat at Rs7.5/kwh. Valuing CESC's power business on FCFE methodology, we maintain our BUY recommendation on the stock with a revised Target Price of Rs775...

Under the new scheme, CESC Ltd will continue to comprise its generation and distribution segments, while two new entities - RP-SG Retail Ltd and RP-SG BPO Ltd - will be formed. For every 10 shares of CESC, 6 shares of FV Rs5 of RP-SG Retail Ltd and 2 shares of FV Rs10 of RP-SG BPO Ltd will be issued. The record date for the demerger is October 31, 2018, and the shares of the two new entities will be listed by the end of Nov'18. While we believe that the demerger of the Retail and BPO arms is positive, the continuation of the distribution segment with the gencos (as of now) may not unlock the desired value that was projected earlier....

CESC has announces its demerger into three entities instead of the earlier planned four-way merger. The change in decision was on account of a delay in receiving approval regulatory approval for power purchase agreement (PPA) between the distribution and generation companies from West Bengal State Electricity Regulatory Commission (WBSERC). Under the new demerger scheme, CESC will be demerged into three entities viz. CESC, new retail and venture companies. CESC will continue to have generation and distribution business along with other power...

12 October 2018 CESCs board of directors has decided to go ahead with the demerger but with some modification. Instead of demerging the power business into generation and distribution, it will be keeping it as a single entity. CESC had all approvals, except from the electricity regulator for a power purchase agreement between to-be demerged power generation and distribution businesses. It will continue to actively seek the PPA and eventually demerge the power generation and distribution businesses. CESC will remain listed and house the power business. There is precedence from early 2000s where the state-owned electricity companies in India were split into generation, distribution and transmission businesses for better accountability. We believe the case of demerger of CESCs power business remains strong but could take time. We have made changes to our SOTP considering the power business now as one. This has increased cost of equity for the distribution business, resulting in ~10% cut in our SOTP value.

Average monthly sales of Spencer's Retail increased to Rs1,575/sqft in 1QFY19 from Rs1,530/ sqft in 1QFY18, while monthly Same Stores Sales grew by 3.6% YoY to Rs1,629/sqft from Rs1,572/ sqft in 1QFY18. Its monthly store level EBITDA stood at Rs98/sqft as against Rs94/sqft in 1QFY18, while monthly Same Store EBITDA stood at Rs102/sqft compared to Rs99/sqft in 1QFY18. Notably,...

ICICI Securities Ltd | Retail Equity Research CESC reported lower-than-expected Q1FY19 results on account of lower revenues, which, in turn, impacted EBITDA, profitability. Revenues came in at | 2159 crore, down 1.1% YoY vs. our estimate of | 2234.1 crore. Revenue miss was mainly on account of lower realisation at | 7.6/KWhr vs. our expectation of | 7.8/KWhr During Q1FY19, power sold at Haldia Energy was up 7.9% at 111 crore units while Chandrapur saw a strong improvement in plant load...

Demerger will lead to substantial value unlocking In May 2017 CESC announced the much expected restructuring of its business into four business verticals (a) Power Distribution (Kolkata licence, Noida Power & distribution franchisee business), (b) Power Generation (standalone, Haldia & Chandrapur), (c) Retail (Spencer's Retail) and (d) CESC Ventures (First Source and Quest Mall). CESC's proposed demerger plan will lead to substantial value unlocking since it separates the...

CESC has delivered a healthy performance in 4QFY18. While its revenue grew by 14.2% YoY to Rs17.9bn, EBITDA surged by 29.9% YoY to Rs2.6bn. However, its net profit declined by 1% YoY (+89.6% QoQ) to Rs2.9bn owing to delay in approval of tariff order leading to under-recovery in expenses. Following the shareholders' approval, CESC has received conditional approval from NCLT for demerger provided the DISCOM arm gets regulatory approval from WBERC for its existing PPA. The Management expects to complete the process of restructuring by 2QFY19. However, as the valuations seem to have discounted all positives, we maintain our HOLD recommendation on the stock with a revised Target Price of Rs1,076 (from Rs1012 earlier)....