CESC Ltd. share price target

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)....

ICICI Securities Ltd | Retail Equity Research CESC reported lower-than-expected Q4FY18 results on account of lower revenues, which, in turn, impacted EBITDA and profitability. Generation in the base business was up 20% YoY at 150.6 crore units, in line with estimates. However, units sold at 239.3 crore units was below estimates of 265.3 crore units. The key reason was the lower-than-expected sale of power from the subsidiary During FY18, power sold at Haldia Energy was up 12.5% at 414.7...

We expect the Distribution entity to generate PAT of ~INR6.5b in FY18, increasing to ~INR7.5b by FY20, driven by growth in regulated businesses and improvement in franchisees. The Generation business should generate PAT of ~INR4b in FY18, increasing to ~INR5.5b by FY20 on lower losses at Dhariwal. On peer valuation basis, the Distribution business could be valued at INR90b-110b and Generation business at INR50b-60b. Both businesses should generate strong double-digit core RoE and healthy FCF. The combined estimated value of the two demerged entities (INR140b-170b) is greater than the current market capitalization of CESC

CESC Ltd. formerly known as Calcutta Electric Supply Corporation, incorporated in 1978 is the Kolkata-based flagship company of the RP-Sanjiv Goenka Group. It is a fully integrated power utility company with its operation spanning the entire value chain: right from mining coal, generating power and distribution of power across 567 sq. Kms of its licensed area in Kolkata and Howrah, West Bengal. CESC's diversified segments include Power, which is engaged in generation and distribution of electricity; Retail, which includes organized retailing; Property, which is engaged in property development, and Processing Outsourcing, which includes business process outsourcing. Company owns and operates three thermal...

In line with our estimate, CESC's net profit grew by a muted 1.3% YoY to Rs1.5bn in 3QFY18, led by delay in tariff order for FY18, which we expect to be notified in 4QFY18. Its revenue grew by 5.3% YoY to Rs17.1bn, while EBITDA remained flat at Rs3.1bn. The proposed demerger has been approved by the shareholders, and the Company expects the approval of National Company Law Tribunal (NCLT) by Mar'18, while the listing of all the four entities is likely by Jun'18. The valuations seem to have discounted all positives, in our view. Rolling over our estimates to...

ICICI Securities Ltd | Retail Equity Research CESC reported lower-than-expected Q3FY18 results mainly led by lower-than-expected revenues on account of lower energy sold at 234.5 crore units vs. our estimate of 253 crore units. The standalone generation was higher than our estimate at 135.7 crore units while purchase of electricity from subsidiary got impacted During Q3FY18, Haldia TPP operated at PLF of 87.1% and supplied 105.6 crore units to CESC licensed area, which was down QoQ. In the...