8 September 2020
1QFY21 Results Update | Sector: Utilities
CESC
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
CESC IN
133
81.6 / 1.1
855 / 366
5/1/-25
316
CMP: INR615
TP: INR760 (+24%)
Buy
S/A impacted by lower volumes
S/A impacted by lower demand; performance at Dhariwal improves
CESC’s 1Q results highlight the impact of lower volumes on the S/A
business. S/A PAT declined sharply by 38% YoY, resulting in a miss on our
estimates (29% miss). Consol. PAT, on the other hand, declined 15% YoY,
partly supported by a better performance at Dhariwal.
While a muted power demand environment has impacted profitability in
the near term, the longer term story remains intact. Performances at
Dhariwal and distribution franchises (DFs) continue to improve. Despite
factoring the tightening of norms at Haldia and S/A, the stock trades
attractively at 7x FY21 P/E. Maintain Buy, with TP of INR760/sh.
S/A profitability impacted by decline in volumes
S/A PAT declined ~38% YoY to INR1.3b (29% below our estimate of
INR1.9b). This was largely on account of decline in sales volumes (-31% YoY)
to 2.1BU. This, given the lack of a revised tariff order, impacted efficiency
gains, in our view.
Consolidated PAT decreased ~15% YoY to INR2.0b in the quarter, partly
supported by an improved performance at Dhariwal.
Dhariwal improves on new PPA, coal cess pass-through
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
st
Oct’20.
Losses at DFs in Rajasthan declined to INR330m in 1QFY21, from INR530m
in 1QFY20, despite lower demand. The co.’s recently acquired Malegaon DF
reported loss of INR310m in 1QFY21 due to collection issues.
Profits at Haldia improved to INR850m in 1QFY21, v/s INR760m in 1QFY20,
owing to O&M savings. Profits at Crescent and Surya increased to INR120m
in 1QFY21 v/s INR30m in 1QFY20.
Strong FCF generation; maintain Buy
Subdued power demand would impact the profitability of CESC’s businesses
in the near term. However, the medium-term story remains intact.
Dhariwal’s 170MW PPA with Maharashtra from Nov’19 has been extended
for another six months. The performances of its DFs should improve as the
co. gains a better understanding of the circles and leverages from its
experience in Kolkata.
CESC’s existing Distribution business has high RoE and delivers steady
growth. Generation assets generate healthy FCF. 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.
Untied generation capacity and the scale-up of DFs have the potential to
boost earnings. We value the stock at 9x 1yr forward P/E. Maintain Buy,
with TP of INR760/sh.
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. Yield (%)
FCF Yield (%)
6.3
0.9
5.8
3.3
27.6
8.6
0.8
6.5
3.7
28.1
6.3
0.7
5.6
4.2
28.5
1.3
14.0
9.4
20.5
1.1
9.6
7.8
32.0
0.9
12.0
8.7
26.8
110.1
35.4
13.0
32.1
97.7
10.0
98.5 110.5
30.2
9.6
30.6
71.8
-26.5
33.3
12.9
30.2
97.0
35.0
722.7 771.5 842.5
Shareholding pattern (%)
As On
Jun-20 Mar-20
Promoter
49.9
49.9
DII
23.8
22.8
FII
17.9
18.5
Others
8.4
8.8
FII Includes depository receipts
Jun-19
49.9
24.0
16.0
10.1
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com)
13 February 2020
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.