18 November 2016
Update
| Sector: Utilities
CESC
Buy
BSE SENSEX
26,150
S&P CNX
8,074
CMP: INR595
TP: INR940 (+58%)
Dhariwal gets partial transmission to Noida
RoE will increase to 14% as it gets full access by March 2017
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, (INR m)
Free float (%)
CESC IN
133.2
683 / 405
5/4/8
79.3
1.2
249
50.1
Dhariwal gets partial transmission access to Noida
Expiry of certain medium-term access (MTA) and surrendering of long-term
access (LTA) by Chhattisgarh have created spare 1,149MW transmission
capacity between WR and NR, which has helped CESC’s subsidiary
(Dhariwal) get 34MW share for its 187MW (net) power purchase
agreement (PPA) with Noida earlier than expected.
Financials Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
Sales
119.0 135.6 147.7
EBITDA
28.5
31.6
34.6
NP
3.7
5.4
8.6
EPS (INR)
27.8
40.9
64.7
EPS Gr. (%)
86.6
47.1
58.4
BV/Sh. (INR )
470.5 431.9 484.6
RoE (%)
6.0
9.1
14.1
RoCE (%)
9.1
9.8
11.0
P/E (x)
17.0
14.6
9.2
P/BV (x)
1.0
1.4
1.2
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-16 Jun-16 Sep-15
49.9
19.0
23.2
7.9
49.9
19.1
22.6
8.4
49.9
15.1
24.3
10.6
Remaining transmission access by March 2017
With commissioning of Champa-Kuruskshetra Phase1 3000MW line (Pole 1
by January 2017 and Pole 2 by April 2017), there will be sufficient
transmission capacity to accommodate balance requirement of Dhariwal
because only 2384MW of LTA is requested. Another 520MW transmission
capacity may become available for short term because of delay in Lanco-
Babandh project.
Reducing losses at Dhariwal to boost RoE significantly
Dhariwal has been a drag on CESC with losses of INR6b in FY16 because of
delay in securing PPAs/transmission access. With start of supply from this
187MW PPA, the first unit of 300MW will be able to operate at full load in
FY18E. This will reduce losses of Dhariwal (600MW) to INR2b and more
than double consolidated PAT to INR8.6b in FY18E. RoE will increase from
6% in FY16 to 14.1% in FY18E.
Strong earnings visibility and attractive valuations
CESC is one of the few private sector power companies with strong
earnings growth visibility, healthy FCF generation and strong balance
sheet. Profit and RoE are expected to more than double in two years.
While distribution and business process management are key growth
drivers, we believe reducing losses at Dhariwal and Spencer will boost RoE.
At current market price, the stock is trading at attractive 11% FCF yield,
~1.2x P/BV and 9.2x P/E on FY18E. Valuations are compelling in light of
30% EPS CAGR and recovery in RoE from 6% to 14% over FY16-20E. We
value stock at INR940 based on SOTP. Reiterate
Buy.
FII Includes depository receipts
Stock Performance (1-year)
CESC
Sensex - Rebased
700
600
500
400
300
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549

CESC
Exhibit 1: Transmission capacity between WR-NR before March 2017
Current transmission capacity between WR-NR
Less: Already under firm LTAs
Less: MTAs
Current available capacity
Add: MTAs expired on Oct 30th 2016
Add: Champa-Kurukshetra Phase1-Pole1
Total available transmission capacity before March 2017
Less: Already under LTAs
Available for upcoming LTAs
MW
8,600
7,399
642
559
590
1,500
2,649
2,384
265
Source: MOSL, Company
Exhibit 2: WR-NR transmission capacities in pipeline
Line
Champa-Kurukshetra Phase1-Pole2
Champa-Kurukshetra Phase2
Jabalpur-Orai
By
Apr-17
Apr-18
Apr-18
MW
1,500
3,000
2,100
Remarks
Likely to be commissioned in 4QFY17
Source: MOSL, Company
Profit would double in two
years on commissioning of
PPA supplies at Dhairwal
and growth at Firstsource.
Exhibit 3: PAT bridge FY16-18
Integrated utility
business
1,301
3,704
656
Asset sweating
3,415
234
612
16
8,626
Source: MOSL, Company
Exhibit 4: CESC SOTP valuation
Source: MOSL, Company
18 November 2016
2

CESC
Exhibit 5: Utilities sector valuation
Rating
Powergrid
NTPC
JSW Energy
CESC
Coal India
Buy
Buy
Buy
Buy
Neutra
MCAP
(INR) (INR) (dw) % (USD M)
193
152
57
599
306
209
199
86
940
327
9
31
51
57
7
14,942
18,509
1,383
1,181
28,619
CMP
TP
Up/
EPS (INR)
FY16
11.5
12.3
8.5
27.8
22.6
FY17E
14.2
11.9
4.6
40.9
17.0
FY18E
16.8
14.3
6.7
64.7
21.1
P/E (x)
FY17E
13.6
12.8
12.5
14.6
18.0
FY18E
11.5
10.6
8.5
9.3
14.5
P/B(x)
FY17E
2.0
1.3
1.0
1.4
5.5
FY18E
1.8
1.2
1.0
1.2
5.3
RoE (%)
FY17E
16.1
10.6
8.6
9.1
31.3
FY18E
16.6
11.9
11.8
14.1
37.5
Source: MOSL, Company
18 November 2016
3

CESC
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenses
EBITDA
% of Net Sales
Depn. & Amortization
EBIT
Net Interest
Other income
PBT before EO
EO expense
PBT after EO
Tax
Rate (%)
Reported PAT
Minority and Associates
Adjusted PAT
Change (%)
2012
58,917
13.8
49,195
9,722
16.5
3,401
6,321
3,451
1,323
4,193
257
3,936
1,492
37.9
2,445
14
2,716
5.6
2013
75,567
28.3
62,906
12,661
16.8
3,645
9,016
4,304
1,437
6,149
-418
6,567
1,758
26.8
4,809
-215
4,176
53.8
2014
101,109
33.8
84,883
16,226
16.0
4,714
11,512
5,660
1,734
7,585
0
7,585
1,856
24.5
5,729
-813
4,916
17.7
2015
110,666
9.5
91,721
18,945
17.1
5,889
13,056
9,565
1,490
4,981
0
4,981
1,992
40.0
2,989
-1,004
1,985
-59.6
2016
118,995
7.5
90,513
28,483
23.9
7,725
20,758
14,856
2,191
8,092
40
8,052
3,087
38.3
4,965
-1,301
3,704
86.6
2017E
135,582
13.9
103,942
31,640
23.3
8,717
22,922
14,699
2,163
10,386
8,989
1,398
3,396
243.0
-1,999
-1,543
5,447
47.1
(INR Million)
2018E
147,720
9.0
113,104
34,616
23.4
8,986
25,630
13,995
2,445
14,079
0
14,079
3,663
26.0
10,416
-1,790
8,626
58.4
(INR Million)
2018E
1,332
63,232
64,564
14,830
145,372
795
225,561
289,992
97,510
192,482
5,130
24,692
801
68,493
7,826
17,737
24,583
18,348
66,038
7,607
58,431
2,455
225,561
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Goodwill
Investments
Curr. Assets
Inventories
Account Receivables
Cash and Bank Balance
Others
Curr. Liability & Prov.
Account Payables
Provisions & Others
Net Curr. Assets
Appl. of Funds
E: MOSL Estimates
2012
1,256
47,167
48,423
27
52,947
0
101,397
2013
1,256
50,180
51,436
7,425
96,608
285
155,753
146,690
60,502
86,189
51,097
22,938
976
51,937
4,342
16,201
14,314
17,081
57,383
5,775
51,608
-5,446
155,753
2014
1,256
55,094
56,350
9,079
119,164
332
184,925
185,350
65,631
119,719
53,117
25,392
737
50,798
5,383
15,302
12,422
17,692
64,838
5,318
59,521
-14,040
184,925
2015
1,332
58,958
60,290
10,004
142,020
832
213,146
258,955
72,685
186,270
4,102
22,417
735
65,858
6,625
17,066
16,453
25,714
66,235
6,007
60,228
-377
213,146
2016
1,332
61,345
62,677
11,497
149,053
795
224,022
270,708
79,807
190,901
5,130
22,907
801
66,632
6,967
14,146
18,182
27,336
62,350
5,981
56,369
4,282
224,022
2017E
1,332
56,205
57,537
13,040
148,428
795
219,800
279,646
88,524
191,123
5,130
24,692
801
62,429
7,437
16,550
20,095
18,348
64,376
6,967
57,408
-1,947
219,800
82,696
24,542
0
914
39,719
4,077
9,941
14,283
11,418
46,474
4,342
42,133
-6,755
101,397
18 November 2016
4

CESC
Financials and Valuations
Ratios
2012
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE (post-tax)
RoIC (post-tax)
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Leverage Ratio (x)
Net Debt/MW
Net Debt/EBITDA
Debt/Equity
21.6
48.7
385.5
5.0
23.1
2013
33.2
62.3
409.5
7.0
21.1
2014
39.1
76.7
448.6
8.0
20.4
2015
14.9
59.1
452.6
9.0
60.4
40.4
10.2
1.3
10.9
1.5
5.7
6.6
6.3
0.7
0.6
62
25
15
4.0
0.8
8.4
6.8
10.3
0.9
0.5
78
21
26
6.5
1.4
9.1
6.7
10.9
0.8
0.5
55
19
34
6.6
1.6
3.4
6.3
6.0
0.6
0.5
56
22
40
6.6
1.8
2016
27.8
85.8
470.5
10.0
36.0
17.0
5.5
1.0
6.8
2.1
6.0
9.1
7.4
0.6
0.5
43
21
29
4.6
1.8
2017E
40.9
106.3
431.9
10.0
24.5
14.6
5.6
1.4
6.6
1.7
9.1
9.8
-18.9
0.7
0.6
45
20
29
4.1
1.8
2018E
64.7
132.2
484.6
10.0
15.4
9.2
4.5
1.2
5.8
1.7
14.1
11.0
11.2
0.8
0.7
44
19
28
3.5
1.5
Cash flow statement
EBITDA
WC
Others
Direct taxes (net)
CF from Op. Activity
Capex
Interest income
Investments in subs/assoc.
Others
CF from Inv. Activity
Share capital
Borrowings
Finance cost
Dividend
Others
CF from Fin. Activity
(Inc)/Dec in Cash
Opening balance
Closing balance (as per B/S)
E: MOSL Estimates
2012
9,722
-272
1,102
-1,445
9,108
-24,519
576
-406
74
-24,276
20
16,434
-3,642
-579
1,126
13,360
-1,809
16,091
14,283
2013
12,661
5,406
1,968
-1,479
18,556
-36,148
770
-5,127
2,581
-37,924
10
24,494
-5,465
-726
1,085
19,399
31
14,283
14,314
2014
16,226
7,301
1,125
-2,141
22,511
-34,209
670
0
912
-32,627
37
19,282
-11,134
-1,021
1,061
8,225
-1,891
14,314
12,422
2015
18,945
-10,274
2,729
-2,506
8,895
-19,509
550
-369
1,155
-18,172
5,021
20,980
-11,978
-1,168
454
13,309
4,031
12,422
16,453
2016
28,483
-4,025
3,132
-3,311
24,280
-12,675
329
-681
1,076
-11,952
117
6,420
-15,303
-3,009
1,176
-10,599
1,729
16,453
18,182
2017E
31,640
7,102
-8,989
-3,396
26,357
-10,724
0
0
2,163
-8,561
0
-625
-14,699
-1,599
1,039
-15,883
1,913
18,182
20,095
(INR Million)
2018E
34,616
-936
0
-3,663
30,017
-10,346
0
0
2,445
-7,902
0
-3,057
-13,995
-1,599
1,023
-17,628
4,488
20,095
24,583
18 November 2016
5

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CESC
No
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CESC
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Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
18 November 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
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