13 January 2021
3QFY21 Results Update | Sector: Utilities
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
90.6 / 1.2
784 / 366
TP: INR873 (+28%)
S/A improves as demand recovers
Dhariwal, DF performances continue to improve
Financials & Valuations (INR b)
2020 2021E 2022E
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
110.1 106.6 110.8
CESC’s 3Q results highlight volume recovery in the S/A business. Volumes in
S/A were just 1% YoY lower (v/s 1H: -21% YoY). S/A PAT was up 3% YoY.
Consol. PAT, on the other hand, grew 21% YoY, partly led by profit at
Dhariwal and improved performance at Crescent & Surya.
Performances at Dhariwal and distribution franchises (DFs) would continue
to improve. Furthermore, the co. has declared an interim dividend of
INR45/sh, highlighting the co.’s willingness to return excess cash. Despite
factoring in the tightening of norms at Haldia and S/A, the stock trades
attractively at 7x FY22 P/E. Maintain Buy, with TP of INR873/sh.
S/A PAT rose 3% YoY to INR1.8b (broadly in line with our estimate of INR1.7b).
This was largely on account of just 1% YoY decline in sales volumes at 2.6BU.
Consolidated PAT, though, was up 21% YoY to INR3.2b in the quarter, led by
improved performances at Dhariwal and Crescent & Surya.
CESC has further declared an interim dividend of INR45/sh, indicating
payout ratios of ~50% (v/s 20–25% payout historically), significantly higher
than our est. of INR23/sh for FY21. This is a positive surprise and highlights
the co.’s willingness to return excess cash to shareholders. As per our
interaction with the co., receivables have declined to ~INR28b from INR33b
at the end of 1H. Further recovery is expected in 4Q.
CESC approved a proposal to consolidate all its distribution businesses (except
Kolkata) into a new wholly owned subsidiary. The co. further indicated plans to
increase its holding in NPCL to 72.7% from the current 49.6%.
Dhariwal reported profit of INR280m (v/s loss of ~INR150m in 3QFY20) on
account of a new PPA signing and the pass-through of higher coal cess in
tariff. Dhariwal had signed a 185MW PPA with Maharashtra in 3QFY20,
which had been extended up to Jan ’21.
Profits of Crescent & Surya rose to INR60m in 3QFY21 v/s loss of INR180m
in 3QFY20. The previous year was impacted by equipment-related issues.
DFs in Rajasthan reported profit of INR210m in 3QFY21 v/s profit of
INR270m in 3QFY20. The co.’s recently acquired Malegaon DF reported loss
of INR140m in 3QFY21.
Profits of Haldia improved to INR900m in 3QFY21 v/s INR830m in 3QFY20
on account of O&M savings.
Subdued power demand has impacted the profitability of CESC’s businesses
in the near term. However, the medium-term story remains intact. Dhariwal
has turned profitable, and the performances of DFs should continue to
improve as the co. gains a better understanding of the circles and leverages
from its experience in Kolkata.
S/A profitability improves; dividend of INR45/sh declared
722.7 774.9 824.5
New PPA, coal cess pass-through aids Dhariwal
Shareholding pattern (%)
FII Includes depository receipts
Strong FCF generation; maintain Buy
Aniket Mittal – Research Analyst
13 February 2020
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.