9 May 2012
4QFY12 Results Update | Sector: Utilities
CESC
BSE SENSEX
16,546
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
S&P CNX
5,000
CESC IN
125.6
364/186
0/-1/2
33.2
0.6
* Excl Spencers; fully diluted
CMP: INR262
TP: INR439
Buy
4QFY12 operating results in-line, adjusted PAT boosted by higher other income:
CESC reported 4QFY12 PAT of
INR2.7b and PAT adjusted for sale of scrap of INR150m stood at INR2.5b v/s our estimate of INR2.1b. PAT during
the quarter boosted by other income and arrears recovery. Other income (including operating other income)
stood at INR690m for 4QFY12, ~INR400m higher than our estimate. Also, the tariff order approval led to
increase in core earnings for CESC by ~INR400m.
Steady state operating performance:
During the quarter power generation stood at 2BUs, up 9% YoY while
sales stood at 1.8BUs units (up 3% YoY). Average PLF for the plant stood at 77% v/s 68% YoY. For FY12 PLF for
Budge Budge stands at 90% (vs 83% YoY), Titagarh at 81% (vs 89% YoY), and Southern project at 87% (vs 92%
YoY). CESC purchased ~206MUs in 4Q to meet the power demand for the Kolkatta region and power demand
grew by 3.3% YoY to 2.1BUs.
Tariff order approval improves visibility on core profits, entails higher RoEs:
CESC has got the tariff order
approved for FY12-14E with average capex of INR6b for its distribution business. As a result, its RoE improved
150bp for both its generation and distribution businesses. This has meaningfully improved the core profitability
for the company. We expect CESC's RAB (i.e. regulated equity) to grow from INR25b in FY12 to INR29b in FY14
and core profit to grow from INR3.9b in FY12 to INR4.5b in FY14.
Spencer: Consolidation continues, focus on improving sales, operating profits:
In FY12, Spencer continued to
improve its operating performance with focus on higher sales, consolidation and cost control/efficiencies.
During the year, Spencer closed 35 Small Express Stores, opened 5 Hyper/2 Super Stores and average revenue
grew 11% YoY to INR1,060/sft/month, while same store sales grew 14% to INR1,147/sft/month.
Valuation and view:
We expect CESC to report standalone PAT of INR5.8b in FY13 (up 5% YoY) and INR6.1b in
FY14 (up 6% YoY). Stock trades at P/E of 6x FY13E standalone. Maintain
Buy
with SOTP based TP of INR439/sh.
Nalin Bhatt
(NalinBhatt@MotilalOswal.com) +91 22 3982 5429
Satyam Agarwal
(AgarwalS@MotilalOswal.com)
/
Vishal Periwal
(Vishal.Periwal@MotilalOswal.com)

CESC
4QFY12 performance ahead of estimates
CESC reported 4QFY12 PAT of INR2.7b and PAT adjusted for sale of scrap of INR150m
stood at INR2.5b v/s our estimate of INR2.1b. PAT during the quarter boosted by
other income and arrears recovery. Other income for the quarter stood at INR380m
v/s our estimates of INR213m and operating other income stood at INR310m, vs
INR130m QoQ. Our estimates has factored in ~INR400m of positive contribution
from change in RoE to 15.5% from 14% earlier, which is accounted in 4Q including
arrears for past 9MFY12.
During 4QFY12 fuel cost for CESC increased by 33% YoY and 4% QoQ and stood at
INR2.1/unit. CESC currently procures ~40% of its requirement from CIL.
For FY12, the reported net profit for the company stood at INR5.7b (up 21% YoY),
led by increase in core regulated profit owing to approval of tariff order. We
understand that benefit owing to change in RoE by 150bps for both its generation
and distribution was INR400m. Also, the higher other income and operating other
income boosted reported PAT.
Uptick in other income boost PAT (INR m)
Source: Company/MOSL
Steady state operating performance
Power generation stood at 2BUs during 4QFY12, up 9% YoY while sales stood at
1.8BUs units (up 3% YoY). Average PLF for the plant stood at 77% v/s 68% YoY. For
FY12 PLF for Budge Budge stands at 90% (vs 83% YoY), Titagarh at 81% (vs 89% YoY),
and Southern project at 87% (vs 92% YoY).
CESC purchased ~206MUs in 4Q to meet the power demand for the Kolkatta region,
power demand grew by 3.3% YoY to 2.1BUs.
9 May 2012
2

CESC
Generation/PLF moved up YoY
Demand up YoY
Source: Company/MOSL
Tariff order approval improves visibility on core profits, entails higher RoEs
West Bengal State Electricity Regulatory Commission (WBERC) has increased the
base RoE for Generation and Transmission/Distribution by 1.5% to 15.5% and 16.5%
respectively. CESC's regulated assets are broadly divided as 45:55 in generation
and distribution. Thus, weighted average RoE is expected to increase to 16.1%
from 14.5% earlier. This has meaningfully improved the core profitability for the
company.
Also, the tariff order has further approved the maintenance capex for the business
over the next 3 years (FY12 to FY14) at INR19b (INR6b pa on an average). We
expect regulated equity (RAB) for CESC to grow from INR25b in FY12E to INR29b in
FY14E and core profit to grow from INR3.9b in FY12E to INR4.5b in FY14E.
Growth in regulated equity and core RoE to drive regulated earnings (INR m)
Opening RAB
RAB Addition
Closing RAB
RoE (%)
Core Income
FY11
21,490
1,813
23,303
14.5
3,239
FY12
23,303
1,847
25,150
16.1
3,901
FY13E
FY14E
25,150
27,106
1,956
1,914
27,106
29,020
16.1
16.1
4,207
4,518
Source: Company/MOSL
Spencer: Consolidation continues, focus on improving sales, operating profits
FY12, Spencer continued improvement in operating performance with focus on
higher sales, consolidation and cost control/efficiencies. Spencer has closed 35
Small Express Stores and opened 5 Hyper and 2 Super Stores in FY12. Average
revenue has grown by 11% YoY to INR1060/sft/month, while same store sales
grew by 14% to INR1147/sq.ft/month.
As at 4QFY12, Spencer's total store under operation stood 182 v/s 195 QoQ. During
the quarter itself, the company has closed 14 Daily Express Stores. Area under
operation now stands at at 1.009msft lower than 1.02msft QoQ. Sales during the
quarter has been muted at INR953/sft/month v/s INRINR975/sft/month.
This along with focus on cost control, efficiencies have led to improvement in
operating performance. For FY12, Store level EBITDA stood at INR32/sft/month
v/s 1HFY12 store level EBITDA of INR31/sft/month.
9 May 2012
3

CESC
Consolidation: Closure of Stores
Continues (No.)
4QFY12 Sales muted, FY12 Sales
stood at INR1060 (up 10% YoY)
Store EBITDA: FY12 Closed with positive
store level EBITDA (INR/Sft/month)
Source: Company/MOSL
Valuations and view
We expect CESC to report standalone net profit of INR5.8b in FY13 (up 5% YoY) and
INR6.1b in FY14 (up 6.4% YoY). Stock quotes at PER of 6x FY13E on standalone basis.
Maintain
Buy
with SOTP based TP of INR439/sh.
9 May 2012
4

CESC
CESC: an investment profile
Company description
CESC, an RPG Group Company is one of the oldest
integrated power utilities in India with presence in
mining, generation, and distribution of power. Installed
generation capacity stands at 1.2GW and distribution
network encompasses 2.3m consumers in Kolkata and
Howrah region. 1.2GW of generation projects are under
construction and additional 6GW of projects are in
pipeline. CESC has presence in retail business "Spencer"
which has ~1msf area under operations.
Key investment risk
Continued losses at Spencer retail and funding
through standalone cash flows of CESC.
Open capacity at Chandrapur project.
Recent development
Tariff Approval for the period of FY12-14 received
for Kolkatta Distribution business, Capex approved
at INR19b, RoE increased by 1.5%
Consolidation continues at Spencer where-in in FY12
Spencer has closed 35 Small Express Stores and
opened 5 Hyper and 2 Super Stores in FY12
Key investment positives
Assured return from existing generation /
distribution business provides steady cash flows
(regulated profit at INR4b+ pa)
1.2GW project has entered construction phase and
company has made equity investments of INR10b+.
Consolidation and restructuring at Spencers has led
to reduction in operational losses to INR1.7b in FY11,
vs INR2.1b in FY10. Further reduction in losses/value
unlocking opportunity is possible.
Project pipeline of 6GW provides growth
opportunity going forward.
Valuation and view
We expect CESC to report standalone net profit of
INR5.8b in FY13 (up 5% YoY) and INR6.1b in FY14 (up
6.4% YoY). Stock quotes at PER of 6x FY13E on
standalone basis. Maintain
Buy
with SOTP based TP
of INR439/sh.
EPS: Most forecast v/s consensus (INR)
MOSL
Forecast
46.0
48.9
Consensus
Forecast
37.3
42.3
Variation
(%)
23.2
15.5
Target price and recommendation
Current
Price (INR)
262
Target
Price (INR)
439
Upside
(%)
66
Reco.
Buy
FY12
FY13
Stock performance (1 year)
Shareholding pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
52.5
16.8
17.9
12.9
Dec-11
52.5
16.6
18.2
12.8
Mar-11
52.5
17.4
18.7
11.4
9 May 2012
5

CESC
Financials and Valuations
9 May 2012
6

CESC
N O T E S
9 May 2012
7

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CESC
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