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Research
CESC - Impressive result on tariff hike after WBERC approval; maintain Buy - BRICS
Posted On : 2012-05-09 21:08:57( TIMEZONE : IST )
CESC's results were well above our and consensus expectations with PAT rising 138% yoy to Rs2.66bn, against our estimates of Rs2.08bn. Revenue grew 48% while EBITDA margins improved 618bps to 29.7%. Impressive growth numbers primarily reflect the cumulative adjustments for the first three quarters following the delay in approval of the tariff hike order. On the retail front, cash losses were Rs90mn per month and are expected to come down to Rs50mn per month by March 2013. CESC trades at an attractive P/B of 0.6x FY13, which is at a substantial discount to peers. Maintain Buy.
Generation grew by 9%: CESC's generation was up by 9.4% with a PLF of 74% against 68% yoy. Demand in the Kolkata license area grew by a moderate at 3.1% which helped reduce power imports. Tariffs were up 43% yoy, primarily reflecting pending tariff increases of the first three quarters after approval from WBERC in March 2012. Consequently, overall revenue was up 48% yoy at Rs13.5bn.
EBITDA margin improved 618bps: EBITDA margin improved significantly as the under-recovery of fixed costs for the past three quarters was allowed as a pass through in the current quarter. Cost of power purchase declined 16.4% due to impressive generation growth but modest demand in the license area. Consequently, the company reported a PAT of Rs2.7bn, which was up 138% yoy.
Outlook: While the tariff order allowed a 69 pasie hike in tariffs, the company is to recover it (along with interest) over a period of 48 months. On the project front, both Chandrapur and Haldia are progressing as per schedule while Chandrapur is likely to sign a PPA in the current fiscal. Spencer's Retail's monthly losses are Rs90mn and expected to come down to Rs50mn by the end of FY13.
Valuation attractive: CESC trades at FY13 P/B of 0.6x. We believe the stock is attractively valued as it is a regulated business based on a reasonable risk-averse model, and it continues to trade at a discount to its peers while losses in retail show a consistent declining trend. We maintain our Buy rating with an SOTP based target price of Rs419.
