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Research
Hold CESC - Nirmal Bang
Posted On : 2012-11-19 05:23:18( TIMEZONE : IST )
CESC's Q2FY13 performance was inline with expectations with revenue growing by 8%, YoY and PAT growing 19%, YoY aided by margin expansion at operating level. We however downgrade the stock from Buy to Hold due to its recent foray into ITeS with the acquisition of Firstsource Solutions Ltd (FSL).
Revenue grew by 8%, YoY to Rs 1344 cr. This was helped by higher PLFs across its plants.
EBITDA at Rs 311 cr was up by 20%, YoY. EBITDA margin for the quarter was 23.1% as compared to 21% in Q2FY12. Improvement in margin was due to lower T&D losses (12.5% for Q2FY13 as compared to 12.8% in Q2FY12) and higher PLFs across its plants.
PAT for the quarter was Rs 136 cr, up by 19%, YoY. PAT margin was at 9.9% for the quarter which saw an improvement of 97 bps YoY.
Spencer's average sales increased from Rs 1066/sqft in H1FY12 to Rs 1218/sqft in H1FY13. Same stores sales have increased from Rs 1089/sqft in H1FY12 to 1270/sqft in H1FY13 registering a growth of 16%.
CESC recently acquired 49.5% stake in Firstsource Solutions Ltd (FSL). CESC will infuse Rs 275 cr in Firstsource by acquiring 34.5% fresh equity. The company has also entered into a separate agreement to acquire an additional 15% of FSL's diluted equity from 3 different shareholders (ICICI Bank, Metavante Investments Ltd and Aranda Investments Ltd). This will require another Rs. 120 cr from CESC.
Valuation & Recommendation
We feel that the unrelated nature of business acquisition will add strain to the company's finances. CESC's standalone cash balance of Rs 860 cr as on FY12 will witness a sharp drop which will put a strain on funding for its upcoming power projects in Haldia and Chandrapur. The company has to invest ~Rs 800 cr into its regulated business, Haldia & Chandrapur and its Retail arm over 2 years. It might have to resort to external funding which will weaken the balance sheet or dilute stake in some its projects which we feel is a negative. However we don't expect FSL to require cash like Spencer's.
Considering significant investments into a non core business and capital intensive projects coming up leading to stretched balance sheet, we downgrade our rating to Hold with a revised target price of Rs 331.
