CESC - Good results in a challenging environment - ICICI Securities

CESC has reported better-than-expected earnings for its consolidated business in Q1FY21 despite being affected by the lockdown. Standalone/consolidated PAT came in at Rs13.4bn/Rs2bn (-38.2%/-13.4% YoY) mainly due to combined loss of Rs640mn at Rajasthan distribution franchises (PAT -37.7% YoY) and the recently-started Malegaon DF. However, the loss was partly offset by good performance at Chandrapur (PAT Rs240mn vs loss of Rs240mn in Q1FY20). Lockdown affected not only the DF businesses, but also incentive income in the regulated business though DF losses were lower than expected. There was fixed-cost under-recovery, which is expected to be addressed in the coming quarters. We maintain our BUY rating and target price of Rs851/share on CESC.

- Consolidated PAT improves: Standalone PAT came in at Rs1.34bn, down 38.2% YoY while consolidated PAT fell 13.4% YoY to Rs2bn. Consolidated revenue / EBITDA were down 21.5% / 10.5% YoY at Rs26bn / Rs7.6bn. Standalone revenue / EBITDA were down 28.2% / 24.5% to Rs17.3bn / Rs3.7bn. There was fixed-cost under-recovery at standalone units, which is expected to be addressed by reducing employee cost in the coming quarters. Though volumes declined at Kolkata and Noida too during Q1FY21, their base RoEs were protected by virtue of their being regulated businesses. However, their incentive income was impacted.

- Lockdown impacts demand; both standalone and Haldia generation decline: During Q1FY21, standalone units' generation was down 22.6% to 1,329MU while Haldia operated at a PLF of 77% (down 12.6% YoY). Yet, Haldia's profits increased by 11.8% YoY to Rs850mn. Sales at Kolkata were down 30.7% YoY at 2,118MU.

- Chandrapur was the bright spot during the quarter: Chandrapur operated at a PLF of 76% vs 71% YoY with 913MU sold in Q1FY21. More importantly, for the second quarter in a row, Chandrapur made profit with a PAT of Rs240mn vs loss of Rs240mn in Q1FY20. Chandrapur's unit-2 is fully tied-up and is continuing to sell power under long-term PPAs at high PLFs, and repayment of debt is underway. The PPA with Maharashtra for the supply of 185MW is extended to 31st Oct'20. The plant's unit-2 also received favourable orders towards claims made in relation to change in law and other items.

- Distribution businesses performance affected still better than expected: For Q1FY21, profit of Noida Power declined 37% YoY to Rs1.7bn as the regulator reduced RoE from 16% to 15% from FY21 onwards. Rajasthan DFs' losses reduced by 37.7% YoY to Rs330mn due to improvement in AT&C losses over the past year. Nevertheless, lockdown severely impacted both demand and collections of DFs. CESC also took over the Malegaon DF in Mar'20 and Q1FY21 being its first full operating quarter, its revenue / loss came in at Rs520mn / Rs310mn. DF businesses are estimated to remain loss-making in FY21E.

- Maintain BUY: We maintain our BUY rating on CESC with a target price of Rs851/share. The stock is currently trading at FY22E P/E of 6.7x and P/BV of 0.7x.

Shares of CESC LTD. was last trading in BSE at Rs.620 as compared to the previous close of Rs. 609.1. The total number of shares traded during the day was 15853 in over 1395 trades.

The stock hit an intraday high of Rs. 625 and intraday low of 606.55. The net turnover during the day was Rs. 9771929.

Source : Equity Bulls

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