CESC Q4FY21 Results Review Report - Loss decline, strong CF make valuation attractive - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

CESC Q4FY21 result highlights recovery in demand and depleting losses. Volume in standalone business increased 4% YoY, while T&D losses in FY21 declined to 8.35% vs 8.9% YoY. This led to 9.6% YoY increase in the company's standalone PAT. On consolidated basis, too, CESC reported PAT growth of 4%, led by trimming losses in the distribution franchisee segment (DF) and improved earnings at Haldia unit. In FY21, Dhariwal turned profitable, while losses in DF reduced significantly. We have revised our TP upwards to INR1,011 (vs INR769 earlier), factoring in improved performance in the standalone business (with tariff approval from WBERC), depleting losses in DF, turnaround in the Dhariwal project, attractive valuation (0.9x FY23BV and 7.0x FY23PE consolidated), and high dividend yield (6%).

Earnings improve on demand recovery and depleting losses: Volume in standalone business increased 4% YoY (on low Q4FY20 base), while T&D losses in FY21 declined to 8.35% vs 8.9% YoY. Coupled with higher other income (on recognition of arrear income) and lower tax expenses, this led to a 9.6% YoY rise in standalone PAT to INR2.7bn. Consolidated PAT increased 4% YoY to INR4.6bn in 4QFY21, led by improved performance in standalone business, DF, and Haldia unit. For FY21, standalone PAT declined 11.3% YoY to INR8.1bn due to lower power demand; however, consolidated PAT increased 4.4% to INR13.6bn, driven by a turnaround in Dhariwal, higher PAT at Haldia, and depleting DF losses (INR380mn vs INR500mn YoY).

Consolidated PAT to grow at 5% CAGR over FY21-23: Standalone business is expected to normalise in FY22 (amidst demand recovery). Further, we believe that, with the conclusion of state election, the regulator would finalise the pending tariff orders for the company, which would lead to liquidation of regulated assets (INR11.5bn) and approval of Capex plan (INR12bn with ~INR4bn - equity Capex). This would enhance regulated earnings by ~INR500mn. It should scale up its standalone PAT to INR9.5bn in FY23. Further, we expect the overall DF business to turn profitable in FY22, with reduction in AT&C losses. For FY23, we expect overall DF business to report a PAT of INR450mn. Overall, we expect the company's consolidated profit to grow at a CAGR of 4.8% over FY21-23 to INR15.0bn.

Maintain BUY: On a consolidated basis, CESC is currently valued at an attractive P/BV of 0.9x FY23BV and a PE of 7x FY23. A high dividend payout of INR45/share (~6% yield) will augur well for the company and will be in tune with investors' expectations. Hence, we upgrade our TP to INR1,011 from INR769 earlier (upside potential of 29% from the CMP).

Shares of CESC LTD. was last trading in BSE at Rs.764.25 as compared to the previous close of Rs. 780.5. The total number of shares traded during the day was 93022 in over 6004 trades.

The stock hit an intraday high of Rs. 792 and intraday low of 755.6. The net turnover during the day was Rs. 71389075.

Source : Equity Bulls

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