Standalone performance impacted by absence of tariff hike
Spencer returns to growth, PLF at Dhariwal improves; Maintain Buy
CESC’s standalone (S/A) 1QFY19 PAT grew 2.2% YoY to INR1.8b (in-line). Sales declined 0.5% YoY to 2.8BU. T&D losses were down 290bp YoY to 9.7%. It sold 91MU in the merchant market, as against 8MU in 1QFY18. Depreciation was flat QoQ, indicating capitalization was muted in the quarter.
Spencer – sales growth turns positive; adds three stores
* Sales growth turned positive after four quarters of decline. Sales grew 3% YoY, while same-store sales increased 1% YoY. It added three stores in the quarter, with store area increasing 2.5% QoQ to 1.21m sq.ft. Store EBITDA (at INR97/sqf/m) and same-store EBITDA (at INR102/sqf/m) were marginally higher-to-flat YoY.
* Dhariwal – PLF improved to ~80% from ~54% in 1QFY18, driven by the start of short-term PPA to Maharashtra. We estimate Dhariwal’s EBITDA to increase by ~1.6b YoY to INR3.8b in FY18, primarily driven by the benefit of the PPA.
Demerger to unlock value; Maintain Buy
The tariff order for the Kolkata circle for FY18 was approved with a delay (in July 2018), but there was no tariff hike. The regulator has disallowed certain cost (like income tax, employee cost), which is driving under-recoveries. A significant portion of the disallowed costs is linked to actuals, and thus, will be recovered at time of true-up. The tariff order for FY19 is unlikely to be approved before 3QFY18, until which S/A profit growth would remain muted. Dhariwal operations are expected to improve on supply under short-term PPAs. Spencer operations remain EBITDA positive. The demerger is pending the approval of the West Bengal Electricity Regulator. We believe the demerger would unlock value in distribution and retail operations. We value the stock on SOTP. Our TP is revised down to INR1,292 after factoring in lower regulatory equity addition in FY18. Maintain Buy.
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