06-08-2023 04:00 PM | Source: JM Financial Institutional Securities Ltd
Buy CESC Limited For Target Rs. 100 For Target - JM Financial Institutional Securities
News By Tags | #872 #300 #6814 #1302

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Good operations over-shadowed by regulatory complexity

 

CESC reported consolidated net revenue of INR 35.4bn (+6% YoY, +3% JMFe) during 4QFY23, led by steady growth in power demand across all circles. EBITDA came in at INR 9.5bn (+15% JMFe), benefiting from higher regulatory income during the quarter. However, EBITDA ex-regulatory income stood at INR 5.1bn, which is 5% below JMFe. CESC reported PAT of INR 4.5bn (flattish YoY, +41% JMFe) largely led by growth in other income and impact of higher regulatory income. The company achieved a reduction in T&D losses (7.28% vs. 7.98% in FY22) in Kolkata, which is amongst the lowest in the country

JM View: We find CESC attractively priced at 0.7x FY25E P/B with potentially steady earnings growth on i) moderating losses at franchises; ii) recent PPA tie-up at Dhariwal; and iii) steady growth in regulated profitability with limited earnings risk. We expect CESC to be a potential beneficiary of the impending turnaround of the power distribution business. Going forward, earnings are expected to gradually improve with consistent strong performance at DIL’s plant and potential turnaround of Rajasthan and Malegaon DF in FY24/FY25E, while standalone business is largely stable given the regulated RoE model. The stock also offers a healthy dividend yield of 6.5%. Hence, we maintain our BUY rating on CESC with an unchanged SoTP-based TP of INR 100.

 

Segmental performance: CESC reported consolidated PAT INR 4.5bn largely aided by higher regulatory income during the quarter. The FY23 losses at Rajasthan franchisees declined to INR 250mn (vs. loss of INR 300mn in FY22) whereas losses increased at Malegaon to INR 770mn vs. loss of INR 570mn in last year. Dhariwal power project reported a strong performance (+78% YoY growth) backed by the 210MW medium-term PPA with Central Railways, and sale of balance power in the energy exchanges. Noida reported 7% YoY growth in FY23 profit. Standalone PAT remained flattish (+2% growth) led by 8% growth in units sold while Haldia reported a 22% decline in PAT

 

 Other Key Highlights:

* CESC’s distribution business witnessed over 8% demand growth in FY23. Rajasthan DF business reported 17% YoY growth in gross revenue, which stood at INR 18.5bn in FY23 as against INR 15.8bn last year. Noida Power reported revenue of INR 23.3bn in FY23, registering a growth of over 13% YoY. PAT increased by 7% to INR 1.6bn during the year

* CESC signed a long-term Renewable PPA with SECI (Solar Energy Corporation of India) for 100MW Wind Solar Hybrid for a duration of 25 years.

* It has also floated a tender to procure 150MW Wind Solar Hybrid renewable power under long-term PPA.

* Partial decline in regulatory income due to recent WBERC Regulations, 2023, is likely to be compensated with revision in tariff, which is long overdue.

 

 

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CIN Number : L67120MH1986PLC038784


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