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CESC’s reported consolidated revenues for Q3FY23 were up 11.3% YoY to Rs34.6bn, while EBITDA was flat YoY at Rs8.3bn and PAT down 3% YoY at Rs3.2bn. Key factorsimpacting consolidated profit during Q3FY23 included: 1) 104% YoY increase in Noida Power profit at Rs550mn on higher power demand and incentives; 2) steady performance of the Kolkata distribution business; 3) 14.5% YoY decline in profit of Haldia plant at Rs710mn (as the regulator is yet to allow pass-through of higher coal cost and O&M expenses, which CESC is partly recognising under regulatory assets while not booking the balance amount; Haldia’s RoE is still >20%); 4) loss of Rs110mn (vs profit of Rs20mn in Q3FY22) at Rajasthan DFs, mainly due to Kota; 5) higher loss at Malegaon at Rs190mn (vs loss of Rs120mn) as power loom industry remains under stress; and 6) 2% YoY increase in profits for Dhariwal at Rs510mn.Maintain BUY.

? Kolkata distribution business performance was stable: Standalone revenues wereup 4.1% YoY at Rs19.4bn while PAT increased 1.1% YoY to Rs1.9bn. Power sales volumes at Kolkata were 1.3% higher YoY at 2,201MU, resulting in higher revenues, while T&D losses were at 7.97% (down 53bps YoY). Standalone generation declined 3.1% YoY to 1,203MU and power purchase was up 5.4% YoY to 1,309MU. Company is focusing on cost optimisation for its Kolkata businesses. Consolidated PAT at Rs3.2bn was down 3% YoY. Other income declined 24.6% YoY to Rs950mn.

* Haldia RoE at >20% despite disallowance: CESC filed a petition with APTEL against the disallowance by the regulator for pass-through of the higher cost of coal and increase in the O&M expenses of the Haldia plant. While this has resulted in underperformance for Haldia on YoY basis, its annualised RoE continues to be >20%. In Q3FY23, Haldia revenues increased 7.9% YoY to Rs6.3bn, but PAT declined 14.5% YoY to Rs710mn – while, in 9MFY23, revenue / PAT declined 11.8% / 29.7% YoY to Rs15.6bn / Rs1.9bn, respectively.

* DFs post losses; Noida Power’s profits increase: Rajasthan DFs posted higherlosses at Rs110mn vs profit of Rs20mn in Q3FY22, mainly due to weak performance ofKota circle. However, with increased economic activities, we expect volumes at Rajasthan DFs to improve and losses to decline in FY24, especially for the Kota circle.Malegaon DF continued its underperformance posting a loss of Rs190mn (vs loss of Rs120mn in Q2FY23) as the power loom industry has not yet recovered from covid impact. This has been a drag for the past several quarters and we expect the company to take measures to reduce the losses in FY24. Currently, Malegaon’s AT&C loss ranges at 35-40%. Noida Power’s profit increased 104% YoY to Rs550mn due to good growth in power demand leading to higher incentives. Chandrapur’s volumes increased 27.4% YoY to 981MU, but its profit increased 2% YoY to Rs510mn, due to lower merchant realisations YoY.

* Maintain BUY with an unchanged target price of Rs120. We revise our estimates based on 9MFY23 performance, especially for DFs. The stock is currently trading at 6.7x P/Eand 0.9x P/BV on FY24E basis, with a dividend yield of ~7%.

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