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Good earnings in a challenging environment

CESC has reported better-than-estimated earnings for its consolidated business in Q4FY21. Standalone / consolidated PAT came in at Rs2.7bn / Rs4.2bn, down 3.6% / up 8% YoY, mainly due to strong Kolkata operations, where T&D losses were lower than normative at 8.3% and power sales were 5.8% higher. As a result, Haldia’s PLF continued to be strong. Chandrapur turned PAT positive in FY21 (Rs1,060mn PAT vs loss of Rs100mn in FY20) aided by reduced interest expense due to debt repayment and higher PLFs. DF business’ recovery was halted by the second covid lockdown, which particularly hurt collections in Kota. Still, Bikaner and Bharatpur DFs remained profitable and Kota’s losses reduced. Malegaon’s first full operational year witnessed significant reduction in T&D losses. Maintain BUY with an unchanged target price at Rs903/share.

Kolkata distribution business continues its recovery:

Standalone revenue/ EBITDA was lower 4%/22.1% YoY at Rs18bn/Rs4.3bn, while that for the consolidated business was up 8.9%/0.3% at Rs29.9bn/Rs9.4bn. Volumes at Kolkata distribution was 5.8% YoY higher during Q4FY21 at 2,229MU, while in FY21, it was lower 10.8% at 9,107MU. During Q2FY21, standalone generation was down 3.2% YoY at 1,209MU. CESC’s receivables recovered to Rs23.1bn vs Rs32.7bn at H1FY21-end but was still higher vs FY20-end at Rs18.8bn. Although, there were challenges related to more than a month-long election period and second lockdown after the election results, CESC was better prepared both in terms of billing and collections compared to last year.

Chandrapur and Haldia performed well:

Growth in consolidated profits were aided by strong PLFs at both Haldia at 70% (down 286bps YoY) and Chandrapur at 85% (up 750bps). While Haldia’s profits increased 13.5% to Rs3.6bn, Chandrapur turned PAT positive in FY21 posting a profit of Rs1,060mn vs loss of Rs100mn. Chandrapur’s unit-2 is fully tied-up and continues to sell power under long-term PPAs at high PLFs, and repayment of debt is underway. PPA with Maharashtra for the supply of 185MW is extended up to 31st Oct’21. The plant’s unit-2 also received favourable orders towards claims made in relation to change in law and other items.

Distribution business’ performance affected, still better than expected:

In FY21, profit of Noida Power declined 28% YoY to Rs1bn due to reduction in RoE by the regulator FY21 onwards and regulatory assets liquidation (from Rs3.5bn to Rs2bn). Rajasthan DF business’ recovery was halted by the second lockdown, which particularly hurt collections in Kota. Still, Bikaner and Bharatpur DFs remained profitable and Kota’s losses reduced. DF losses reduced from Rs380mn in FY20 to Rs150mn in FY21. Malegaon’s first full operational year witnessed significant reduction in T&D losses and its FY21 revenue/loss was Rs4.5bn/Rs230mn.

Company announces share split on 1:10 basis in order to improve liquidity

Maintain BUY:

We maintain BUY on CESC with a target price of Rs903/share. The stock is currently trading at FY23E P/E of 6.9x and P/BV of 0.9x, and a dividend yield of 6.4%.

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