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Muted quarter; renewables key trigger

Haldia, Dhariwal & standalone business lead to underperformance

CESC (CESC IN) revenue rose 3.7% YoY to INR 32.4bn in Q3FY24, down 25% QoQ; EBITDA before adjusting for regulatory income declined 30% YoY to INR 3.5bnm down 46% QoQ, due to higher power procurement and fuel cost. Regulatory income increased 69% YoY to INR 5.6bn. Adjusted PAT fell 10.4% YoY to INR 3.0bn, led by lower profitability across the standalone business, fall in profitability in Haldia & Dhariwal business and lower other income. Other income dipped 40% YoY to INR 570mn. The absence of a tariff hike resulted in declining profitability by 8.6% YoY to INR 1.7bn for the standalone business. Lower generation due to lower availability of station due to maintenance shutdown resulted in a sharp fall in PAT for Haldia and Dhariwal by 32% YoY to INR 480mn and 18% YoY to INR 420mn, respectively. Generation was down by 10% at Haldia to 893mn units (MU) and by 20% at Dhariwal to 783MU, respectively.

Rajasthan distribution franchise remains

PAT positive Power demand remains robust across the Kolkata circle, up 6.5% YoY). Lower profitability across the generation business was partly offset by higher profit in the Crescent business. PAT registered a 200% YoY rise to INR 210mn in Crescent Power. Noida Power reported sales of 669MU in Q3, up 17.3%. Rajasthan distribution franchise (DF) reported a profit of INR 1.0mn in Q3 vs a loss of INR 110mn in Q3FY23. Malegaon’s loss extended to INR 270mn in Q3FY24 vs a loss of INR 190mn in Q3FY23.

Investment in renewables to drive growth further

CESC is exploring huge investment in renewable energy (RE) generation space and aims to achieve 3.0GW of hybrid portfolio. It has acquired 250 acres at Bikaner and is in advance stages of acquisition of 2,000 acres for its renewable energy projects (RE). It has approached Gujarat government for land to install a hybrid project. It has been selected as a successful bidder for 10,500 tonne pa green hydrogen manufacturing facility by SECI, which is likely to be commissioned in the next three years.

Valuation: reiterate Buy with a higher

TP of INR 167 In our view, CESC is reasonably valued, given: 1) steady and low-risk earnings from regulated standalone operations at Kolkata & Haldia distribution businesses, and 2) options value of incremental earnings from the distribution franchisee in Rajasthan with strong balance sheet. We introduce FY26 estimates. We reiterate Buy on FY26E SOTP-based TP of INR 167 from INR 110 with a further upside potential of INR 38 from its RE business.

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