CESC's Q1FY20 results (Outperformer) - Results ahead of estimates
Q1FY20 Highlights
- CESC operated its three key power plants Budge Budge (standalone), Halida and Dhariwal (operating under subsidiaries) at a PLF of 96.2 (vs 97.7% in Q1FY19), 87.9% (vs 92.6% in Q1FY19) and 70.8% (vs 80.6% in Q1FY19) in Q1FY20 whereas T&D loss for Kolkata distribution license area was 9% in Q1FY20 (vs 9.7% in Q1FY19) .
- PLF of Budge Budge along with reduction in T&D losses are key to incentive incomes for standalone business. However, norms for new tariff period FY19-FY20 are yet to be set by the regulator (regulator proposed T&D loss norm of 11.5%).
- Sales volume in Kolkata distribution Area (KLA) increased by 8% yoy to 3.0BU in Q1FY20. As a result, net revenue grew by 14% yoy to Rs24.1bn in the quarter.
- Reported standalone PAT was Rs2.1bn for Q1FY20 (est of Rs1.9bn), +19% yoy. Note that the regulator is yet to come out with tariff order for FY19-FY20E tariff period.
- Subsidiaries’ performance: Haldia reported profit of Rs760m (vsRs830m in Q1FY19) while Dhariwal and distribution franchisee reported losses of Rs240m (vs Rs240m in Q1FY19) and Rs530mm (Vs Rs560m of loss in Q1FY19). Noida Power (associate) reported a profit of Rs270m (vs Rs330m in Q1FY19). As a result, consolidated profit came in at Rs2.3bn(+ 9% yoy)
Key positives: T&D losses at 9.0% in Q1FY20
Key negatives: Delay in tariff order and setting of norms for FY19-20E time period; Losses in distribution franchisee and Dhariwal during the quarter
Impact on financials: Increase our earnings estimates by 2% for FY20E and maintain our earnings estimates for FY21E
Valuations & view
CESC’s operational performance in Kolkata License area (KLA) has been exemplary over years. Especially, T& D losses and PLF has been superior to benchmark in KLA, thus enabling a superior return profile from KLA.. Besides, the decline in T&D losses in DF businesses bodes well for return from DF businesses. Moreover, Dhariwal’s tie up of 300MW under long term and better outlook for short term power will reduce the losses for the plant in FY20E/FY21E. CESC trades attractively at 8xFY20E earnings. Reiterate outperformer with a SOTP based roll over target of Rs868/share
CESC is engaged in the business of generation and distribution of electricity within the licensed area of 567 sq. km in the city of Kolkata and adjoining areas and does not operate in any other reportable segment. The peak power demand in the licence area is now approximately 1,460 MW, which is met through CESC's internal generation capacities as well as through power purchased from the state and national grid. Power demand, however, fluctuates based on seasonality and the time of the day; the maximum demand for power is usually during the evening hours, with less power needs during rest of the day. The combined generating capacity of Co.'s four plants is 975 MW.
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