Q2FY19 Highlights
Key positives: T&D losses at 9.65% and reduction in losses at Spencer in FY18; demerger of CESC into three entities
Key negatives: Delay in tariff order and setting of norms for FY19-20E time period
Impact on financials: Introduced our earnings estimates of the demerged entity for FY19E/FY20E at Rs11bn/Rs11bn.
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.. The focussed entity should be able to pursue growth opportunities in the power sector without being burdened by the losses at retail business. Moreover, Dhariwal’s tie up of 300MW under long term and 185MW under short term PPA will reduce the losses for the plant in FY19. CESC trades attractively at 8xFY20E earnings. We introduce our SOTP based target of Rs810/share and reiterate outperformer rating
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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