Q3FY19 Highlights
Key positives: T&D losses of 9.8%; winning the fourth distribution franchisee; Tie up of power for Dhariwal for short term
Key negatives: Delay in tariff order and setting of norms for FY19-20E time period
Impact on financials: Maintain our earnings estimates for FY19E/FY20E and introduce EPS of Rs110/share in FY20E
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 better outlook for short term power will reduce the losses for the plant in FY19/FY20E. CESC trades attractively at 8xFY20E earnings. Reiterate outperformer with a SOTP based target of Rs810/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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