CESC's Q3FY19 results (Outperformer) - Wins another distribution franchisee
Q3FY19 Highlights
- CESC operated its three key power plants Budge Budge (standalone), Dhariwal and Haldia (operating under subsidiaries) at a PLF of 78.6% (+100bps), 88.2% (+101 bps) and 72.9% (+3590 bps) in Q3FY19 respectively. T&D loss for distribution license area was 9.8% (-100bps) in Q3FY19. PLF of Budge Budge along with reduction in T&D losses (compared to norms) are key to CESC standalone earnings
- CESC has filed petition for new tariff period FY19-FY20. We expect the tariff order and norms for the current tariff period and norms to be decided by Q4FY19.
- Reported Standalone PAT was Rs1.7bn, a growth of 12% yoy, for Q3FY19 (above est of Rs1.6bn). Power sold in Kolkata License area declined by 2% in Q3FY19 while grew by 1.8% in 9mFY19
- CESC won a distribution franchisee in Malegaon circle. The distribution franchisee has a loss of 52.5% and the total input energy in distribution circle is 1280MU. This is fourth win of CESC under distribution franchisee. Note that competition under distribution franchisee has reduced significantly with most of the bids witnessing two to three players.
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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