CESC's Q3FY20 results (Outperformer) - A steady quarter; Muted Demand in KLA
Q3FY20 Result highlights
- CESC operated its three key power plants Budge Budge (standalone), Halida and Dhariwal (operating under subsidiaries) at a PLF of 69.2% (vs 78.6% in Q3FY19), 87.4% (vs 88.2% in Q2FY19) and 67% (vs 73% in Q2FY19) in Q3FY20 whereas T&D loss for Kolkata distribution license area (KLA) was 9% in 9mFY20 (vs 9.7% in H1FY19).
- Note that PLF of Budge Budge along with reduction in T&D losses are key to incentive incomes/savings 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) was flat in Q3FY20. Besides, fuel and power purchase cost (pass through) declined by 11%. As a result, net revenue grew by 7% yoy to Rs18bn in the quarter.
- Reported standalone PAT was Rs1.76bn for Q3FY20 (est of Rs1.70bn), +3% yoy. Note that the regulator is yet to come out with tariff order for FY19-FY20E tariff period.
- Subsidiaries’ performance: Haldia reported profit of Rs830m (vsRs930m in Q3FY19), Distribution Franchisee reported profit of Rs270m (vs Rs200m in Q3FY19) while Dhariwal reported losses of Rs100m (vs Rs340m of loss in Q3FY19). Noida Power (associate) reported a profit of Rs290m (vs Rs3000m in Q3FY19). Consolidated profit came in at Rs2.7bn (+ 13% yoy) primarily led by reduction in losses at Dhariwal.
Key positives: T&D losses at 9.0% in 9mFY20; Tie up of 190MW of Dhariwal under tolling arrangement with state utilities at Rs2.89/unit
Key negatives: Delay in tariff order and setting of norms for FY19-20E time period;
Impact on financials: Maintain our earnings estimates; introduce our FY22E estimates
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 new tolling arrangements for 190MW will reduce the losses for the plant in FY2oE/FY21E. CESC trades attractively at 8xFY20E earnings. Reiterate outperformer with a SOTP based 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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