CESC's Q4FY19 results (Outperformer) - Strong Operating metrics; reduced losses in subs
Q4FY19 Highlights
- CESC operated its three key power plants Budge Budge (standalone), Halida and Dhariwal (operating under subsidiaries) at a PLF of 90%/92%,74%/88% and 43%/61% in Q4FY19/FY19 respectively whereas T&D loss for Kolkata distribution license area was 9% in FY18. Besides, it has been able to reduce T&D losses by 3% in is distribution franchisee business
- PLF of Budge Budge and Haldia power plants along with reduction in T&D losses are keys to incentive income. However, norms for new tariff period FY19-FY20 are yet to be set by the regulator.
- Sales volume in Kolkata distribution Area (KLA) declined by 4% yoy to 2.3BU in Q4FY19. FY18 growth was flat (vs 9% growth) As a result, net revenue grew by (4)%/4% to Rs21bn/83bn in Q4FY19/FY19
- Reported PAT was Rs3.1bn for Q4FY19 (est of Rs2.95bn). while PAT for FY19 was Rs9.3bn, +8% yoy. Note that the regulator is yet to come out with tariff order for FY19-FY20E tariff period.
- Subsidiaries’ performance improves: Haldia reported profit of Rs3.2bn (vsRs3.1bn), Crescent power & renewables reported a profit of Rs540m while Dhariwal and distribution franchisee reported reduced losses at Rs930m (vs Rs2bn of loss in FY19) and Rs600m (Vs Rs1.2bn of loss in FY19). Noida Power (associate) reported a profit of Rs1.4bn. As a result, consolidated profit came in at Rs12bn(+ 35% yoy)
Key positives: T&D losses at 9.0% and reduction in T&D loss at distribution franchisee business by 3%
Key negatives: Delay in tariff order and setting of norms for FY19-20E time period
Impact on financials: Upgrade our earnings estimates by 8% for FY20E on better performance in subsidiaries
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 buinesses. 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 FY20/FY21E. 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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