MOSL: CESC (Buy)-In-line-Dhariwal Noida PPA to boost earnings
CESC: In-line; Dhariwal Noida PPA to boost earnings
(CESC IN, Mkt Cap USD1.9b, CMP INR910, TP INR1360, 50% Upside, Buy)
- Demerger to re-rate Distribution business; Buy: CESC’s PAT grew 2.3% YoY to INR1.78b, marginally below our estimate of INR1.82b. Sales grew 2.6% YoY to 2,853MU, after declining for the last few quarters. Realization rose 7.1% YoY to INR7.66/kWh. T&D loss (provisional) declined 100bp YoY to 11.1%, which would have driven higher incentive income.
- Dhariwal generation increased on start of PPA and merchant contracts: Dhariwal PLF rose 24pp YoY to ~54% in 1QFY18, led by the start of Noida PPA and sale in merchant market. We expect Dhariwal’s EBITDA to increase from INR109m in FY17 to INR2,810m in FY18 on full benefit of the PPA. Dhariwal has also secured a few merchant contracts under DEEP for three months for supplying 300MW at INR3.1-3.3/kWh. Haldia (600MW) PLF rose ~3pp YoY to ~85%.
- Spencer growth slows: Same-stores sales growth decelerated from double-digit in the last few quarters to just ~2% YoY. Avg. sales per stores/sq.ft/month declined ~3% YoY to INR1,530 due to an increase in retail space, where revenue is comparatively lower. EBITDA per store declined 3% YoY to INR94/sq.ft/month on weak sales. While 1Q was not encouraging, we believe Spencer is on track to turn EBITDA break-even in FY18, driven by its focus on controlling costs.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
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