MOSL: CESC (Buy)-Sharp jump in consol. PAT led by lower losses at Dhariwal-T&D losses at Kolkata reduce to 9.7%

CESC: Sharp jump in consol. PAT led by lower losses at Dhariwal; T&D losses at Kolkata reduce to 9.7%; Maintain Buy

CESC's standalone 4QFY18 PAT declined ~1% YoY to INR2.9b (3% miss). PAT grew by just ~1% YoY to INR8.7b in FY18, as delay in approval of the tariff order is driving under-recovery in expenses and return on capital. However, in the absence of operating performance improvement, PAT would have declined, in our view. T&D losses reduced impressively by ~140bp YoY to 9.7%. In FY18, electricity sales grew ~8% YoY to 10.3BU, while Merchant power sales rose ~4x YoY to 611MU.

Consolidated: PAT grew 45% YoY to INR10b in FY18

• Sharp growth in consol. PAT is driven by a reduction in losses at Dhariwal by more than half to INR1.9b, led by the benefit of the Noida PPA. Dhariwal PLF improved from ~29% in FY17 to ~45% in FY18.
• Spencer turned marginally EBITDA positive to INR180m, while net loss declined from INR1b in FY17 to ~INR300m in FY18. Sales growth was weak at ~4% YoY to INR20.9b. Lower overheads and GST gains drove EBITDA.
• Loss at distribution franchisees of ~INR1.2b was a negative surprise. We expect operations to turn PAT positive from FY19, as it improves on its understanding of the circles after first full year of operations in FY18.
• Haldia's PAT increased 5% YoY to ~INR3b. Firstsource's attributable PAT rose ~17% YoY to ~INR1.8b. Losses at some of the other businesses increased YoY, likely due to higher losses at the newly initiated FMCG business