>CESC (ICICI SECURITIES)

CESC registered impressive Q1FY10 results, with PAT growing 11.7% YoY to Rs1,050mn versus Rs940mn in Q1FY09; revenues stood at ~Rs.8.1bn versus ~Rs7.4bn in Q1FY09, and EBITDA rose ~44% to ~Rs1.9bn. Q1FY10 results were significantly higher than expected owing to ~Rs1-bn cost-reversal adjustment that reduced other expenses to Rs960mn as against quarterly run rate of ~Rs2.2bn. Part of this cost reversal was adjusted in Q1FY10 tariffs; the adjustment in tariffs would sustain for the next few quarters. Other income fell ~53%YoY owing to higher capex for the Budge-Budge expansion. CESC’s retail business is on course, having achieved cost savings of ~Rs200mn and improved sales to Rs750/sqft in Q1FY10 on account of increasing focus on large-format stores. The stock declined ~22% from its peak in June ’09 and, based on our target price estimate of Rs470/share (~Rs435/share & Rs35/share for the power & retail businesses), we believe the stock is attractively priced. Maintain BUY.

■ Revenues rise ~3% YoY to ~Rs8.1bn owing to higher demand from Kolkata License Area, with unit sales increasing ~7% to 2,057 KWh. However, a large part of this demand was met by power purchase (which increased ~46% YoY) from the West Bengal State Electricity Board as CESC’s own generation marginally fell ~1% YoY to 1,978mn units.

■ PAT grows ~11.7% YoY on Rs1.03bn cost-reversal adjustment. CESC’s EBITDA & PAT jumped ~44% YoY & ~12% YoY respectively. This was owing to costreversal adjustment of ~Rs1.03bn that pulled down Q1FY10 other expenses to ~Rs960mn versus normal run rate of ~Rs2.2bn. Excluding other expenses, EBITDA & PAT declined ~15% YoY & ~35% YoY respectively on account of significant drop in other income and slight decrease in CESC’s own generation. However, since a large part of the cost adjustment is a part of tariffs, we believe Q1FY10 results and subsequent quarters would be better than, or inline, with expectations.

■ Retail business on right track. CESC’s retail business is on course – achieved cost savings of ~Rs200mn and improved sales to Rs750/sqft in Q1FY10 from Rs660sqft owing to shutting down loss-making stores and increasing focus on large format stores.

To see full report: CESC