>CESC:: Still A Lot Of Value In Power - Maintain 1M Rating

■ Parent power continues to deliver — CESC’s parent power business, with 1225MW of generation capacity and the T&D circles of Kolkata and Howrah, continues to grow at a steady clip with FY10 PAT at Rs4.3bn up 6% YoY. We expect PAT CAGR of 7% over FY10-13E, driven by benign regulatory norms. With the commissioning of the 250MW Budge Budge, CESC has increased generation capacity by 25%+.

■ New projects on track — In Chandrapur (600MW), out of total capex of Rs29bn, CESC has already invested Rs7bn as equity. The BTG and BoP orders have been placed with Shanghai Electric and Punj Lloyd respectively. In Haldia (600MW), out of 380 acres of land required, CESC had already acquired 340 acres and 40 acres remain. CESC has now sorted the situation and has started distributing cheques for acquisition of the remaining 40 acres.

■ Retailing continues to bleed — CESC’s retailing business had a recurring cash loss of Rs2.5bn in FY10 vis-à-vis management guidance of Rs2.0bn. Further, the company also booked exceptional cash losses of Rs430mn. The retailing business continues to be a major drag on CESC.

■ Earnings revision — We revise down our parent EPS estimates by 7-9% and consolidated EPS estimates by 27% over FY11E-12E. We expect the parent business to grow EPS at a CAGR of 7% and consolidated business to grow EPS at a CAGR of 24% over FY10-13E.

■ Target price cut to Rs498 — The cut factors in – (1) earnings revisions; (2) roll forward of DCF on parent/ Dhariwal/ Haldia to Dec10E from (Sep10E earlier); (3) removal of 15% discount on two new projects and (3) no franchise value to CESC’s retailing business, given losses here have been ahead of expectations.

To read the full report: CESC