We retain our ‘hold’ rating on CESC with a lower target price of Rs 589 per share (earlier Rs 602). We use a DCF-driven sum of the parts approach to value CESC. Our target implies FY17e P/B of 1.1x and FY17e P/E of 6.7x, while the stock currently trades at FY17e P/B of 0.9x and FY17e P/E of 5.9x. We have cut our generation estimates for the Chandrapur plant for FY16 given the lack of FSA and PPAs. Along with this, taking generation till November 2015 into consideration, we have cut our generation expectations for the standalone business although we increase our numbers for the Haldia plant. Accordingly, our FY16e earnings fall by 34%, while we make only minor changes in our FY17e earnings.
We expect reduced generation from the Chandrapur plant and as a result losses from this plant will widen leading to an earnings cut by 34% for FY16e. We also expect reduced generation from standalone plants but increase generation from the Haldia plant; overall these changes will have a minor impact on earnings. Our FY16e earnings cut is mainly due to our cut in generation from the Chandrapur plant.
During Q2FY16, the company reported 8% y-o-y growth in sales per sq. feet per month and store level ebitda per sq. feet per month growth of 41% y-o-y. But store level ebitda per sq. feet month declined q-o-q from R92 per sq. feet per month to R83 per sq. feet per month.