CESC‘s Q1FY20 standalone operating performance broadly met ours and consensus estimates.
CESC‘s Q1FY20 standalone operating performance broadly met ours and consensus estimates. Key highlights, standalone power sales rose 7% YoY to 3.0BU; Rajasthan’s distribu-tion franchise (DF) operations were below expectation as aggregate losses remained flattish at Rs 530 mn with Kota continuing to face some challenges; and Dhariwal losses maintained at Rs 240 mn. Tie-up of open capacity for Unit-1 at Dhariwal remains a key monitorable. CESC, in our view, is well positioned to capitalise on the emerging distribution franchise opportunity while generating a healthy FCF (INR10bn plus) from its regulated business. Maintain ‘BUY’ with revised SOTP-based target price of Rs 880 (Rs 840 earlier) as we roll forward the valuation to Dec-2020.
Standalone generation in Q1FY20 was flattish at 1,718MU (1,709MU in Q1FY19) with Budge-Budge and Southern stations recording 96.2% and 48.0% PLF, respectively. Overall sales inched up 8% YoY to 3.0BU with higher proportion of power purchase units. This was reflected in a 9% YoY jump in revenue. CESC recorded regulatory income of Rs 520 mn in Q1FY20 (expense of Rs 120 mn in Q1FY19), adjusting for which standalone EBITDA rose a marginal 2% YoY.
PLF at Haldia dipped 400 bps YoY to 88% and Dhariwal’s fell 10% YoY to 71%. The latter is yet to tie up its open capacity for Unit-1 under long-term PPA. Aggregate losses in Rajasthan geography (Kota, Bharatpur, Bikaner) was largely flattish at Rs 530 mn (Rs 560 mn in Q1FY19) as Kota continued to face challenges in reducing T&D losses. Malegaon circle handover is yet to be effected and is expected to be completed by Q2FY20 end. Further, crescent power shutdown impacted consolidated EBITDA by Rs 150 mn.
CESC’s rich experience in the distrib-ution space along with healthy FCF gen-eration from regulated business positio-ns it well to expand the DF business. T&D loss reduction in Kota and Malegaon ci-rcles will be key to watch for. Further, Dhariwal PPA tie up for the balance open capacity remains another key monito-rable. The stock is trading at FY20/21E P/B of 1.0/0.9x at the consolidated lev-el. We maintain ‘BUY’ with TP of Rs 880.