Calcutta Electric Supply Corporation (CESC) reported better than expected numbers for Q2FY19, with revenues up 7.6% year-on-year to Rs 22.6 billion — 1.6% better than our estimate.
Calcutta Electric Supply Corporation (CESC) reported better than expected numbers for Q2FY19, with revenues up 7.6% year-on-year to Rs 22.6 billion — 1.6% better than our estimate. The revenue increase could be attributed to 7.3% y-o-y improvement in sales volumes, from 2.76 BUs in Q2FY18 to 2.96 BUs in Q2FY19. PAT of Rs 2.8 billion was up 11.2% y-o-y and better than our estimate of Rs 2.6 billion.
Net worth has reduced from Rs 137 billion at FY18 end to Rs 97 billion in H1FY19, after the demerger. T&D losses declined from 10.8% in Q2FY18 to 9.65% in Q2FY19. PLF of both Haldia and Chandrapur power plants improved y-o-y in Q2FY19: a) Haldia – PLF increased from 88.19% to 96.26%, taking total units sold to 1.17 BUs; b) Chandrapur – PLF rose from 43.18% to 48.73% as units sold increased to 589 MUs.
PLF of CESC’s Haldia power plant improved from 88.2% in Q2FY18 to 96.3% in Q2FY19, while that of Chandrapur rose from 43.18% to 48.73%. The improvement in Haldia’s utilisation was pegged to higher demand from CESC and that of Chandrapur to the start of supply under the 187 MW PPA with NPCL and the 8-month 185 MW MT PPA with Madhya Pradesh from April.
We maintain our ‘buy’ rating on CESC, which is now housing only the erstwhile entity’s power businesses (and free from unrelated investments), with a target price of Rs 881 per share. The stock is currently trading at FY20E P/E of 7.7x and P/BV of 0.9x, which, in our opinion, implies a good margin of safety.
Further, we don’t believe that the possibility of unrelated investments and larger than expected holdco discount to the firm’s stake in FSL poses a risk to our investment thesis any longer. But we will remain watchful about the delay in tie-up of the remaining capacity at Chandrapur and the loss trajectory of the firm’s foray into distribution franchises.