CESC has target of Rs 375: PN Vijay

CESC has target of Rs 375 in the next 15 months, says PN Vijay, Portfolio Manager.

Vijay told CNBC-TV18, "CESC is a very age old company. It has been functioning since 1899, called Calcutta Electric, it was a sterling coated company in the UK and in Calcutta. It got the long term perennial franchise to distribute electric power in Greater Calcutta. In the 80’s it was taken over by the Goenka’s and became an Indian company."
He further added, "Right now they have four production units which produce about 1500 megawatts of power. The Calcutta metropolitan area which in 1899 used to measure six kilometers, today measures 600 kilometers. So, they have monopolistic licence to distribute power."
"Right now what they are doing is about 85 percent or so the power they are able to produce and 15 percent they buy merchant power which is ofcourse a bit expensive for them. Going forward they have got two plants each, 300 megawatts in Haldia and Chandrapur, which are getting commissioned in the next 12-15 months and that should augment their own capacity, bring down their reliance to some extent on merchant power."
"Going forward why I am bullish on the stock, apart from the fact that financials are good, in the last quarter they reported an EBITDA growth of about 20 percent and PAT growth of about similar 20 percent. The triggers are one ofcourse, Firstsource, because of the unrelated diversification the share took a toss from Rs 330 to Rs 300 or so. So, that has been sort of factored in."
"The triggers apart from the fact that I mentioned Chandrapur and Haldia coming on stream in the next 15 months or so, one is the steep tariff revisions that the West Bengal tariff authority has given them which is more than 15 percent increase with retrospective effect. So, that is going to go straight to bottom-line in the coming quarters. Second is they have Spencer’s which is a medium sized retail chain with a strong presence and iconic brand value in the South. Mr Sanjiv Goenka has already announced plans to bring in a strategic partner, probably demerge the entity. Even the fact that FDI in retail is through, that is going to be a great kicker."
"Currently the share is trading around Rs 306. I expect that FY13 earnings to be of the order of about Rs 47 or Rs 48. So, it is about 8.5 times FY13 earnings, which is very good considering the strong operations, the distribution licence and retail trigger, the fact that it has got some properties and a 100 percent subsidiary which the Goenka’s would exploit in the next couple of years, a la Bombay Dyeing. So, I think that stock is good, the downsides are limited. It has hardly got any outstanding from State Electricity Boards (SEB)."
"Among the power generators I think this is the safest and best stock to pick. So, I am recommending this with a target price of about Rs 375 in the next 15 months."