Buy CESC; target of Rs 350: PINC Research

PINC Research is bullish on CESC and has recommended buy rating on the stock with a target of Rs 350 in its May 9, 2012 research report.

“CESC’s Q4FY12 PAT of Rs2.7bn was ahead of our estimate of Rs2.0bn. This was primarily due to 13.3% tariff hike undertaken during the end of the quarter with retrospective effect. CESC accounted for under-recoveries of the previous quarters during Q4FY12. Earnings were also boosted by increased RoE. Performance of its retail venture continued to improve with avg. realisations rising by 7.4% YoY during FY12 to Rs1,060/sq ft/month against Rs987/sq ft/month in FY11. Maintain BUY with a target price of Rs350/share.”

“CESC, during Q4FY12 was allowed to raise tariffs by ~13.3% to Rs5.21/unit. The 2012-14 multi year tariff order also increased the RoE earned on regulated assets to 16% from 14.5% earlier. This coupled with write back of provisioning during the previous quarters and higher other income assisted in 138% YoY earnings growth to Rs2.7bn during Q4FY12. CESC’s Budge Budge stations PLF improved to 82.2% during Q4FY12 as compared to 64.4% in the corresponding period last year. This translated into 637bps improvement in the overall PLF to 74.4% during Q4FY12. Generation grew by 9.4% YoY to 2BU against 1.8BU last year. Spencer’s average realisations improved by 7.4% YoY to Rs1,060/sq ft/month during FY12 while its same store sales improved by 14.7% YoY to Rs1,147/sq ft/month. Spencer’s reported a store level EBIDTA of Rs32/sq ft/month during FY12.”

“We expect CESC to trade at discounted valuation as the parent continues to fund Spencer’s losses and capex of subsidiaries. We expect CESC’s capacity to nearly double by FY16 and Spencer’s Retail to break even during FY19. We value the generation businesses using FCFE and ascribe nil value to its retail business to arrive at our SoTP-based target price of Rs350/share. Maintain ‘BUY’ rating on the stock,” says PINC Research report.   

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