Emkay's research report on CESC
Distribution business operating performance was slightly below expectations (core RoE at 4% vs expectation of 4.4%). However, considering the regulated nature of the business, we do not think there is a risk to our full year RoE estimate of ~20.0%
The key takeaway during the quarter was significant improvement in Spencer’s performance. Spencer’s reported profit at EBITDA level for the first time in May-15 (store EBITDA for the quarter was Rs92/sqft pm vs Rs62/sqft pm yoy)
Another positive during the quarter was SLC (LT) direction to CIL for granting linkage to Chandarpur TPP
Expect CESC to be a good mix of earnings growth, value unlocking (Spencer’s listing or demerging) and value pick (9.0x FY17E consolidated EPS and 0.9x FY17 Book)
"With earnings triggers in place: 1) Spencer’s loss reduction and break-even by Q2FY16, 2) Haldia already commissioned in Feb-15, and 3) distribution business consistently earning 19-20% ROE. Expect CESC to be a good mix of earnings growth, value unlocking (Spenser’s listing or demerging) and value pick (9.0x FY17E consolidated EPS and 0.9x FY17 Book). We continue to retain it as one of our top pick, as we believe the stock has a significant upside even from current levels. Our revised SOTP based value for the stock is Rs906/sh. Key downside risk to our estimates could be 1) Chandrapur PPA not materializing, and 2) Spencer’s break-even getting delayed to FY16 end. Buy the stock with a target price of Rs 906", says Emkay Global Financial Services research report.
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