CESC Limited: Sizeable Ramp-Up In Power Capacities
BSE 500084; CMP Rs 489
-Expand Power Generating Capacity By 4150 MW.
-Develop the Mahuagarhi Coal Mines in Jharkhand, with estimated reserves of
220 mn tonnes.
-Scale Up Spencers Retail to 4 times the current size in the next 2 years.
-Utilise it's idle land holdings to develop commercial Real Estate.
FY08 performance in-line with estimates
During 4QFY08, CESC reported revenues of Rs6.4b (up 16.6% YoY), EBIDTA of
Rs1.3b (up 7.7% YoY) and net profit of Rs860m (up 41% YoY). The reported numbers
are in line with our estimate of revenues of Rs6.5b, EBIDTA
of Rs1.4b and net profit of Rs834m.
During FY08, the company reported revenues of Rs27.8b (up 11.6% YoY), EBIDTA
of Rs5.6b (up 7.3% YoY) and net profit of Rs3.3b (up 37.1% YoY). The full year
numbers too were in line with our estimate of revenues of Rs27.7b, EBIDTA of
Rs5.6b and net profit of Rs3.2b.
Excellent operational performance
Power generation stood at 1,870m units during 4QFY08, up 9% YoY. PLF improved
to 97.3% during 4QFY08 vs 94.2% during 4QFY07. T&D losses declined to 14.0%
during FY08 as compared to 14.7 in FY07. Power export stood at 441MUs during
FY08, which also led to better than estimated performance.
Significant ramp up in power generating capacity
Currently, the power generating capacity for CESC stands at 975MW while it is
working on projects (under development and/or planning) of 4,150MW. CESC has
already started work on its 250 MW Budge Budge expansion, which is expected to
be commissioned by September 2009.
For 600MW Phase 1 of Haldia project (1900MW), land acquisition has been
completed and coal linkage has been received. The company has also acquired
70% of land for the project (as on March 2008). It is currently working
towards completing the formalities required to obtain final environmental
clearances. The
project is expected to be commissioned by FY11.
The Phase 1 of Haldia project would be to cater to CESC’s own distribution
area and the returns would be governed by CERC norms (RoE of 14%).
The company has signed MoU with the government of Jharkhand to implement
2,000MW power project, of which 1,000 MW would be linked to the recent coal mine
allocation.
CESC has been recently awarded Mahuagarhi coal block in Jharkhand (50% stake,
in consortium with Jas Infrastructure) with estimated reserves of 220m ton.
CESC’s share of 110m ton can support 1,000MW power plant. The management has
indicated that the project would be set up on merchant basis.
As per the terms of award, 25% of power generated will have to be sold within
the
state, on negotiated basis. The process of land acquisition and financial
closure will take ~12-15 months, and thus the project is expected to be
commissioned by end FY12.
Similar MoU has been signed with the government of Orissa to setup 2,000 MW
power project (Phase 1 of 1,000MW), for which the company has applied for coal
linkages. Besides this, CESC plans to bid for ultra mega power projects and also
plans to acquire distribution circles and participate in the SEB privatization
process.
Real estate development plans
CESC has formed 100% subsidiary to carry out the real estate development on
its own. The company would be developing retail mall on 3 acres of land
(constructed area
of 0.4m sq ft) on its own and is expected to get completed completed by FY10.
The expected average rental is Rs100-120/sq ft/ month, which translates into
annual rental income of Rs400-600m. WBERC norms permits the company to retain
two third of the non tariff income, thus entailing CESC’s share at Rs270m+.
Apart from this, the company also has substantial real estate through at its
existing plants situated at Mulajore and New Cossipore, in Kolkatta. Mulajore
plant (43 acres, ~2.5m sq ft) is closed since 2004 and is located on river
Ganges. The management is working on a plan to develop this as an IT park (5
acres), housing (30 acres) and sub stations of CESC (8 acres). New Cossipore (23
acres) plant would be shut down by September 2009, post commissioning of the
250MW Budge Budge unit. Currently, the plant produces just peaking power.
Further, the plant is located in the city of Kolkatta, and thus the potential
value unlocking could be substantial.
Spencer retail – fast track expansion
CESC expects Spencer to expand retail space from 0.6m sq ft currently to 1.5m
sq
ft by Mar 08, 3m sq ft by Mar 09 and 4.5m sq ft by Mar 10. The company has
already tied up for 1.5mn sq ft to be commissioned in the coming 12-15 months.
We expect the
company to break even at the EBIDTA level in FY10 and net profit break even
during FY12.
Based on our current estimate, we expect Spencer to break even at the cash in
FY10 and net profit level in FY12. We expect revenues for Spencer to grow from
Rs4.7b in FY07 to Rs11.6b in FY08 (up 144.3% YoY), and Rs27.6b in FY09 (up
138.4% YoY). We have estimated an equity infusion of Rs6b over FY07-11 in our
earnings forecast. We value Spencer at Rs16.7b on DCF basis and apply a holding
company discount of 25% to arrive at a value of Rs12.5b for CESC, or Rs100/sh.
Valuation and view
We expect CESC to report a net profit of Rs3,437m in FY09 and Rs3,789m in
FY10. On fully diluted basis, EPS stands at Rs27.5/sh for FY09 and Rs30.3/sh in
FY10.
The current market price of the CESC stock does not include upside from 1)
1,900 MW Haldia project, 2) 1,000MW merchant power project in Jharkhand and 3)
Possible value accretion from real estate development at Mulajore (43 acre) and
New Koshipore (23 acre).
At the CMP of Rs 490, the stock trades at PER of 17.3x FY09E and 15.7x FY10E.
Buy.
Rohit
Nothing in this article is, or should be construed as, investment advice.
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