The Budge Budge-III plant, with a capacity of 250 megawatts, was commissioned in the March quarter and the full effect of its operations would be felt in the current financial year.
It will allow CESC to benefit from sale of power at short-term rates during offpeak hours, say analysts.
At Spencer’s as well, the company has realigned its product strategy and will focus on high-margin products. Its sales productivity grew from Rs 660 a sq ft in 2008-09 to around Rs 811 asq ft in FY2010.
The management also claims to have cut around Rs 100 crore costs through rational use of advertisements and other expenses. Moreover, CESC will add another 4,520 Mw capacity in the next five years, which will take its installed capacity to 5,745 Mw. Timely execution of these projects will act as a trigger for the stock’s re-rating.
However, at the moment, the positive sentiment emanates from the possibility of cashing in on the retail business.
source - business standard
CESC Ltd (updated - 09 July 2010)
If retail sector reforms are implemented, CESC, the Kolkata-based power generator and distributor, will gain traction. The company had earlier merged its retail business, Spencer’s, with itself. This has been taking atoll on its cash flows.
First, Spencer’s merger with the parent saw a 37 per cent equity dilution for CESC. Then, operations at the retailer were a drag on earnings. In financial year 2010, CESC reported a consolidated revenue of Rs 4,200 crore, an operating profit of Rs 450 crore and a net earning of Rs 200 crore. It was the operating loss of Rs 300 crore in the retail business that shrunk the Rs 750-crore operating profit from the power business.
With the opening of the retail segment, the company will be in a position to sell astake in Spencer’s, according to analysts. Overall, the power business has been contributing Rs 500-600 crore over the past three years and is expected to have Rs 700 crore annual cash inflows from the current financial year, as commissioning of plants in Budge Budge (West Bengal) adds to earnings.
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Power - Generation/Distribution
CESC Ltd
Welcome to Indian Share Market
Your Desire to Earn
CESC Ltd (updated - 10 Dec 2010)
CESC’s foray into hydel power, with commissioning of the `630crore 90-Mw Jarong Hydro Electricity project in Arunachal Pradesh (to be completed by 2015-16), is part of the company’s strategy to expand geographically and diversify in the renewable energy segment. Currently, its entire 1,225 Mw capacity is coal-based, with the power business (including distribution) catering only to Kolkata.
Despite being long gestation, capital intensive and geographically risky in nature, hydel power has good prospects in India, especially in the North-East and Arunachal Pradesh, which together have a potential to produce more than 74,000 Mw.
The company plans to invest `35,000 crore within the next decade to take its total capacity to 7,200 Mw (6,500 Mw thermal, 500 Mw hydel and 200 Mw solar). Of the total `8,700 crore equity required, CESC plans to tap the market for `1,200 crore, while the rest will be through internal accruals, stake sale in subsidiaries and special purpose vehicles to private equity players.
CESC provides low financial risk (debt to equity ratio of around 0.5 times) and fuel risk (substantial access to coal). The company’s upcoming thermal-based projects (600 Mw each at Chandrapur and Haldia, to be commissioned by 2013-14) are progressing well while longterm projects (about 4,640 Mw) are on time.
The retail business, under Spencer’s Retail, has also been reporting operating profit per square feet at the store level since June, while overall losses are expected to fall.
Analysts place the company among the top five power picks. They expect a 33 per cent upside in the stock, valued at an average `497, based on a sum-of-parts valuation method. The stock currently trades at a low valuation of 10 times and one-time 201112 estimated earnings and book value, respectively.
Acquisition opportunities in power generation, winning distribution franchise in other states, monetisation of real estate and stake sale in the retail business will act as further upside triggers. The only major risk is delay in execution, given its ambitious power plans, a majority of which are at an expansion stage.
source - business standard
