CMP 558.00

Target Price 620.00

ISIN: INE486A01013

MAY 25th

, 2015

CESC LIMITED

Result Update (PARENT BASIS): Q4 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Electric Utilities

BSE Code 500084

Face Value 10.00

52wk. High / Low (Rs.) 828.10/517.75

Volume (2wk. Avg. Q.) 71000

Market Cap (Rs. in mn.) 74214.00

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY15A FY16E FY17E

Net Sales 61890.00 65974.74 70988.82

EBITDA 16340.00 17892.53 19255.60

Net Profit 6980.00 7809.90 8529.65

EPS 52.48 58.72 64.13

P/E 10.63 9.50 8.70

Shareholding Pattern (%)

1 Year Comparative Graph

CESC LIMITED BSE SENSEX

SYNOPSIS

CESC limited is the flagship company of the R. P.

Sanjiv Goenka Group. Registered in 1897, the

Company is a fully integrated power utility engaged

in the generation and distribution of electricity.

Net sales of Rs. 14160.00 million, an increased by

13.64% y-o-y for the 4th quarter of the FY 2015

against Rs. 12460.00 million in the corresponding

quarter of the previous year.

For the Mar quarter of FY15, the company has

posted a net profit after tax of Rs. 2440.00 million as

compared to Rs. 2430.00 million for the Mar quarter

of FY14.

In Q4 FY15, EBITDA grew by 2.12% y-o-y to Rs.

4810.00 million from Rs. 4710.00 million in Q4

FY14.

Profit before tax (PBT) stood at Rs. 2920.00 million,

in Q4 FY15 as compared to Rs. 3080.00 million in

Q4 FY14.

The company has recommended a Dividend @ 90%

of Rs. 9.00/- per share on face value of Rs. 10.00/-

each for the year ended March 31, 2015.

Private power producer CESC Ltd will invest about

Rs. 20000.00 million to strengthen its distribution

network in Kolkata.

During the quarter, CESC Ltd won back the

Sarisatolli coal mine at a closing bid of Rs 470 per

tone.

Net Sales and PAT of the company are expected to

grow at a CAGR of 7% and 8% over 2014 to 2017E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

CESC Ltd 558.00 74214.00 52.48 10.63 1.03 90.00

Reliance Infrastructure Ltd 434.10 114164.00 60.20 7.21 0.56 75.00

NTPC Ltd 134.40 1108190.40 12.66 10.62 1.29 57.50

JSW Energy Ltd 109.85 180160.00 6.06 18.13 2.25 20.00

Analysis & Recommendation s- ‘BUY’

For the 4th quarter of the financial year 2015, CESC Ltd has posted Net sales of Rs. 14160.00 million, an increase

of 13.64% y-o-y as against Rs. 12460.00 million in the corresponding quarter of the previous year. For the same

period net profit after tax grew by just 0.41% y-o-y of Rs. 2440.00 million as compared to Rs. 2430.00 million for

the Mar quarter of FY14. The company has reported an EBITDA of Rs. 4810.00 million, grew by 2.12% over prior

period of previous year. Shown a Profit before tax (PBT) at Rs. 2920.00 million in Q4 FY15 compared to Rs.

3080.00 million in Q4 FY14.

For the financial year 2014-15, CESC registered a 7.06 per cent rise in standalone net profit at Rs 6980.00 million

compared to Rs 6520.00 million in the previous fiscal. The company's net sales for 2014-15 fiscal stood at Rs

61890.00 million, registering a year-on-year growth of 12.32 per cent. CESC is able to achieve its improvements

due to concerted efforts aimed at upgrading the distribution infrastructure and processes for enhancing the

quality and security of supply, reducing downtime and overloads. The company beliefs that the performance will

be go a long way in establishing the credibility of the Company and create significant long term value for all its

stakeholders in this current year. We expect the company to post a CAGR of 8% and 7% in its top-line and

bottom-line respectively. Hence, we recommend ‘BUY’ for ‘CESC LTD’ with a target price of Rs. 620.00 on

the stock.

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY15,

CESC limited is a fully integrated power utility engaged in the generation and distribution of electricity across

567 square kilometers of licensed area in Kolkata and Howrah, West Bengal. Reported its financial results for the

quarter ended 31st March, 2015.

The company has achieved a turnover of Rs. 14160.00 million, an increase of 13.64% y-o-y for the 4th quarter of

the financial year 2015 as against Rs. 12460.00 million in the corresponding quarter of the previous year. The

company has reported an EBITDA of Rs. 4810.00 million, grew by 2.12% over prior period of previous year. For

Q4 FY15, net profit of Rs. 2440.00 million against Rs. 2430.00 million for Q4 FY14. The company has reported an

EPS of Rs. 18.35 for the 4th quarter as against an EPS of Rs. 19.29 in the corresponding quarter of the previous

year.

Rs. In million Mar-15 Mar-14 % Change

Net Sales 14160.00 12460.00 13.64

PAT 2440.00 2430.00 0.41

EPS 18.35 19.29 (4.87)

EBITDA 4810.00 4710.00 2.12

Break up of Expenditure:

During the quarter, total expenditure rose by 19 per cent, mainly on account of other expenditure by 243% is the

main attribute for the increase of Expenditure. Cost of Fuel down by 36% and depreciation by 13% when

compared with corresponding quarter of the previous year. Total expenditure in Q4 FY15 stood to Rs. 10420.00

million as against Rs. 8780.00 million in Q4 FY14.

Break up of Expenditure (Values in Millions)

Q4 FY15 Q4 FY14

Cost of Fuel 3170.00 4960.00

Employee benefits expense 1520.00 1610.00

Depreciation & Amortization

Expenses 750.00 860.00

Other Expenditure 4980.00 1450.00

COMPANY PROFILE

CESC limited is the flagship company of the R. P. Sanjiv Goenka Group. Registered in 1897, the Company is a fully

integrated power utility engaged in the generation and distribution of electricity across 567 square kilometers of

licensed area in Kolkata and Howrah, West Bengal. It supplies safe, cost-effective and reliable electricity to over

2.8 million customers. CESC has received the “Top Infrastructure Company” award under the category Power

Distribution at the ‘Dun & Bradstreet Infra Awards 2013’. Apart from spearheading the Group’s interest in the

power sector, the Company, through its subsidiaries, is also active in the organized retail, BPO and infrastructure

sectors as a part of its strategy for diversification and long-term growth.

All PF (Pulverised Fuel) stations of CESC are ISO 9001:2008 certified in respect of Quality Management Systems.

Business Area

CESC’s existing operations in the power sector comprise generation and distribution of electricity to its 2.8

million customers across its licensed areas in Kolkata and Howrah, west Bengal. For its existing operations in

Kolkata, the demand for the power is quit variable, with the company registering a peak demand higher than

1900 MW and lean period demand as low as 500 MW. During peak demand period, in addition to its own

generation, CESC also purchases power from the state and national Power grid. During the lean period, it exports

surplus power, when possible.

Generation

CESC operates four generating stations: Budge Budge, Southern, Titagarh and New Cossipore, which

cumulatively produce 1,225 MW. Three of these stations (Budge Budge, Southern and Titagarh) use pulverised

fuel (PF) as the primary energy source and during the year 2013-14, CESC’s composite PLF (Plant Load Factor) of

the three PF plants was 89.34%, as compared to the national average of 86.41%. In order to achieve this, the

Company has taken various steps such as full utilization of designed limit, benchmarking with best-in-class

power plants, integrated operation and maintenance planning.

Distribution

In the present situation there is a demand for high quality supply apart from that there is an increase of

customers in the High Tension and Medium Voltage Alternating Current (MVAC) segments. So, if we observe the

company’s previous year’s report, it had highlighted CESC’s success in achieving a load shedding free

environment for its customers. During 2013-14, the Company made further progress in this regard, with HT

faults and restoration times coming down by 39% and 45% respectively.

During 2013-2014, CESC put together a comprehensive master plan for development of its distributions network

and infrastructure taking in to account the long term demand forecast. This includes a three years short term

plan up to 2016-17 as well as a 10 year master plan up to 2023-24.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31,2014-2017E FY14A FY15A FY16E FY17E

I. EQUITY AND LIABILITIES:

A) Shareholders’ Funds:

a) Share Capital 1256.00 1330.00 1330.00 1330.00

b) Reserves and Surplus 69130.00 79470.00 87417.00 92662.02

Sub-Total Net worth 70386.00 80800.00 88747.00 93992.02

B) Non-Current Liabilities:

a) Long-term borrowings 28035.20 31830.00 35013.00 37673.99

b) Advance against Depreciation 7769.00 8600.00 9288.00 9938.16

c) Consumers Security Deposits 12799.60 14080.00 15347.20 16574.98

d) Other Long Term Liabilities 16411.40 18450.00 20295.00 22121.55

e) Long Term Provisions 1405.20 1610.00 1803.20 2001.55

Sub-Total Long term liabilities 66420.40 74570.00 81746.40 88310.23

C) Current Liabilities:

a) Short-term borrowings 5755.80 11410.00 13235.60 14691.52

b) Trade Payables 2079.70 3260.00 4042.40 4931.73

c) Other Current Liabilities 16847.00 17190.00 17774.46 18663.18

d) Short Term Provisions 1805.40 1950.00 2074.80 2178.54

Sub-Total Current Liabilities 26487.90 33810.00 37127.26 40464.97

TOTAL EQUITY AND LIABILITIES (A+B+C) 163294.30 189180.00 207620.66 222767.21

II. ASSETS:

D) Non-Current Assets:

a) Fixed Assets 90293.80 94960.00 97808.80 100156.21

b) Other non-current assets 1223.30 6110.00 8431.80 10118.16

c) Non Current Investments 31910.90 37580.00 43592.80 48823.94

d) Long Term Loans and Advances 12519.30 13430.00 14289.52 15004.00

Sub-Total Non-Current Assets 135947.30 152080.00 164122.92 174102.30

E) Current Assets:

a) Current Investments 0.00 4910.00 6775.80 7859.93

b) Inventories 3455.50 4050.00 4617.00 5171.04

c) Trade Receivables 11848.20 13820.00 15941.94 18104.39

d) Cash and Bank Balances 7813.90 7380.00 7749.00 8213.94

e) Short Term Loans and Advances 2005.50 2040.00 2142.00 2227.68

f) Other Current Assets 2223.90 4900.00 6272.00 7177.93

Sub-Total Current Assets 27347.00 37100.00 43497.74 48664.91

TOTAL ASSETS (D+E) 163294.30 189180.00 207620.66 222767.21

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs.in.mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 55100.00 61890.00 65974.74 70988.82

Other Income 1000.00 850.00 1003.00 1153.45

Total Income 56100.00 62740.00 66977.74 72142.27

Expenditure -40770.00 -46400.00 -49085.21 -52886.67

Operating Profit 15330.00 16340.00 17892.53 19255.60

Interest -3690.00 -4080.00 -4488.00 -4757.28

Gross profit 11640.00 12260.00 13404.53 14498.32

Depreciation -3390.00 -3430.00 -3512.32 -3673.89

Profit Before Tax 8250.00 8830.00 9892.21 10824.43

Tax -1730.00 -1850.00 -2082.31 -2294.78

Net Profit 6520.00 6980.00 7809.90 8529.65

Equity capital 1260.00 1330.00 1330.00 1330.00

Reserves 59520.00 70960.00 81249.20 89778.85

Face value 10.00 10.00 10.00 10.00

EPS 51.75 52.48 58.72 64.13

Quarterly Profit & Loss Statement for the period of 30th Sept, 2014 to 30th June, 2015E

Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E

Description 3m 3m 3m 3m

Net sales 16610.00 12490.00 14160.00 19257.60

Other income 170.00 210.00 320.00 229.12

Total Income 16780.00 12700.00 14480.00 19486.72

Expenditure -12380.00 -9500.00 -9670.00 -14886.12

Operating profit 4400.00 3200.00 4810.00 4600.60

Interest -950.00 -990.00 -1140.00 -1192.44

Gross profit 3450.00 2210.00 3670.00 3408.16

Depreciation -930.00 -810.00 -750.00 -843.00

Profit Before Tax 2520.00 1400.00 2920.00 2565.16

Tax -600.00 -290.00 -480.00 -561.77

Net Profit 1920.00 1110.00 2440.00 2003.39

Equity capital 1260.00 1330.00 1330.00 1330.00

Face value 10.00 10.00 10.00 10.00

EPS 15.24 8.35 18.35 15.06

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 51.75 52.48 58.72 64.13

EBITDA Margin (%) 27.82 26.40 27.12 27.12

PBT Margin (%) 14.97 14.27 14.99 15.25

PAT Margin (%) 11.83 11.28 11.84 12.02

P/E Ratio (x) 10.78 10.63 9.50 8.70

ROE (%) 10.73 9.66 9.46 9.36

ROCE (%) 19.79 17.79 17.35 17.12

Debt Equity Ratio 0.56 0.60 0.58 0.57

EV/EBITDA (x) 6.28 6.17 5.62 5.24

Book Value (Rs.) 482.38 543.53 620.90 685.03

P/BV 1.16 1.03 0.90 0.81

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 558.00, the stock P/E ratio is at 9.50 x FY16E and 8.70 x FY17E

respectively.

� Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.58.72 and

Rs.64.13 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 8% over 2014 to 2017E

respectively.

� On the basis of EV/EBITDA, the stock trades at 5.62 x for FY16E and 5.24 x for FY17E.

� Price to Book Value of the stock is expected to be at 0.90 x and 0.81 x respectively for FY16E and FY17E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs. 620.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

Power or electricity is one of the most critical components of infrastructure affecting economic growth and well-

being of nations. The existence and development of adequate infrastructure is essential for sustained growth of

the Indian economy.

The Indian power sector is one of the most diversified in the world. Sources for power generation range from

conventional ones such as coal, lignite, natural gas, oil, hydro and nuclear power to other viable non-conventional

sources such as wind, solar, and agriculture and domestic waste. The demand for electricity in the country has

been growing at a rapid rate and is expected to grow further in the years to come. In order to meet the increasing

requirement of electricity, massive addition to the installed generating capacity in the country is required.

Market Size

The Indian power sector is undergoing a significant change that is redefining the industry outlook. Sustained

economic growth continues to drive power demand in India. The Government of India’s focus to attain ‘Power

For All’ has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing

on both market side as well as supply side (fuel, logistics, finances and manpower).

The Planning Commission’s 12th Plan expects total domestic energy production to reach 669.6 million tonnes of

oil equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22.

By 2030 – 35, energy demand in India is projected to be the highest among all countries according to the 2014

energy outlook report by British oil giant BP.

As of April 2014, total thermal installed capacity stood at 168.4 gigawatt (GW), while hydro and renewable

energy installed capacity totalled 40.5 GW and 31.7 GW, respectively. At 4.8 GW, nuclear energy capacity

remained broadly constant from that in the previous year.

Indian solar installations are forecasted to be approximately 1,000 megawatt (MW) in 2014, according to

Mercom Capital Group, a global clean energy communications and consulting firm.

Wind energy market of India is expected to attract about Rs 200000.00 mn (US$ 3.16 billion) of investments next

year, as companies across sectors plan to add 3,000 MW of capacity powered by wind energy.

Investment

Around 293 global and domestic companies have committed to generate 266 gigawatts (GW) of solar, wind,

mini-hydel and bio-mass based power in India over the next 5-10 years. The initiative would entail an

investment of about US$ 310-350 billion.

The industry has attracted FDI worth US$ 9,548.82 million during the period April 2000 to February 2015.

Some of the major investments made into the Indian power sector are as follows:

• Inox Wind Ltd, a subsidiary of Gujarat Fluorochemicals and a wind energy solutions provider, plans to double

its manufacturing capacity to 1,600 MW at a total investment of Rs 2000.00 mn (US$ 31.64 million) by the

end of next financial year.

• Suzlon Energy Ltd announced that it has completed installing and commissioning 350 MW of wind energy in

Brazil. This combined capacity includes projects located in the high wind states of Rio Grande do Norte and

Ceara in Brazil.

• ACME Group plans to invest Rs 6000.00 mn (US$ 94.93 million) to develop 74 MW of solar photovoltaic (PV)

power projects in Punjab.

• The Dilip Shanghvi family, founders of Sun Pharma, plans to acquire a 23 per cent stake in Suzlon Energy

with a preferential issue of fresh equity for Rs 18000.00 mn (US$ 284.8 million).

• Reliance Power Ltd has signed an accord with the Government of Rajasthan to develop 6,000 MW of solar

power projects in the state over the next 10 years.

• Global private equity (PE) fund Actis will invest US$ 230 million to create an Indian renewable energy

platform, Ostro Energy, the fund said in a press release. Ostro Energy’s first project Tejuva—a 50.4 MW wind

project—is already under construction in Jaisalmer, Rajasthan.

Government Initiatives

The Government of India has identified the power sector as a key sector of focus to promote sustained industrial

growth.

The RE-INVEST 2015 which concluded on February 17, 2015, is a significant step in making India self-reliant in

energy. The three day RE-INVEST 2015 received 2,800 delegates participating from 42 countries and saw green

energy commitments worth 266,000 MW.

Some of the initiatives taken by the Government of India to boost the power sector of India are as follows:

� A Joint Indo-US PACE Setter Fund has been established with a contribution of US$ 4 million from each

side to enhance clean energy cooperation.

� The Government of India has announced a massive renewable power production target of 175,000 MW

by 2022, comprising 100,000 MW from solar power, 60,000 MW from wind energy, 10,000 MW from

biomass and 5,000 MW from small hydro power projects.

� The Union Cabinet of India has approved 15,000 MW of grid-connected solar power projects of National

Thermal Power Corp Ltd (NTPC).

� The Indian Railways has signed a bilateral power procurement agreement with the Damodar Valley

Corporation (DVC). The agreement was signed between North Central Railway and DVC. This is the first

time the railways will directly buy power from a supplier.

� US federal agencies have committed a total of US$ 4 billion for projects and equipment sourcing, one of

the biggest deals for the growing renewable energy sector in India.

� A memorandum of collaboration (MoC) was signed in New Delhi on January 20, 2015 between the Indian

Institutes of Technology (IITs) and Oil & Natural Gas Corporation (ONGC) to work towards a collective

research and development (R&D) programme for developing indigenous technologies to enhance

exploration and exploitation of hydrocarbons and alternate sources of energy.

Road Ahead

The Indian power sector has an investment potential of Rs 15 trillion (US$ 237.35 billion) in the next 4-5 years,

providing immense opportunities in power generation, distribution, transmission and equipment, as per Union

Minister of Coal, Power and Renewable Energy.

The immediate goal of the government is to produce two trillion units (kilowatt hours) of energy by 2019. This

will mean doubling the current production capacity in order to achieve provide 24x7 electricity for residential,

industrial, commercial and agriculture use.

He added that his government had rewritten the National Solar Mission with target of 100,000 MW capacity by

2022. The government has also sought to restart stalled hydro power projects and increased the wind energy

target from 20 GW to 60 GW by 2022.

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the recipients’ investment decision based on this document.

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