Emkay Global Financial Services is bullish on CESC and has recommended buy rating on the stock with a target of Rs 830 in its August 02, 2014 research report.
"CESC's 1QFY15 APAT of Rs1.5bn is above estimate of Rs1.4bn, despite slightly lower other income indicating slightly better ROEs. However, quarterly numbers can't be extrapolated in regulated business. More important is Spencer's store level EBITDA at Rs61/SqFt (as against Rs59/SqFt in 4Q14 & Rs63/SqFt in FY14). Given that almost 15% area addition in Spencer's has happened in past 2 quarters, Rs61/SqFt is an okay number (EBITDA break-even at Rs80-85/SqFt, which mgmt guides for in 4Q15/1Q16). Chandrapur losses in the quarter stood at Rs450mn (my estimate based on generation and merchant rates). Maintain estimates, key triggers for CESC remains signing of Chandrapur PPAs in the near-term and Spencer's EBITDA break-even in mid-term."
"Remain positive from 1-1.5 year view, with earnings triggers in place: 1) visibility on Chandrapur PPA signing increasing with UPERC asking for power from alternative sources for Noida (So, TN-100MW done, Noida and Tata power Mumbai in different stages for 200MW each), 2) Spencer's loss reduction and break-even by 4Q15/1Q16, 3) Haldia on track for commissioning in 4Q15, 4) distribution business consistently earning 19-20% ROE, and 5) FSL delivering good results. CESC is turning out to be a good mix of earnings growth, value unlocking (Spencer's demerger and listing or stake sale) and value pick (7.6x FY16E EPS and 1.1x Book). Despite the stock run-up (has come off recently from peak), we continue to retain it as our top-pick, as we believe the stock has a significant upside even from these levels. Further, amongst the private power distribution companies in India (Torrent, TPWR, Reliance Infra, etc.), CESC remains well placed in terms of balance sheet and is likely to generate internal accruals of Rs10- 11bn/yr from FY16E. Given this backdrop, CESC is well poised to benefit from likely significant opportunities in this segment. We value CESC on a SOTP basis on FY16E, with a target price of Rs830/share. Key downside risk - Chandrapur PPAs not materializing, slowing economy impacting Spencer's operations and tariff reduction in the Kolkata distribution circle," says Emkay Global Financial Services research report.
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