CESC has two more operational thermal power projects with a combined capacity of 640 MW at Asansol (West Bengal) and Chandrapur (Maharashtra) - implemented by Dhariwal Infrastructure Limited (DIL), a 100% subsidiary of CESC Infrastructure Limited. The Company has its presence in the renewable energy sector with a combined capacity of over 160MW in wind and solar power projects. It has four wind projects at Dangri (Rajasthan), Surendranagar (Gujarat), Nipaniya (Madhya Pradesh) and Rojmal (Gujarat) along with one solar project at Ramnathapuram, Tamil Nadu.
CESC has announced restructuring plan to demerge its large businesses into four separate entities: power generation, electricity distribution, retail, and other businesses. The objective behind the move is to enhance efficiencies, accelerate growth, provide flexibility in accessing capital and unlock the value for shareholders. The demerger has received the shareholder approval. NCLT approval is pending.
CESC has won rights for the franchise for electricity distribution in three cities of Rajasthan - Kota, Bharatpur, and Bikaner.
CESC’s retail business under the Spencer's brand runs 126 stores, including 38 Hyperstores in over 35 cities in India. It expects cash break-even in coming few quarters. It has also launched new range of apparels under the brand name ‘2Bme’ which has shown significant promise, with higher margins expected to substantially contribute to Spencer’s EBIDTA.
CESC’s new venture into FMCG segment, Guiltfree Indus. has launched two products with four variants each under the ‘Too Yumm’ Brand and is planning to launch many new products covering food portfolio comprising snacks and packaged foods.
CESC’s IT vertical Firstsource Solutions’ (BPO services) performance has improved considerably with client base includes 17 Fortune 500 and 10 FTSE 100 companies and supports from 48 service facilities spread over USA, UK, Philippines, India and Sri Lanka.
For the period of FY13-17, its topline and bottomline grew at a CAGR of ~17% and ~11% respectively. In Q3FY18 CESC’s standalone net sales grew by ~5% to Rs. 1706 crore, its operating profit was higher by ~7% to Rs. 427 crore and its PAT increased by 1.32% to Rs. 154 crore, YoY basis. The company has been consistently paying Dividend since many years and paid 100% dividend i.e. Rs. 10 per equity share. CESC recently declared an Interim Dividend of Rs. 12 per share (120%) for FY17-18.
Recommendation – Demerger does not bring about earnings accretion but it is expected that the valuation for the power business to improve significantly because the power business funded the diversification initiatives under the earlier structure. Each of the new entities has its own growth potential. Many new launches in different segments along with expansion plans through acquisitions, residential projects and plant set up program in the books would boost up the growth and numbers. At the CMP of Rs 968.75, the stock trades at ~13 times FY19 EPS of Rs. 76. Hence, we recommend a BUY on the stock with a Target Price of Rs. 1216 with an upside potential of ~25% from the current level with an investment horizon of 9-12 months.
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