CESC reported good earnings growth for its consolidated business in Q3FY21, in line with our estimates. Standalone / consolidated PAT came in at Rs1.8bn / Rs3.3bn (3.4% / 21.3% YoY) mainly due to good profit growth for Chandrapur, Crescent Power and the consolidated entity. Company made four major announcements: 1) interim dividend of Rs45/share, 2) increase in holding in Noida Power from 49.55% to 72.73% (at 7.1x FY20 EV/EBITDA at a consideration of Rs4.5bn), 3) Board approval for consolidation of all distribution businesses (except Kolkata) in Eminent Electricity Distribution (a wholly-owned subsidiary), and 4) ESG ratings upgrade to 'BB'. If similar (~50%) dividend payout is maintained, dividend yield at CMP for FY21E-FY23E averages 7%. Maintain BUY with the target price unchanged at Rs851/share.
- Consolidated PAT higher, but lower volumes affect Kolkata distribution: Standalone/consolidated PAT came in higher at Rs1.8bn/Rs3.3bn, up 3.4%/24.7% YoY. Standalone revenue/EBITDA was flat YoY at Rs17.7bn/Rs4.1bn, while that for the consolidated business was up 7.2%/7.4% at Rs27bn/Rs8.9bn. Volumes at Kolkata distribution was 1.4% YoY lower. In Q3FY21, Haldia operated at a PLF of 84% (down 381bps YoY), yet its profit increased by 8.4% YoY to Rs900mn. Chandrapur operated at a PLF of 83% vs 67% YoY and continued to be profitable with PAT of Rs280mn vs loss of Rs150mn in Q3FY20. Rajasthan DFs reported PAT of Rs210mn which was 22% lower YoY, but both billing and collections normalized during the quarter to pre-covid levels. Profit of Noida Power fell 21% YoY to Rs230mn. Both demand and collections at DFs improved significantly resulting in 62% reduction in losses to Rs110mn. Malegaon DF's 9MFY21 revenue/loss came in at Rs3bn/Rs540mn.
- Rs45/share dividend announced: Company has announced an interim dividend of Rs45/share. This translates into 52% payout at FY21E EPS of Rs87. At CMP, the dividend yield is 6.6%. If the payout ratio of 50% is maintained going forward, the dividend yield averages 7% over FY21E-FY23E.
- Increases stake in Noida Power: CESC will increase its holding in Noida Power (NPCL) from 49.55% currently to 72.73%. For the 23.18% stake, CESC will pay Rs4.5bn at an EV of Rs19.5bn, implying 7.1x FY20 EBITDA of Rs2.7bn. NPCL posted a profit of Rs1.4bn in FY20 and recorded 12.5% growth in sales volumes and 17.2% growth in billed revenues. Volumes are likely to grow at 10% going forward.
- To consolidate ex-Kolkata distribution businesses into a single entity: CESC's Board has approved a proposal for consolidation of all distribution business investments (ex-Kolkata distribution) into Eminent Electricity Distribution, a wholly-owned subsidiary.
- ESG ratings upgraded to 'BB' by MSCI: CESC's approach towards improving its ESG profile paid dividends as the MSCI upgraded its ESG rating to 'BB' in its latest update.
- Maintain BUY: We maintain BUY on CESC with a target price of Rs851/share. The stock is currently trading at FY23E P/E of 6.8x and P/BV of 0.8x, and a dividend yield of 7.3%.
Shares of CESC LTD. was last trading in BSE at Rs.694.8 as compared to the previous close of Rs. 683.6. The total number of shares traded during the day was 85149 in over 4271 trades.
The stock hit an intraday high of Rs. 710 and intraday low of 689. The net turnover during the day was Rs. 59497446.