CESC

Power capacity expansion to be commissioned every year from FY 2010 for the next few years

CESC is an RPG group company. It has an integrated utility business model with a presence in generation, mining and distribution. The company was commissioned in 1899. Since then, it has been offering power to consumers in its Kolkata licence area, which has expanded from 5.64 sq miles to 567 sq km over the years. The number of consumers has grown from 6,000 to 2.1 million over time. At 6.4 billion units, its own generation accounts for about 89% of the energy input in its distribution network. Also, Integrated Coal Mines (26% owned by CESC), produces 2.2 million tonnes of coal (50% of its coal requirement).

With a total installed capacity of 975 MW from the four generating units at Budge Budge (500 MW), Southern (135 MW), Titagarh (240 MW), and New Cossipore (100 MW), CESC has been improving its operating efficiency parameters on a consistent basis to emerge as a competitive electric utility. This has been done through a mix of increasing the plant load factor (PLF), and reducing auxiliary consumption, transmission and distribution (T&D) losses, and power pilferage, which have led to greater control over the number of units purchased from the West Bengal State Electricity Board (WBSEB).

CESC is working on a 250-MW Budge Budge expansion (expected completion September 2009) and the 600-MW Haldia power project. The company has acquired around 75% land for the Haldia project and has also obtained coal linkage. It is in the process of complying with the terms of reference for getting the final environmental clearance. Various other clearances — water consumption and erection of chimney — have been obtained. The project is likely to be completed by the year ending March 2011 (FY 2011).

The current capacity addition is entirely for distribution in its licensed area in Kolkata, Further, coal mine allocation (110 million tonnes of reserves) can support 1,000 MW in Jharkhand, to be commissioned by FY 2012. Opportunities are also being explored both in and outside West Bengal for merchant power plants. Thus, CESC’s effective power capacity should stand at 2,825 MW by end FY 2012 compared with the current 975 MW.

CESC Properties, CESC’s 100% subsidiary, is developing a retail mall on three acres of land (constructed area of 0.7 million square feet). This is expected to be completed by FY 2010. The cost of development of the mall is estimated to be Rs 125 crore-Rs 150 crore. The West Bengal Electricity Regulatory Commission (WBERC) norms permits the company to retain two-third of the non-tariff income.

Besides this, CESC has sizeable real estate at its plants at Mulajore (43 acres) and New Cossipore (23 acres). The company has recently acquired another 5.5 acres, comprising 3.5 acres at Haldia and two acres at Howrah, for commercial and residential development.

Spencer’s Retail (SRL), a well established company in the business of operating and managing a large chain of retail stores across India with ambitious growth plans for the future, became CESC’s subsidiary from 1 April 2007. CESC holds a 94.7% stake. SRL currently operates 383 stores under the Spencer’s brand in 59 cities with retail space of approximately 1.2 million square feet. In addition, there are also around 90 stores in 28 cities under the Music World and Books & Beyond brands for music, home video and related products.

Sales grew 8% to Rs 783.00 crore in the quarter ended June 2008. Other income increased 111% to Rs 59 crore, which saw profit before interest, depreciation and tax spurting 13% to Rs 181 crore. The rise in other income was mainly on account of cash and investments in the books. Cash and bank balances jumped from around Rs 750 crore end June 2007 to about Rs 1050 crore end June 2008, while investments were up 135% to Rs 570 crore.

Interest cost declined 18% to Rs 32 crore and depreciation went up 2% to Rs 42 crore. Thus, profit before tax (PBT) went up an impressive 34% to Rs 107 crore. Extraordinary (EO) income was nil against Rs 13 crore. PBT after EO fell 15% to Rs 107 crore. After providing for tax (up 18% to Rs 13 crore), net profit advanced 15% to Rs 94 crore.

We expect CESC to register sales and net profit of Rs 3028.98 crore and Rs 372.54 crore, respectively, in FY 2009. On an equity of Rs 126 crore and face value of Rs 10 per share, EPS works out to Rs 29.6. The share price trades at Rs 285. P/E works out to 9.6.