Scripscan:CESC Ltd
cmp:195
Code:500084
Story:CESC is a fully integrated power utility engaged in the generation and distribution of electricity across 567 square kms of licensed area in Kolkata and Howrah in West Bengal. CESC is also operating a retail chain of 208 stores through its subsidiary Spencer`s Retail (SRL). SRL has been incurring losses for the past five years and has dented CESC`s core profitability by 42% in FY11. However, the retail business has already started earning at store level and I expect it to breakeven at corporate level by FY14E.CESC is one of the cheapest utility stocks available in the Indian equity market. One of the key reasons for the lower valuation is the concern related to loss in its retail business. CESC`s core regulated business is fully secured in the terms of fixed ROE, secured fuel availability and power off taking agreements.I believe future growth would come from capacity expansion through SPVs, expected turnaround in retail business and commissioning of premium mall within a year. The company is expected to deliver CAGR of 14% and 31% in consolidated revenues and profitability over FY11-FY13E.I recommend BUY on CESC with a target price of Rs 346 on a duration of two years, based on SOTP Valuation approach. At CMP the stock is trading at P/E of 5.1x FY13E EPS and P/BV of 0.44x its FY13E book value on consolidated basis.
