4QFY2012 Result Update | Power

May 11, 2012

CESC
Performance Highlights
Y/E March (` cr) Net Revenue Operating Profit OPM (%) Net Profit
Source: Company, Angel Research

BUY
CMP Target Price
3QFY2012 % chg qoq 970 200 20.6 74 39.0 100.5 913 bp 259.5 4QFY2011 % chg yoy 908 214 23.6 112 48.5 87.4 618bp 137.5

`266 `342
12 Months

4QFY2012 1,348 401 29.7 266

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Power 3,318 1.0 364/186 27367 10 16,293 4,929 CESC.BO CESC@IN

For 4QFY2012, CESC reported an impressive 137.5% yoy increase in its net profit on account of higher realization due to WBERCs new tariff order, which allowed the company to hike tariff by ~13% with retrospective effect. The order has enabled the company to charge new tariffs with effect from April 1, 2011, thereby enabling it to recover its additional fixed costs in entirety, which has boosted its profits for the quarter. We maintain our Buy view on the stock. Key highlights: CESC registered 48.5% yoy growth in its standalone top line to `1,348cr and an impressive 137.5% yoy increase in its net profit mainly on account of higher realization. Sales volume for the quarter posted 3% yoy growth and stood at 1,811 MU. The companys OPM increased by 618bp yoy to 29.7%, primarily aided by higher realization. The company has also improved its operational efficiency by minimizing T&D charges. Further, during the quarter, the company reversed ~`35cr of provision it had made in 3QFY2012 due to delay in obtaining new tariff order. On the retail business front, per sq. ft. sales of Spencers increased to `1,060/month in FY2012 (9.7% higher compared to FY2011). EBITDA per sq. ft. at the store level stood at `32/month for FY2012. Valuation: CESCs standalone top line and bottom line are expected to post a CAGR of 9.5% and 3.9%, respectively, over FY201214E. At the CMP, the stock is trading at 5.5x FY2014E EPS and 0.6x FY2014E P/BV. We maintain our Buy view on the stock, based on an SOTP target price of `342.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.5 23.8 17.9 5.8

Abs. (%) Sensex CESC

3m (4.8)

1yr (7.2)

3yr 39.5 6.1

(8.2) (12.3)

Key Financials (Standalone)

Y/E March (` cr) Net sales % chg Adj. net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 4,011 19.6 405 (6.4) 23.0 32.2 8.2 0.8 10.0 8.3 1.3 5.8

FY2012E 4,593 14.5 565 39.6 23.9 45.0 5.9 0.7 12.4 9.3 1.2 5.0

FY2013E 5,084 10.7 568 0.5 24.2 45.2 5.9 0.6 11.2 9.6 1.1 4.5

FY2014E 5,512 8.4 610 7.4 23.8 48.5 5.5 0.6 10.9 9.3 1.0 4.2

V Srinivasan
022-39357800 Ext: 6831 v.srinivasan@angelbroking.com Amit Patil 022-39357800 Ext: 6503 amit.patil@angelbroking.com

Please refer to important disclosures at the end of this report

CESC | 4QFY2012 Result Update

Exhibit 1: Quarterly performance

Y/E March (` cr) Net Sales Fuel cost (% of Sales) Power Purchase cost (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM EPS (`)
Source: Company, Angel Research

4QFY2012 1,348 416 31 117 9 131 10 283 21 947 401 29.7 65 72 69 333 25 67 20.1 266 20 21.1

3QFY2012 970 441 43 110 11 106 10 113 16 770 200 20.6 66 75 33 92 9 18 19.6 74 7 5.9

%Chg qoq 39.0 (5.7) 6.4 23.6 150.4 23.0 100.5 913bp (1.5) (4.0) 109.1 262.0 272.2 259.5 259.5

4QFY2011 908 286 31 140 15 94 10 174 19 694 214 23.6 57 67 51 141 16 29 20.6 112 12 8.9

%Chg yoy 48.5 45.5 (16.4) 39.4 62.6 36.5 87.4 618bp 14.0 7.5 35.3 136.2 131.0 137.5 137.5

Exhibit 2: Actual vs. Angel Estimates

(` cr) Net Sales Operating Profit OPM (%) Net Profit
Source: Company, Angel Research

Actual 1,348 401 29.7 266

Estimates 1,081 357 33 182

Variation (%) 24.7 12.3 (328)bp 46.2

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CESC | 4QFY2012 Result Update

Exhibit 3: Financial performance

1,600 1,400 1,200 1,000 (` cr) 800 600 400 200 0 4QFY11 1QFY12 Net Revenue Source: Company, Angel Research 2QFY12 Net Profit 3QFY12 4QFY12 OPM (%) - RHS 112 111 114 74 15.0 266 20.0 908 1,348 1,183 1,223 970 30.0 35.0

25.0

Operational highlights
For 4QFY2012, CESC registered 48.5% yoy growth in its standalone top line to `1,348cr and a 618bp yoy increase in its OPM to 29.7% due to better realization. Sales volume for the quarter posted 3% yoy growth and stood at 1,811 MU. The company also reported an impressive 137.5% yoy increase in its net profit on account of higher realization. Higher realization was possible due to WBERCs approval to increase tariff by ~13% with retrospective effect, which will aid the company to recover additional fixed costs. The new tariff order has approved average capex.

Power generation boosted by Budge-Budge plant

During the quarter, power generation at Budge-Budge plant rose by ~28% yoy 1,357 MU from 1,057 MU during 4QFY2011. Also, Budge Budge plants PLF stood at 83.8%, while Titagarh and Southern posted PLF of 74.6% and 71.9.%, respectively.

Exhibit 4: Plant-wise operational performance (4QFY2012)

1,800 1,500 1,200 (MU) 900 600 300 0 4QFY11 1QFY12 Budge-Budge Source: Company, Angel Research 2QFY12 Titagarh 3QFY12 Southern 4QFY12 436 256 474 281 459 281 393 261 391 212 1,057 1,555 1,540 1,495 1,357

May 11, 2012

(%)

CESC | 4QFY2012 Result Update

Retail business
On the retail business front, per sq. ft. sales of Spencers increased to `1,060/month in FY2012 (9.7% higher compared to FY2011). During the quarter, only a single hyper store began operations in Haridwar, showing the companys focus on consolidation. Spencers is focusing on setting up more hyper stores and shut down some small stores during the quarter. The company believes that private label will help the company to leverage growth.

Investment rationale
Power business being scaled up
Currently, CESC enjoys consistent returns of ~20% (incl. incentives) on regulated equity from its operations in Kolkata-licensed area, where the company has the sole license to distribute power. CESC's huge expansion plans in the generation front are expected to propel its growth going ahead. The company has 4,440MW of projects under construction and development stages. CESCs 600MW Chandrapur plant has received all the clearances and the project is under construction. CESC has acquired all the necessary clearances for the 600MW Haldia Phase-I project as well. Water clearance and fuel linkages are also in place for the project. EPC and BTG orders for the Haldia project have been placed with Punj Lloyd and Shanghai Electric Group. The project is expected to be operational in FY2014-end.

Leading private sector player with a proven track record

CESC is one of the oldest utility companies in India. The company has been generating and distributing power in Kolkata since 1897. CESC is an integrated power player with a presence in power generation, distribution and coal mining. The company has a customer base of about 2.5mn customers in Kolkata and Howrah. CESCs overall PLF has remained healthy. The companys efficiency has improved in the distribution front as well, with AT&C losses reducing to 13.3% in FY2010 from 18.8% in FY2003. CESC has tied up with SP Global Solutions, a subsidiary of Singapore Power, to improve the reliability of its distribution system, which could aid further reduction in losses.

Retail business showing signs of recovery

Spencers has been a loss-making venture since it became CESCs subsidiary in FY2008. However, on a positive note, the retail business has turned EBITDA positive on the store level since 1QFY2011. Spencers is attempting to improve its margins by focusing more on the high-margin food business and is expected to breakeven at the EBITDA level by FY2014. The companys per month sales/sq. ft. have improved considerably. For FY2012, per sq. ft. sales of Spencers increased to `1,060/month (9.7% higher compared to FY2011). The companys per month EBITDA stands at `32/sq. ft. Currently, Spencers has 182 outlets spread across the country and operates 26 hyper stores and 15 super stores with total area of 606,000 sq. ft. and 97,000 sq. ft., respectively.

May 11, 2012

CESC | 4QFY2012 Result Update

Tapping the unexplored land bank

CESC Properties, a 100% subsidiary of CESC, plans to develop a 0.4mn sq. ft. shopping mall in Central Kolkata. The mall is expected to start operations in September 2012. Going ahead, CESC Properties also plans to monetize its 35-acre land at Mulajore.

Outlook and valuation

At the CMP, the stock is trading at 5.5x FY2014E EPS and at 0.6x FY2014E P/BV of its standalone business. We have assigned 0.7x FY2014E P/BV multiple to the companys existing power plants, considering its low RoE, and have arrived at a value of `320/share. We have valued Spencer's on mcap/sales basis at 0.1x FY2013E sales, which is at a significant discount to its peers, and have arrived at a value of `11/share. We have valued CESCs mall in Central Kolkata and land in Mulajore (35 acres) on NAV basis and have arrived at a price of `11/share for its real estate business. We maintain our Buy recommendation on the stock with an SOTP-based target price of `342.

Exhibit 5: SOTP valuation

Business portfolio Existing power plants Retail Spencer's (94% stake) Real estate CESC Properties Total
Source: Company, Angel Research

Methodology 0.7x FY2014E BV 0.1x FY2014E Sales NAV

Value/Share (`) 320 11 11 342

Exhibit 6: Change in estimates

(` cr) Earlier Net sales Operating exp. Operating profit Depreciation Interest PBT Tax PAT 4,926 3,753 1,173 306 336 643 128 515 FY13E Revised 5,084 3,856 1,228 295 340 709 141 568 Variation (%) 3.2 2.7 4.7 (3.4) 1.1 10.2 10.2 10.2 Earlier 5,429 4,130 1,298 326 359 725 145 581 FY14E Revised 5,512 4,202 1,310 313 355 761 152 610 Variation (%) 1.5 1.7 0.9 (4.0) (1.1) 5.0 5.0 5.0

Source: Company, Angel Research

May 11, 2012

CESC | 4QFY2012 Result Update

Exhibit 7: Recommendation summary

Company CESC GIPCL NTPC Reco. Buy Buy Buy CMP (`) 266 63 148 Tgt. price (`) 342 98 201 Upside (%) 28.8 55.3 35.5 FY2014E P/BV (x) 0.6 0.6 1.4 FY2014E P/E (x) 5.5 6.8 10.6 FY2012-14E EPS CAGR (%) 3.9 18.1 10.9 FY2014E RoCE (%) 9.4 10.4 9.7 FY2014E RoE (%) 10.9 9.6 13.5

Source: Company, Angel Research

Exhibit 8: One-year forward P/BV band

800 650 (Share Price `) 500 350 200 50 Apr-06

Apr-07 Price

Apr-08 0.75x

Apr-09 1.15x

Apr-10 1.55x

Apr-11 1.95x

Apr-12

Source: Company, Angel Research

May 11, 2012

CESC | 4QFY2012 Result Update

Profit & loss statement (Standalone)

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Personnel SG&A and other costs EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY09 3,088 9.2 2,426 1,357 363 705 662 15.4 21.5 175 488 20.2 15.8 193 170 36.7 464 18.4 (1) 465 55 11.9 410 409 18.7 13.2 32.5 32.5 18.7 FY10 3,355 8.6 2,605 1,714 418 473 750 13.2 22.3 206 544 11.6 16.2 178 156 30.0 521 12.4 (1) 522 89 17.0 433 432 5.8 12.9 34.4 34.4 5.8 FY11 4,011 19.6 3,090 2,093 433 564 921 22.9 23.0 267 654 20.1 16.3 275 152 28.6 531 1.8 531 126 23.7 405 405 (6.4) 10.1 32.2 32.2 (6.4) FY12 4,593 14.5 3,497 2,398 471 628 1,096 19.0 23.9 290 806 23.3 17.5 276 176 24.9 706 33.0 706 141 20.0 565 565 39.6 12.3 45.0 45.0 39.6 FY13E 5,084 11 3,856 2,639 521 695 1,228 12.1 24.2 295 933 16 18 340 115 16 709 0 709 141 20 568 568 0 11 45.2 45.2 0.5 FY14E 5,512 8 4,202 2,861 565 776 1,310 6.6 23.8 313 997 7 18 355 119 16 761 7 761 152 20 610 610 7 11 48.5 48.5 7.4

May 11, 2012

CESC | 4QFY2012 Result Update

Balance sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 126 3,267 3,392 3,557 9 6,958 7,938 3,826 4,112 1,280 310 2,936 1,251 1,084 601 1,688 1,248 8 6,958 126 3,697 3,823 3,708 7,531 4,131 5,859 278 679 2,884 1,120 1,026 738 2,176 708 7 7,531 126 4,179 4,304 3,952 8,256 4,490 6,214 272 1,084 2,893 839 1,189 865 2,213 680 6 8,256 126 4,679 4,805 4,352 9,157 11,135 4,780 6,355 557 1,334 3,288 877 1,334 1,078 2,384 905 6 9,157 126 5,188 5,313 4,952 10,265 11,823 5,076 6,748 591 1,734 3,659 1,008 1,476 1,174 2,473 1,186 6 10,265 126 5,738 5,863 5,252 11,115 12,528 5,388 7,139 626 2,034 3,910 1,056 1,600 1,254 2,601 1,309 6 11,115 FY09 FY10 FY11 FY12E FY13E FY14E

9,990 10,704

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY09 465 175 153 170 55 568 (1,469) 259 170 (1,040) 0 988 58 193 737 265 986 1,251 FY10 522 206 734 156 89 1,217 (1,050) (368) 156 (1,262) 151 58 178 (85) (131) 1,251 1,120 FY11 614 267 (108) 152 126 495 (708) (406) 152 (961) 244 58 186 (281) 1,120 839 FY12E 706 290 (193) 176 141 486 (716) (250) 176 (790) 400 58 342 38 839 877 FY13E 709 295 (151) 115 141 596 (722) (400) 115 (1,007) 600 58 542 131 877 1,008 FY14E 761 313 (77) 119 152 726 (740) (300) 119 (920) 300 58 242 48 1,008 1,056

May 11, 2012

CESC | 4QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.7 3.5 2.5 0.7 3.5 3.1 0.7 3.4 2.4 0.7 3.2 2.9 0.7 3.2 2.7 0.7 3.2 2.8 0.4 23 42 228 (14) 0.4 24 48 271 (23) 0.4 24 49 259 (26) 0.4 25 52 240 (5) 0.4 26 55 230 7 0.5 26 55 220 14 7.8 11.7 12.8 7.5 10.3 12.0 8.3 9.8 10.0 9.3 10.8 12.4 9.6 11.4 11.2 9.3 11.0 10.9 15.8 88.1 0.6 8.4 5.5 1.0 11.1 16.2 83.0 0.6 7.5 4.1 1.0 10.9 16.3 76.3 0.6 7.2 5.5 0.9 8.8 17.5 80.0 0.6 8.2 5.3 0.9 10.9 18.4 80.1 0.6 8.5 5.8 0.9 11.0 18.1 80.1 0.6 8.3 5.6 0.9 10.7 32.5 32.5 46.5 4.7 270 34.4 34.4 50.9 4.7 304 32.2 32.2 53.5 4.6 343 45.0 45.0 68.1 4.6 383 45.2 45.2 68.7 4.6 423 48.5 48.5 73.5 4.6 467 8.2 5.7 1.0 1.8 1.7 8.1 0.8 7.7 5.2 0.9 1.8 1.6 7.0 0.7 8.2 5.0 0.8 1.7 1.3 5.8 0.6 5.9 3.9 0.7 1.7 1.2 5.0 0.6 5.9 3.9 0.6 1.8 1.1 4.5 0.5 5.5 3.6 0.6 1.8 1.0 4.2 0.5 FY09 FY10 FY11 FY12 FY13E FY14E

May 11, 2012

CESC | 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

CESC No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 11, 2012

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