3QFY2012 Result Update | Power

February 15, 2012

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

ACCUMULATE
CMP Target Price
% chg qoq (16.7) (17.4) (16)bp (35.1) 3QFY2011 921 235 25.5 110 % chg yoy 10.6 (14.9) (589)bp (32.7)

`281 `302
12 Months

3QFY2012 1,019 200 19.6 74

2QFY2012 1,223 242 19.8 114

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 3,677 0.9 364/186 23333 10 18,202 5,532 CESC.BO CESC@IN

For 3QFY2012, CESC posted a 32.7% yoy decline in its net profit on account of customers being billed under the existing tariff, as WBERCs new tariff approval for FY2012 is still pending (generally awarded in the second quarter). Although the current tariff provisions allow the hike in fuel costs to be passed on automatically, CESC has to obtain WBERCs orders for passing on the additional fixed costs. The company expects to receive the new tariff order in 4QFY2012, post which it can charge higher tariff in 4QFY2012 with retrospective effect. On the retail business front, per sq. ft. sales of Spencers increased to `1,087/month in 9MFY2012 (12.7% higher on a yoy basis). Store level EBITDA per sq. ft. stood at `35 for 9HFY2012. We maintain our Accumulate view on the stock. OPM down by 589bp yoy to 19.6%: CESC registered 10.6% yoy growth in its standalone top line to `1,019cr, aided by 3.3% growth in sales volume and 7.1% higher realization (due to higher fuel costs). The companys OPM fell by 589bp yoy to 19.6% despite strong operational performance due to delay in grant of tariff approval. The company had also made provision for ~35cr due to delay in the awarding of new tariff orders, which further dented its operating profit. However, these provisions would be reversed if the new tariff order is obtained. Valuation: We expect CESCs standalone top line and bottom line to post a CAGR of 9% and 2.6%, respectively, over FY201113E. At the CMP, the stock is trading at 6.9x FY2013E EPS and 0.7x FY2013E P/BV of its power business. We have assigned 0.7x FY2013E P/BV multiple to CESCs power business, considering its low RoE, and have arrived at a value of `280/share. We have valued the retail business and real estate business at `11/share each to arrive at an SOTP-based target price of `302. We maintain our Accumulate view on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.5 23.8 18.2 5.5

Abs. (%) Sensex CESC

3m 7.8 9.1

1yr (0.4) (4.7)

3yr 88.9 23.1

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

FY2010

FY2011

FY2012E

FY2013E

3,355 8.6 432 5.8 22.3 34.4 8.1 0.9 12.0 7.5 1.6 7.2

4,011 19.6 488 12.9 25.0 38.9 7.2 0.8 12.0 9.3 1.4 5.5

4,411 10.0 489 0.1 24.5 38.9 7.2 0.7 10.8 9.0 1.3 5.5

4,770 8.2 514 5.0 24.5 40.9 6.9 0.7 10.4 8.9 1.2 4.9

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Sourabh Taparia
022-39357800 Ext 6815 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

CESC | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 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

3QFY2012 1,019 441 43 110 11 106 10 162 16 819 200 19.6 66 75 33 92 9 18 19.6 74 7 5.9

2QFY2012 1,223 446 36 218 18 122 10 195 16 981 242 19.8 75 72 47 142 12 28 19.7 114 9 9.0

% Chg qoq (16.7) (1.1) (49.5) (13.1) (16.9) (16.5) (17.4) (16)bp (12.0) 4.2 (29.8) (35.2) (35.7) (35.1)

3QFY2011 % Chg yoy 921 353 38 98 11 95 10 140 15 686 235 25.5 69 69 40 137 15 27 19.7 110 12 8.7 (32.7) (32.7) (33.3) 19.4 (14.9) (589)bp (4.3) 8.7 (17.5) (32.8) 15.7 11.6 12.2 10.6 24.9

Exhibit 2: 3QFY2012 Actual vs. Angel estimates

(` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual
1,019 200 19.6 74

Estimates
1,157 319 27.6 146

Variation (%)
(11.9) (37.3) (793)bp (49.2)

Exhibit 3: Financial performance

1,400 1,200 1,000 1,105 939 875 1,183 1,223 1,019 35

30

(` cr)

800 600 400 200 0 2QFY11 3QFY11 Net Revenue 4QFY11 1QFY12 2QFY12 3QFY12 Net Profit OPM (%) - RHS 155 110 112 111 114 74

25

20

15

Source: Company, Angel Research

February 15, 2012

CESC | 3QFY2012 Result Update

Operational highlights
For 3QFY2012, CESC registered 10.6% yoy growth in its standalone top line to `1,019cr, aided by higher realization and sales volume. Realization improved by 7.1% yoy on account higher power and fuel costs. Sales volume increased by 3% yoy to 2,005MU, aided by a 2% increase in generation to 2,197MU and 10.5% increase in power purchase to 253MU. On a positive note, the company reported an 80bp yoy reduction in T&D losses to 12.8%, which aided growth in sales volume.

Power generation up by 2% yoy

During 3QFY2012, power generation increased by 2% yoy to 2,197MU. The Budge-Budge plant reported a substantial improvement in PLF to 90.3% during the quarter, as against 85.2% recorded in 3QFY2011. Power generation at the Budge-Budge plant stood at 1,495MU in 3QFY2012 as against 1,411MU in 3QFY2011. However, Titagarh and Southern plants reported lower yoy PLFs of 74.2% (79.3%) and 87.5% (77.8%), respectively, which to a large extent negated the higher PLFs of Budge-Budge.

Exhibit 4: Plant-wise generation volumes

1,800 1,500 1,200
(MU)

1,439

1,555 1,411 1,057

1,540

1,495

900 600 300 0 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 Budge-Budge Titagarh Southern 505 297 420 232 436 256 474 281 459 281 393 261

Source: Company, Angel Research

Exhibit 5: Plant-wise operational performance (3QFY2012)

PLF (%) Plant Budge-Budge Titagarh Southern
Source: Company, Angel Research

Generation (MU) 3QFY12 1,495 393 261 3QFY11 1,411 420 232

3QFY12 90.3 74.2 87.5

3QFY11 85.2 79.3 77.8

February 15, 2012

CESC | 3QFY2012 Result Update

Retail business
On the retail business front, per sq. ft. sales of Spencers increased to `1,087/month in 9MFY2012 (12.7% higher on a yoy basis). Same store sales increased from `1,000 in 9MFY2011 to `1,059 in 9MFY2012. Store level EBITDA per sq. ft. stood at `35 for 9HFY2012 (vs. `31 for 1HFY2012), indicating an improvement in EBITDA/sq. ft. during 3QFY2012 to ~43/sq. ft. During the quarter, Spencers increased its area under operation by 21,000 sq. ft.

Investment arguments
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 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 2QFY2014.

Exhibit 6: Projects under construction/development

Location Chandrapur Haldia Phase-1 Purpose PPA (50%) and Merchant (50%) PPA (75%) and Merchant (25%) Size (MW) 600 600 Cost (` cr) 2,900 3,300 Exp comm. date 2QFY2014 FY2015 Remarks Fuel linkage received; EPC and BTG orders have been placed; Project is under construction Required clearances, including environmental clearances, have been obtained; Ministry of coal has awarded coal linkages; Financial closure has been achieved; Final approval has been received from WBERC; BOP order has been placed with Punj Lloyd. BTG order has been placed with Shanghai Electric Group Land acquisition has been completed; All major approvals have been received; Coal allocation is being pursued 110mt coal block allocated; MoU signed with Jharkhand government; Land acquisition process initiated. The company has acquired prospecting license for the mine Land acquired; Fuel linkage awaited; TOR received

Dhenkanal, Orissa

Dumka, Jharkhand

Balagarh Total

25% to Orissa at regulated tariff, balance not yet decided 25% to Jharkhand at regulated tariff, balance not yet decided Not yet decided

1,320

6,500

FY2016

600

3,200

FY2016

1,320 4,440

6,800 22,700

FY2017

Source: Company, Angel Research

February 15, 2012

CESC | 3QFY2012 Result Update

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 (more than 90%) over the past few years, barring FY2011 when PLF stood at 85.2% (largely due to low PLF in the newly commissioned Budge-Budge plant). 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 and had an accumulated loss of `778cr as of FY2011. However, on a positive note, the retail business has turned EBITDA positive on 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 in the past few quarters and stood at `1,087 in 9MFY2012. During 9MFY2012, store EBITDA/sq. ft. stood at `35. Currently, Spencers has 195 outlets spread across the country and operates 24 hyper stores and 14 super stores with total area of 590,000 sq. ft. and 100,000 sq. ft., respectively.

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 6.9x FY2013E EPS and at 0.7x FY2013E P/BV of its power business. We have assigned 0.7x FY2013E P/BV multiple to the companys power business, considering its low RoE, and have arrived at a value of `357/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 Accumulate recommendation on the stock with an SOTP-based target price of `302.

February 15, 2012

CESC | 3QFY2012 Result Update

Exhibit 7: SOTP valuation

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

Methodology 0.7x FY2013E BV 0.1x FY2013E Sales NAV

Value/Share (`) 280 11 11 302

Exhibit 8: Change in estimates

(` cr) Earlier Net sales Operating exp. Operating profit Depreciation Interest PBT Tax PAT 4,533 3,436 1,098 300 313 638 127 511 FY12E Revised 4,411 3,329 1,081 300 313 611 122 489 Variation (%) (2.7) (3.1) (1.5) (4.3) (4.1) (4.3) Earlier 4,880 3,735 1,145 314 351 656 131 525 FY13E Revised 4,770 3,601 1,169 314 346 642 128 514 Variation (%) (2.3) (3.6) 2.1 (1.5) (2.2) (2.4) (2.1)

Source: Company, Angel Research

Exhibit 9: Recommendation summary

Company CESC GIPCL NTPC Reco. Acc Buy Acc CMP (`) 281 76 182 Tgt. price (`) 302 93 199 Upside (%) 7.6 23.1 9.1 FY2013E P/BV (x) 0.7 0.7 1.8 FY2013E P/E (x) 6.9 7.2 14.4 FY2011-13E EPS CAGR (%) 2.6 (1.2) 5.7 FY2013E RoCE (%) 8.9 11.1 10.4 FY2013E RoE (%) 10.4 10.6 13.3

Source: Company, Angel Research

Exhibit 10: 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

Source: Company, Angel Research

February 15, 2012

CESC | 3QFY2012 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 FY08
2,829 11.8 2,255 1,244 926 85 574 (4.8) 20.3 168 406 (8.9) 14.3 182 179 45.7 392 17.3 (11) 403 48 11.8 355 344 17.1 12.2 27.4 27.4 (20.8)

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 3,010 2,094 472 444 1,001 33.6 25.0 267 734 34.9 18.3 272 152 24.8 614 17.8 614 126 20.5 488 488 12.9 12.2 38.9 38.9 12.9

FY12E
4,411 10.0 3,329 2,311 506 512 1,081 8.0 24.5 300 781 6.4 17.7 313 143 23.4 611 (0.6) 611 122 19.9 489 489 0.1 11.1 38.9 38.9 0.1

FY13E
4,770 8 3,601 2,499 547 554 1,169 8.2 24.5 314 855 10 18 346 132 21 642 5 642 128 20 514 514 5 11 40.9 40.9 5.0

February 15, 2012

CESC | 3QFY2012 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 2,847 2,972 2,569 5,541 7,129 3,534 3,595 620 570 2,089 986 611 491 1,341 748 9 5,541 126 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 9,990 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 10,704 4,490 6,214 272 1,084 2,893 839 1,189 865 2,213 680 6 8,256 126 4,604 4,730 4,352 9,082 11,341 4,790 6,550 567 1,184 3,138 772 1,307 1,059 2,364 774 6 9,082 126 5,058 5,184 4,952 10,136 11,852 5,104 6,747 593 2,084 3,152 612 1,414 1,127 2,447 706 6 10,136

FY08

FY09

FY10

FY11

FY12E

FY13E

February 15, 2012

CESC | 3QFY2012 Result Update

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 FY08
403 168 495 179 48 840 (835) (328) 179 (984) 622 18 58 182 400 255 731 986

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 (109) 152 126 494 (708) (406) 152 (961) 244 58 186 (281) 1,120 839

FY12E
611 300 (166) 143 122 480 (932) (100) 143 (889) 400 58 342 (67) 839 772

FY13E
642 314 (93) 132 128 602 (537) (900) 132 (1,305) 600 58 542 (161) 772 612

February 15, 2012

CESC | 3QFY2012 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.)
0.5 2.8 2.2 0.7 3.5 2.5 0.7 3.5 3.1 0.7 3.1 2.7 0.8 3.3 2.5 0.8 3.7 2.5 0.4 22 47 195 (26) 0.4 23 42 228 (14) 0.4 24 48 271 (23) 0.4 24 49 266 (26) 0.4 26 53 251 (7) 0.4 27 57 244 4 8.0 10.8 13.9 7.8 11.7 12.8 7.5 10.3 12.0 9.3 11.1 12.0 9.0 10.5 10.8 8.9 10.3 10.4 14.3 88.2 0.7 8.5 6.3 1.0 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 18.3 79.5 0.6 8.4 5.6 0.9 11.1 17.7 80.1 0.6 8.0 6.0 0.9 9.7 17.9 80.1 0.5 7.7 6.0 0.9 9.3 27.4 27.4 41.7 4.7 237 32.5 32.5 46.5 4.7 270 34.4 34.4 50.9 4.7 304 38.9 38.9 60.2 4.6 343 38.9 38.9 62.8 4.6 377 40.9 40.9 65.9 4.6 413 10.2 6.7 1.2 1.7 1.6 7.9 0.8 8.6 6.0 1.0 1.7 1.8 8.3 0.8 8.1 5.5 0.9 1.7 1.6 7.2 0.7 7.2 4.7 0.8 1.7 1.4 5.5 0.7 7.2 4.5 0.7 1.6 1.3 5.5 0.7 6.9 4.3 0.7 1.7 1.2 4.9 0.6

FY08

FY09

FY10

FY11

FY12E

FY13E

February 15, 2012

10

CESC | 3QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

February 15, 2012

11