Emkay Upgrades CESC To Buy On Demerger Plans, Spencer’s Break-Even
The de-merger to be “value accretive” as it will release power vertical.
CESC Ltd.’s plans of demerging its large businesses into four separate entities—generation, distribution, retail and other businesses—will be completed by March-April next year, said Emkay in a research note.
The broking firm, which met the CESC management, said that the company’s subsidiary supermarket chain Spencer is expecting a full year earnings before interest, tax, depreciation and amortisation (EBITDA) break-even after reporting an eight-month break-even last year.
On the back of a turnaround in Spencer and demerger plans coming to fruition, Emkay upgraded CESC to 'Buy' with a target price of Rs 1,248.
Emkay said the demerger to be "value accretive" as it will release its power generation and distribution vertical, and increase the power utility company’s value after it becomes an independent entity.
‘Turnaround’ In Subsidiaries
- Spencer: Spencer, its retail arm, has reported a break-even in EBITDA figures for eight months and the management expects a full year break-even. Higher same store sales and incremental volume growth via area addition at the rate of eight hyper stores per annum drive Spencer's growth. Spencer is now a deb-free entity after parent company infused Rs 690 crore equity.
- Dhariwal Plant: The plant reported an EBITDA of Rs 75 crore in financial 2017 as opposed to a loss of Rs 53 crore in financial year 2016. The plant has been a part of two power purchase agreement (PPA) tenders. One that it has currently participated in was floated by Maharashtra for its untied 300 mega watt capacity. The other tender it is looking forward to will also be floated by Maharashtra but in Railways.
- Chandrapur Plant: This plant expects a decline in losses incurred by almost half the amount. It had incurred an annual cash loss of Rs 330 crore in the last fiscal but expects the loss to be halved to Rs 150 crore.