Author: root

Virtual investor conference held on November 22- Key takeaways:

1. CESC intends to become more flexible and digital on the distribution front such that capex can be implemented on just in time basis for higher returns.

2. For the medium term, the company focuses on inorganic expansion of its distribution segment by acquiring new areas. The company bets big on distribution de-licensing and privatisation.

3. Kolkata license area continues to be the key focus business.

4. It aims to scale up adoption of new technologies including EV charging, BESS, microgrids, among others, and is performing well on the ESG front.

State of the art technology deployment at its distribution areas including:

1) Big data analytics, AI / ML, IoT for predictive analytics and real-time monitoring,

2) automating redundant practices /services

3) deploying smart metering

4) moving from smart to intelligent grid solutions,

5) digitising customer services and providing value-added services for premium customers,

6) leveraging blockchain technology for demand side management.

Recently won bid:

Lately the company won the bid for acquiring Chandigarh discom (the transfer though is awaiting court direction).

No concerns around generation front in the next decade:

“CESC has a portfolio of 2,125 MW of operational thermal assets with varying residual lives. However, in-

line with the declaration during COP-26, where India insisted on phasing-downof coal generation vs phasing-out approach insisted upon earlier, the management expects its thermal assets will not face any operational concerns over the next decade, despite sustainability-related challenges”, said the report.

CESC to scale up in EV charging and battery storage infra:

As of now the company has 3 operational public EV charging stations and is looking to increase its penetration and create a larger scale public and home charging infrastructure.

Performing well on the ESG front: CESC’s ESG rating upgrade from B to BB by MSCI is proof of the various steps which the company has taken on the

ESG front. “It considers sustainability as one of the core areas and is working to increase its footprint in tRE, EV, electric cooking and BESS spaces. On the

generation front, despite 100% thermal portfolio, CESC’s plants are among the most efficient in the country and there has been a steady decrease in emission intensity in all its generation stations from FY18 to FY20. It also continues to remain committed on biodiversity, employee and community welfare fronts”, adds the report.

Valuation

“We maintain BUY on the stock with SoTP-based target price of Rs120. The stock is currently trading at FY24E P/E of 6.7x, P/BV of 0.9x, and a dividend yield of 7.2%”, says the brokerage firm.

Disclaimer:

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Q1FY22 results of Power Finance Corporation Ltd

According to the brokerage “The company has reported weak growth figures for the Q1FY22; however, the asset quality numbers have improved. Net Interest Income for the quarter stood at Rs.3,525 Cr, up 14.7% for both YoY and QoQ. NIM for the quarter was at 3.7% – up 40 bps QoQ backed by higher lending yields. Management intends to pass on the fall in funding cost in coming quarters. Operating profit grew by 29.5% YoY, while sequentially it was down by 10.5%. Other income was down by 92% QoQ, this has resulted in 2% sequential de-growth in Net profit.”

HDFC Securities has stated that the company’s “Total AUM of Rs. 369983 Cr grew by 7.3%/1.4% YoY/ QoQ. Disbursement during the quarter was weak, due to overall weak demand from the sector. It was down by 45% YoY and 18% QoQ. Under Atamnirbhar Discom Scheme the company has so far sanctioned Rs.67,699 cr and disbursed Rs. 38,501 cr. The company has also declared an interim dividend of Rs. 2.25/- per equity share of Rs. 10/- each for FY22.”

The brokerage claims that “As of Q1FY22, the Capital Adequacy Ratio (CAR) stood at 21.16% with Tier – I capital ratio at 17.56%. Being a Government-owned entity, PFC has the highest domestic credit rating of “AAA” and international ratings stood at “BBB-“. PFC has a well-diversified resource profile with 63% money raised from bonds, 20% via loans from various entities, 1% from commercial papers (CP) and 16% via foreign currency loans. Further, ~86% of the foreign currency exposure with 5 years residual maturity is hedged.”

The brokerage’s take on Power Finance Corporation Limited

According to the research report of the brokerage “Further, to tap into newer areas of opportunities, the company is looking to fund segments like e-mobility, utility scale energy storage etc. The company has a sufficient capital adequacy level and resources profile is also diversified. The Indian government has recently accorded “Maharatna” status to PFC which will enable it greater operational and financial autonomy to offer competitive financing for the power sector, which will go a long way in making available affordable and reliable ‘Power For All 24×7. This will also help PFC in pushing the government’s agenda of funding under the National Infrastructure Pipeline, a national commitment of 40% green energy by 2030 and effective monitoring and implementation of the New Revamped Distribution Sector Scheme with an outlay of more than Rs.3 Lakh Cr.”

HDFC Securities has also claimed in its research report that “PFC is a consistently high dividend paying company, the yield at the current price stands at ~7.3% which makes it one of the highest dividend paying companies in the listed space. For the last five years, the average dividend payout as a percentage of equity share capital stood above 40% (except for FY19). PFC’s high dividend seems sustainable as it has lent to relatively risk-free public sector entities and its capability to distribute dividends remains good even in case a good portion of its private sector lending goes bad. The stock is trading at only 0.5x FY23E P/ABV. We feel that such high dividend yield and low valuations provide a margin of safety for investment in the company at the current level.”

Buy Power Finance Corporation Ltd with a target price of Rs. 167

HDFC Securities has noted in its research report that “Since the past few quarters, the company has been able to deliver strong growth momentum along with considerable improvement in the asset quality. Also, the emerging trend in the power sector gives us confidence in the company’s ability to keep growing at a fast growth rate. We have envisaged 6% CAGR growth for top line and 8% for bottom line, while the loan book is estimated to grow at 7.5% CAGR over FY21-23E. We feel that worst in terms of asset quality deterioration in the power finance segment is over. There could be higher recoveries in the next two years than slippages. Further PFC is also holding sufficient provisions. RoAA is estimated at 2.2% for FY23. In the medium term, credit cost normalisation and cost control remains the key drivers for stable RoA and RoE.”

According to the brokerage’s call “We feel that investors can buy PFC at the LTP of Rs.137.3 (0.5xFY23E ABV+ REC value after holding company discount) and add on dips to Rs.123 (0.43xFY23E ABV+ REC value after holding company discount) band. We expect the Base case fair value of Rs.157 (0.6xFY23E ABV+ REC value after holding company discount) and the Bull case fair value of Rs.167 (0.65xFY23E ABV+ REC value after holding company discount) over the next 2 quarters.”

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.