Report on CESC

Report on CESC :
Investment Strategy : Invest in the stock with a perspective of 1 year.Best buy price is around 396-405 with a stop of 380 for the target of 470-490
Benchmark : Nifty
Risk : 4%
Reward : 18%

Risk Reward Ratio : 1:4.5
Only investors, who have attitude to buy, sit back and relax with out getting bothered about the day to day vagrancies should buy it.
In case of market crash : Accumulate at 355-360 levels
BSE (500084) – A, NSE (CESC)
Website : www.cesc.co.in
Introduction :
CESC is a RPG group company and is a fully integrated electricity utility which supplies electricity to Kolkata and Howrah. It is also involved in generation and transmission of electricity.
History
The Company was incorporated in Kolkata, India in 1978 under the name of The Calcutta Electric Supply Corporation (India) Limited to take over the business of The Calcutta Electric Supply Corporation Limited, a company incorporated in England which had established India’s first generating station in Kolkata in 1899. In 1979, the Company took over the assets and liabilities of The Calcutta Electric Supply Corporation Limited through a scheme of arrangement and amalgamation sanctioned by the High Court. The company was renamed CESC Limited in 1987. RPG Group’s association with the company began in 1989 following its purchase of approximately 10 % of the Company’s
Mr. R.P. Goenka became the Company’s Chairman in 1991.
Electricity Distribution Business
The Company holds a license originally granted by the State Government of West Bengal to supply electricity in the cities of Kolkata and Howrah and in the adjoining areas,The Company owns and operates four coal-based generating stations with an aggregate capacity of 975MW in the State of West Bengal.RPG Group company in which the Company has a 33% stake. It is a condition of ICML’s mining license that it must supply coal exclusively to the Company.
This guaranteed supply enables the Company to reduce interruptions in coal supplies, which could adversely affect its generating capability.
Currently, the Company is setting up a third 250MW generating unit at Budge Budge in addition to the existing two 250MW units.The company has come up with a QIP issue which it intends to use part of the proceeds to set up a 600MW coal fired generation facility in Haldia (expected completion in 2011). The Company also intends to use part of the proceeds of this Issue for improving the existing transmission and distribution network. The Company owns and operates the distribution system through which it supplies electricity to consumers.
The Company has entered into MOUs with the State Governments of Jharkhand and Orissa in relation to setting up 1,000MW merchant power plants in each of these states as pit-head stations.
The Company has initiated steps to set up a 1,000MW-1,300MW coal fired generating facility in Haldia as Phase II for merchant market operations, where Phase I is currently underway in relation to a 600MW plant for the Company’s licensed area. The land acquisition process has been initiated with the State Government for the entire
1,600MW-1,900MW plant at Haldia and a pre-feasibility study for both phases has begun.
Merchant Power Plant generates electricity for sale in the open wholesale power market.
They sell power to more than one buyer based on demand. Here the returns are better in terms of profit.
ICML has further initiated steps to increase its annual production from the existing level of 2.6 MT of coal to 3.1 MT once the 250MW third unit at Budge Budge is commissioned.
Real Estate Business :
CESC Properties Ltd. ("CPL"), a wholly-owned subsidiary (100%) of the Company, was formed in April 2007 to engage in real estate development with respect to properties in the Company’s land bank which do not have critical electrical installations, as well as property in central Kolkata. The first project that CPL intends to develop is a premium shopping mall in the center of Kolkata, where the Company owns 3.2 acres of land. The land is worth Rs 220 crores.
CESC expects Rs 40 - 45 crores of stable revenues once the mall is developed. Around
4 lakh square feet will be built by this year.
CPL also intends to develop two sites at the location of one of its old power plants and one existing plant which is expected to be shut down in the coming years. It intends to develop these two sites for commercial purposes. The Mulajore site where the plant has been shut down has 35 acres of land .27 acres of land will be available once New
Cossipore plant closes down. CPL is also seeking to identify and obtain other land for development.
Retail Business
Spencer’s Retail Limited ("SRL") is one of the leading organized retailers in India. SRL’s business can be broadly divided into (1) Spencer’s (a network of food-intensive outlets providing a broad product range) and (2) specialty stores focusing on music retailing, books and mobile retailing. SRL is managed separately from the CESC, which owns
94.7% of SRL. M/s Pathik Foods Pvt Ltd., the holding company of SRL, merged with the
Company, and from April 1, 2007 SRL became a subsidiary of the Company.
SRL has the following verticals
Food
SRL currently operates 350 food-focused stores under the Spencer’s brand name in 50 cities, with contracted retail space of approximately 12 lakh square feet. To cater to its customers’ varied needs, it operates through a variety of formats: "Express", "Daily",
"Super" and "Hyper".
Spencer’s Daily: Spencer’s Daily is a convenience store format, with floor space ranging from 3,000 to 5,000 square feet per store. As at October, 2007, there were 166 Spencer’s Daily stores. These stores generally stock fruit and vegetables, food staples, processed food, fast-moving consumer goods, beverages, baked goods, and frozen and chilled goods.
Spencer’s Express: Spencer’s Express is also a convenience store format, with floor space ranging from 1,400 to 1,800 square feet per store.
These stores generally offer a smaller range of the same sorts of products carried by Spencer’s Daily, and cater to
"top-up" purchases by consumers who may require a small number of items during the course of the day.
Spencer’s Super: Spencer’s Super is a grocery store format, with floor space ranging from 10,000 to 18,000 square feet per store. As at October, 2007, there were 12 Spencer’s Super stores. These supermarkets carry the full range of food products stocked by Spencer’s Daily, with greater depth in products lines. In addition, these stores provide a range of goods for the home, brown goods and select clothing.
Spencer’s Hyper: Spencer’s Hyper is a hypermarket format, with floor space ranging from 30,000 to 75,000 square feet per store. They carry a full range of food products, goods for the home, clothing, white goods, electronic and electrical goods, and a full range of fast moving consumer goods.
Music : SRL operates its music retailing business under the "Music World"
brand, with 11 main stores, 66 "Express" stores, 23 franchised operations and 154 "touch points” (smaller locations offering a limited range of best-selling products).
Books
Books and related products are offered under the "Books & Beyond"
brand, which currently has two flagship stores in Gurgoan and Pitampura.
Mobile Telephone Retailing
RPG Cellucom, an associate company of SRL (SRL holds 10 lakh
unlisted shares of RPG Cellucom) has entered into a partnership with the Dubai-based Cellucom Group, a specialized and organized retailer of Mobility products in the Middle East. It is one of India’s leading Cellphone & Laptop retail chain. The first RPG Cellucom outlet was opened in January 2007 at Sahara Mall, Gurgaon.
Others
Spencer’s Retail Ltd is rolling out a separate chain of large format stores for consumer electronics. To be christened Spencer’s Electronics, initially 5 of them will be opened in South and then based on the feedback national rollout will be planned. Currently there are two Spencer’s Electronic stores, in Hyderabad and Pune.Spencer's is also looking at other formats such as apparel and home retailing. SRL is also going gung ho with its private labels in food categories. It has setup its Spencer’s Gourmet Centre. The Gourmet Centre Research and Development team consists of Food Scientists from varied food processing backgrounds. The culinary team consists of chefs specializing in Indian as well as international cuisines. The capabilities of the Gourmet Centre are new recipe creation, product development, product analysis as well as shelf life testing of all new products created. Quality testing as well as packaging testing will also be conducted in the centre. SRL is currently loss making, It takes 6 - 24 months for the store to break even (based on the format) and SRL is currently under a massive expansion spree. The overlap
between stores trying to break even and new stores opening up is the reason for theloss.
Strengths
RPG group company
Has business with great potential – Power, Retail & Real Estate
Has scalability power in Retail business and is one of the industry leaders
Valuations are impressive when compared with its peers.
References
CESC Investor Presentation (from CESC website)
QIP Placement Document (from CESC website)
http://www.rpggroup.com/
http://www.cesc.co.in/
http://www.spencersretail.com/
http://www.rpgcellucom.com/
Discalimer:This document has been prepared by the Research Division of Integrity Financial Consultants Pvt. Ltd.,Pune, India and is meant for use by the recipient only as . This document is not to be reported or copied or made available to others without prior permission of iNTEGRITY. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, iNTEGRITY has not independently verified the accuracy or completeness of the same. Neither iNTEGRITY nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either iNTEGRITY or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.


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