Kolkata: Analysts expect power utility CESC Ltd to announce on 18 May the much-anticipated separation of its retail business, which in the year till March is seen to have made substantial improvements in performance.
CESC said on Monday that its board will meet on 18 May to consider its March quarter earnings, triggering speculation among analysts that the company will on that day also announce plans to unlock value from its Spencer’s retail unit.
The Kolkata-based company declined to comment on this story.
CESC’s shares jumped to their 52-week high of Rs985.70 on Tuesday, but closed 0.9% lower at Rs971.10 on BSE in a flat market.
The RP-Sanjiv Goenka group, which controls CESC, has for years been weighing the separation of Spencer’s from the power utility. Analysts expect Spencer’s, now a business unit within CESC, to raise cash on its own strength soon after it is carved out.
The company’s management has indicated that Spencer’s will raise cash through a placement of shares with financial institutions to repay its debts, said Anuj Upadhyay, an analyst at brokerage Emkay Global Financial Services Ltd.
Spencer’s, according to Upadhyay, has debt of Rs400 crore, which costs Rs40-45 crore in annual interest. If the debt is repaid, Spencer’s may start to turn in profits, said Upadhyay.
The separation of the retail business from the power utility will be the first step towards listing Spencer’s, but that, according to Upadhyay, may still be 1-2 years away.
Analysts from at least four broking firms had said Spencer’s had for the first time in the December quarter broken even at the store level, which means the retailer was generating enough cash to pay for its operating costs.
“CESC has been consistently driving operational improvement at Spencer’s, but the break even (in the December quarter) was well ahead of our expectation,” Motilal Oswal Securities Ltd said in a recent research report.
Motilal Oswal said it had revised its estimates for CESC in anticipation that the current fiscal (2017-18) will be for Spencer’s the first full year of “Ebidta break even”. (Ebidta is an acronym for earnings before interest, depreciation, taxes and amortization.)
According to estimates of HDFC Securities Ltd, Spencer’s store-level Ebidta in the December quarter was at Rs108/sq. ft per month, up 24% from the same period a year ago. HDFC Securities, too, said it expected “value-unlocking” in Spencer’s to follow soon.
“The equity support to Spencer’s (from CESC) will reduce from Rs300 crore to Rs130 crore over the next two years,” Motilal Oswal said in its report, adding that because of the “improved performance and gradually evolving organised retail market in India, the management is now open to listing of the business, thus unlocking value”.
CESC is also likely to create separate entities for the distribution and generation arms of its power business and an announcement could be made on 18 May, according to an analyst, who did not wish to be identified. But that, according to this person, has already been factored into the price of the company’s shares.