CESC's franchisee distribution income may zoom by 25% after 20-yr contract

Malegoan project, the company's first in Maharashtra, is likely to break even in two years

CESC Ltd is likely to see an increase of over 25 per cent in its franchisee distribution revenue this year, after the company won a 20-year contract in Malegaon, Maharashtra, for a project that is expected to break even within two years.

As of March 31, 2018, its franchisee distribution revenue, which consists of the right to supply power and raise bills thereof to consumers in Kota, Bikaner and Bharatpur in Rajasthan, stood at Rs 1,300 crore. This accounts for about 13 per cent of the company’s annual turnover of Rs 10,275 crore last fiscal year. 

The rest of the revenue came in from its distribution business in Kolkata and Noida, power generation business, retail and FMCG, real-estate, business process outsourcing and other business ventures.

Its income from the sale of power in the last fiscal year was Rs 7,595.12 crore and the distribution business, excluding Kolkata and Noida, stood at Rs 1,300 crore. CESC has a license agreement to supply and bill power in Kolkata and Noida.

The RP-Sanjiv Goenka Group’s flagship company, which is undergoing a demerger to carve out its power generation, power distribution, retail and other business verticals into different entities, is keen on increasing its presence in Maharashtra and is eyeing other assets as well. 

The company’s chairman Sanjiv Goenka, however, refused to divulge any more details.

“The Malegaon distribution franchisee marks our maiden entry in distribution in Maharashtra and this state is expected to be an important market for us. We expect this franchisee to break-even in the next two years”, Goenka said.

CESC bagged the tender for this project from Maharashtra State Electricity Distribution Company Limited (MSEDCL), outbidding Torrent Power. Its revenues from the project are expected to be around Rs 322 crore. The power supply will be provided by MSEDCL at Rs 3.26 a unit.

“Currently, the transmission and distribution losses make up 44.76 per cent in Malegaon, which we expect to bring down considerably. In this zone, 83 per cent of the customers are industrial and only 13 per cent of the electricity will be used for domestic purposes,” he said.

The firm will be investing Rs 150 crore over the contract period to step up and maintain this franchisee distribution circle.

Although the company’s entire distribution basket (comprising license and franchisee) is profit making, only Bharatpur has been able to turn profitable in the franchisee segment in recent times.

CESC won the franchisee distribution for Bharatpur in 2016-17 – the same year it bagged the contract for Kota from Jaipur Vidyut Vitaran Nigam Ltd. The contract for Bikaner was awarded in May 2017.

With this agreement, CESC now operates its distribution business in four states – West Bengal, Uttar Pradesh, Rajasthan and Maharashtra – and Goenka is keen to expand this vertical to other states as well.

The company now has a consumer base close to 4 million with Kolkata alone accounting for a consumer base of over 3.2 million.

	FY 2017-18	FY 2016-17
Net Income	10,274.86	8,363.36
Total expenses	9,397.61	7,711.61
Net profit	975.25	810.19