CESC is yet to get approval from WBERC for PPA between generation and distribution arms ahead of demerger. Meanwhile, company has decided to go ahead with demerger of other businesses: New Retail (Spencers) and Venture Companies (Firstsource, FMCG & real estate) as per following scheme:

Each existing shareholder of CESC, for every 10 shares, will be allotted additional six shares of Rs 5 each in New Retail and additional two shares of Rs 10 each in the Venture Companies. Record date is 31st October 2018.

While majority of current value and growth resides in distribution arm making its eventual demerger, from generation segment, crucial to our thesis, there are meaningful triggers in other entities too. In generation, with country’s increasing power demand as well as rising prices, a faster ramp up and breakeven at new unit at Chandrapur (Dhariwal) could be overall positive.

There has been lot of buzz in offline retail with recent M&A activity. Last month, Amazon announced it is buying 49% in More Supermarket from Aditya Birla Group at a valuation pegged at Rs 4,200 Cr. Last year, Amazon had acquired 5% in department store chain Shoppers Stop for about Rs 180 crore. There has been speculation that it is eyeing more acquisitions in line with its omni-channel strategy for Prime Now.

The most attractive of all, and something to which we ascribed zero value but could be the dark horse, is Venture on the back of rapidly growing FMCG business. Within 18 months of incubating this segment, the company is already clocking Rs 500 Cr revenues (annualized) and growing 20-22% monthly. Their snacking brand Too Yumm! has been innovative in terms of product offering - healthy snacks made of multigrain with tagline ‘baked not fried’ and new flavors like Dahi Papdi Chaat. In no time, it has reached over 4 lac outlets in the country backed by mega brand building exercise with Virat Kohli as ambassador. Mr. Sanjiv Goenka has gone on record to say they are going to demerge FMCG business in next couple of years and targeting Rs 10,000+ Cr. in sales over next 5-6 years. So far execution has been encouraging making this a promising optionality here.

We will continue to hold CESC and would revisit allocation strategy post the listing of these two arms.

Annexure:
Link to CNBC Interview of Mr. Sanjiv Goenka on Too Yumm!
https://www.youtube.com/watch?v=E_K5Xqr7kfE