CESC gains 3%; Motilal Oswal retains Buy, sees 34% upside as demerger to unlock value

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26 Aug, 2025 12:21

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Motilal Oswal has maintained its buy call on CESC and expects the stock to rally 34 percent to hit its target price of Rs 1,360 per share, citing the expected demerger into four separate businesses.

The research house said CESC's demerger plans remain on track.

It has received exchange and SEBI approval. Shareholder meeting is scheduled on December 15, 2017.

"The demerger into four separate businesses would drive value through unlocking the potential of the distribution and retail businesses. Distribution business will get re-rated on reduced volatility in earnings and lower cost of equity. Spencer’s too will command better valuations after expected turnaround in FY18," Motilal Oswal said.

Meanwhile, CESC's unit Dhariwal Infrastructure has bagged a contract to supply 185 MW to Maharashtra at Rs 2.76 per kWh during December 2017-June 2018.

The contract is part of the flexible coal scheme under which coal will be supplied by Maharashtra at Coal India's notified price.

"We estimate contribution margin of Rs 0.7-0.8 per kWh. Dhariwal will supply the power from its second unit of 300MW (2x300MW plant). Though the margin is low, the strategy partially de-risks it from the volatile merchant market," Motilal Oswal said while raising PAT estimates marginally by around 3 percent to Rs 1,360/1,480 crore for FY19/20 on higher plant load factor (PLF) at Dhariwal.

It has increased PLF estimate from around 50 percent earlier to around 70 percent over FY19-20 for Dhariwal.

Moreover, Dhariwal can now look to supply in day-ahead market from the remaining 115MW capacity, given that operation of part of the unit is now assured, the research house said.

According to the research firm, Maharashtra could extend the contract, as the price is lower than variable cost of its own plants.

At 12:33 hours IST, the stock price was quoting at Rs 1,040.85, up Rs 24.50, or 2.41 percent on the BSE.