Buy CESC; target of Rs 199: Sharekhan

Sharekhan's research report on CESC

Consolidated PAT increased by 9% y-o-y to Rs. 378 crore with good performance in standalone business, Haldia and Dhariwal and dragged down by Malegaon DF. Standalone PAT rose 13% y-o-y to Rs. 192 crore due to good performance in the distribution business. Dhariwal Infrastructure/Haldia energy profit increased 42%/35% y-o-y to Rs. 112/84 crore respectively while Malegaon losses increased to Rs. -42 crore from Rs. -33 crore last year. Aggressive RE growth strategy with a plan of 3GW (capex of ~Rs. 12-13k cr) in the next 4-5 years makes good value proposition given the lower RE cost, strong growth prospects, and likely improvement in ESG rating. Its subsidiary has been selected as successful bidder for setting-up of 10,500 tonnes per annum of green hydrogen production facility in India.

Outlook

Company has implemented a 5.7% tariff hike for recovery of fuel and power purchase adjustment surcharge from June. We retain Buy on CESC with a revised PT of Rs. 199 on a SOTP basis. Renewable energy capex revival is going to drive the growth and turnaround of the distribution business would further aid the earnings.