Shares of CESC Ltd rose around 8 percent on November 23 on the National Stock Exchange. A slew of brokerages released research reports after attending the RPSG Group’s investor conference on November 22 where CESC’s executives gave an overview of the business.
CESC shared its thoughts on the growth opportunities in the power sector. CESC is looking to expand its distribution footprint and is betting on privatisation of power distribution. Further, the company also believes it is uniquely placed to exploit de-licensing opportunities for inorganic growth. Analysts point out that CESC’s medium-term growth strategy is to expand its distribution footprint inorganically by acquiring more distribution circles.
The company is present across six distribution circles and currently has more than 4 million customers while handling around 3.4GW of power. Additionally, CESC has emerged as the highest bidder to acquire a 100 percent stake in Chandigarh discom, although the acquisition is not done yet. With the inclusion of Chandigarh, the distribution business demand load is expected to reach 3.8GW of power. In general, analysts believe the company’s vast operating experience would hold it in good stead in the upcoming distribution privatisation opportunity.
Overall, according to CESC, four drivers re-shape the energy landscape: digitalisation, deregulation, decarbonisation and decentralisation.
To be sure, CESC is not gung-ho on the prospects of renewable energy capacity at the moment. “On the plan for growth in the renewable space, the management categorically highlighted that they believe that the current return profiles for renewable plants are not remunerative for providing healthy returns, and hence the company has abstained from making a larger presence in the renewable space,” said analysts from Kotak Institutional Equities.
Be that as it may, investors are sitting on handsome returns. CESC’s shares have increased more than 40 percent so far in 2021, which is nothing to sneeze at. And what’s more, analysts reckon the stock’s valuations are relatively attractive. “Based on our estimates, the CESC stock is discounting FY24 earnings per share by about 6 times versus 16 times for Torrent Power and 20 times for Tata Power Co.,” said Rohit Natarajan, an analyst at Antique Stock Broking.
On the earnings front, CESC’s regulated Kolkata operations are driving the show as of now. So, what are the triggers for the CESC stock ahead? According to Natarajan, “For CESC, a key trigger is the pending WBERC (West Bengal Electricity Regulatory Commission) regulation on tariff hikes. The other catalysts remain winning new distribution franchisees and sweating of renewable assets.”
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
