Buy CESC; target of Rs 150 Sharekhan

Sharekhan's research report on CESC

CESC is pursuing an aggressive RE growth strategy with a plan of 3GW (capex of ~Rs12-13k cr) in the next 4-5 years. It will use RE for captive requirement for its Kolkata/Nodia circles as well as IPPs. This makes a good value proposition given the lower RE cost, strong growth prospects, and likely improvement in ESG rating. Potential turnaround of the distribution business of Rajasthan (expected in FY24), Malegaon, and Chandigarh (yet to become operational) would create long-term value for investors. Noida Power has strong financials with EBITDA of Rs. 255 crore, RoE much higher than the regulated return of 15%, and cash of Rs. 724 crore. Noida is also witnessing strong growth of 12-15% and, thus, we see better value for Noida Power.

Outlook

We maintain Buy rating on CESC with a revised PT of Rs. 150. Valuation of 1.3x its FY2026E P/BV is attractive, given discount to peers; and the stock offers a healthy dividend yield of 3-4%. RE investment and turnaround of power distribution businesses could create value.