ICICI Direct is bullish on CESC has recommended buy rating on the stock with a target price of Rs 800 in its research report dated February 06, 2019.
ICICI Direct's research report on CESC
CESC reported lower-than-expected Q3FY19 results on account of lower revenues and higher costs, which, in turn, impacted EBITDA. Revenues came in below our estimates at Rs 1707 crore vs. our estimate of Rs 1825 crore. Generation was flat YoY while energy sold was down 2% YoY at 229.5 crore units • In Q3FY19, power sold at Haldia Energy was 107.4 crore units while Chandrapur plant posted ~100% YoY generation at 88 crore units • Absolute EBITDA came in at Rs 202 crore, significantly below our estimate of Rs 348.7 crore. The miss on revenues coupled with higher-than-expected fuel expenses at Rs 350 crore (our estimate of Rs 334 crore) was the key reason for the EBIDTA miss • Higher regulatory income led PAT to come in flat at Rs 173 crore vs. estimate of Rs 158 crore despite lower revenues and resultant EBITDA.
Going ahead, a key positive surprise can come in from incremental PPAs at the Chandrapur plant, which will help reduce losses of the overall business. Further profitable scale up in the distribution business will be a key trigger for financial as well as multiple rerating for the stock. We believe that in the medium term, current valuations will sustain given the cash flow generation will be used to reward shareholders as the company did announce a robust dividend of Rs 17.5 per share in Q3FY19 as other cash flow guzzlers have already been demerged. We maintain our BUY rating on the stock with a target price of Rs 800 per share.
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