Sharekhan's research report on CESC
CESC’s management indicated that power demand in Kolkata (key area of operation) has normalised and impact of COVID-19 (lower PLF-related incentive) has passed; company has guided for 9% y-o-y growth in PAT in H2FY21. Turnaround of Dhariwal Infrastructure (guided for PAT of Rs. 75-80 crore for FY21 versus loss of Rs. 10 crore in FY20) to sustain as PLF of Chandrapur plant has improved. Rajasthan DF losses would reduce in FY21 and is expected to turn profitable by FY22. Consistent improvement in performance of subsidiaries would aid gradual re-rating of CESC. Concerns of higher receivables (at Rs. 2,000 crore as of September versus normal levels of Rs. 1,200 crore) to recede by Q4FY2021 as the company is receiving regular payment from customers (Rs. 125 crore/month since September). A regulated business model provides earnings visibility and valuation is also attractive at 0.7x FY2023E P/BV besides a healthy dividend yield of 3-4%.
Hence, we maintain a Buy on CESC with an unchanged SoTP-based PT of Rs. 825.
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