Buy CESC: target of Rs 825: Sharekhan

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Sharekhan's research report on CESC

CESC reported strong results with a 21% y-o-y growth in consolidated PAT to Rs. 324 crore, led by higher profitability at Dhariwal Infrastructure (PAT of Rs. 28 crore versus Rs. 15 crore loss in Q3FY20), Haldia Energy (PAT growth of 12% y-o-y) and Crescent Power (PAT of Rs. 6 crore versus loss of Rs. 18 crore in Q3FY20). Management guided for ~11% y-o-y growth in standalone PAT in Q4FY2021 led by higher incentive income, cost rationalisation and slight volume growth (as power demand reached pre-COVID-19 level in Kolkata). Turnaround of subsidiaries, board approval to consolidate power distribution business (ex-Kolkata) under one arm and decision to increase stake in Noida Power to 72.73% (from 49.6%) would act as a key rating trigger.

Outlook

We maintain our Buy rating on CESC with an unchanged SoTP-based PT of Rs. 825. Stock trades at attractive valuation of 0.7x FY2023E P/BV and offers dividend yield of 6-7% (announced interim dividend of Rs45/share for FY2021).

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