ICICI Direct is bullish on CESC has recommended buy rating on the stock with a target price of Rs 845 in its research report dated May 20, 2019.
ICICI Direct's research report on CESC
CESC reported dismal Q4FY19 results on account of lower revenues and higher costs that, in turn, impacted EBITDA. PAT was higher than estimates due to higher regulated income. However, operationally the quarter was a big miss for the company. Still, on the subsidiaries front, the performance improved substantially as PLFs for Haldia, Chandrapur subsidiaries improved 169 bps, 1590 bps, respectively. The company, post demerger, has substantially increased the dividend payout ratio to 23% in FY19.
The stock is currently trading at inexpensive valuations of 8x and 7.6x P/E on FY20E and FY21E EPS. We believe that in the medium term the current valuations will sustain given the cash flow generation will be used to reward shareholders as the company increased the payout ratio in FY19 as other cash flow guzzlers have already been demerged. A further scale up of distribution business and reduced losses at Chandrapur can rerate the stock. We maintain our BUY rating with a target price of Rs 845 per share.
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