Buy CESC; target of Rs 85: Sharekhan

Sharekhan's research report on CESC

Q4FY23 consolidated PAT was up by 2% y-o-y to Rs. 433 crore, while FY23 consolidated PAT was flat y-o-y at Rs. 1,397 crore as modest growth in standalone earnings, higher earnings at Dhariwal gets offset by a decline in Haldia Energy’s PAT and higher losses at Malegaon DF. Dhariwal performance improved with strong PAT growth of 79% y-o-y to Rs. 244 crore supported by higher Chandrapur PLF at 80.5% (versus 75.9% in FY22) and higher merchant power demand/prices. However, Rajasthan/Malegaon DF posted loss of Rs. 25 crore/Rs. 77 crore versus Rs. 30 crore/Rs. 57 crore in FY22. New tariff norms of the West Bengal Electricity Regulatory Commission is effective from April 1, 2023 and if tariff for Kolkata distribution business would remain steady than the impact of new norms will be minimal as lower incentives would get offset by under-recoveries.

Outlook

We maintain a Buy on CESC with a revised PT of Rs. 85 given an attractive valuation of 0.8x FY25E P/BV and dividend yield of ~5-6%. Turnaround of power distribution businesses could create value.

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