Nomura ups target by 20% on CESC, sees solid earnings outlook

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26 Aug, 2025 12:21

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Nomura has maintained buy rating on CESC, the Kolkata-based power utility company, but raised target price by Rs 20 percent to Rs 725 on likely solid earnings growth. The stock gained nearly 2 percent.

"We raise SOTP-based target price by 20 percent to Rs 725, largely on account of the higher value of the Haldia project, core business, and CESC's holding in Firstsource," says the brokerage.

It believes a solid earnings growth outlook, healthy balance sheet and imminent free cash flow generation peg CESC amongst the better placed independent power plants (IPPs) in India.

Nomura says despite a 28 percent rally in the stock price over the past three months (against 9 percent rise in BSE Sensex), at FY18 1.1x price-to-book and 8.0x price-to-earnings, it believes valuation multiples have further room for upside as it expects return on equity to double from 7 percent in FY16 to 15 percent in FY18.

The brokerage continues to expect FY16-18 EBITDA/earnings per share CAGR at 11 percent/65 percent, largely driven by reduction of net loss from the 600MW Chandrapur project and retail business (Spencer's), together with a higher contribution from the BPO/BPM business (Firstsource).

Ramp-up of operations, improved earnings visibility (balance 300MW) of the Chandrapur project and turnaround of Spencer's remain the key catalysts for the stock, says Nomura, adding deployment of cash flows within the core power business verticals bodes well in context of the unrelated diversification risk associated with CESC.

At 14:24 hours IST, the scrip of CESC was quoting at Rs 612.80, up Rs 8.10, or 1.34 percent on Bombay Stock Exchange.Posted by Sunil Shankar Matkar