Brokerage Bullish On This Small Cap Power Sector Stock, Suggests Buy For 40% Gains

Emkay Research has given a "buy" call to CESC Ltd. for a target price of Rs 108 to get 40% gains in 12 months. CESC is a small-cap power sector company having a market cap of Rs 10,167.13 crore.

CESC is India's first fully integrated electrical utility company operating since 1899. The company is generating and distributing power in Kolkata and Howrah. The company have private participation in the transmission, generation, and distribution of electrical power. They are the sole distributor of electricity within an area of 567sq km of Kolkata, Howrah and adjoining areas and serve 3.4 million consumers which include industrial, domestic, and commercial users.

Stock outlook

The Current Market Price (CMP) of stock is Rs 77.55/share on NSE at the time of writing. Its 52-week low level is Rs 68 and the 52-week high level is 102.45, respectively. On intraday, its low is Rs 76.60 & high is Rs 79, respectively.

Returns of Investment

The stock in the past 1 week has given 5.82% negative return, whereas, in the past 1 month it gave 3.94% negative return. Its share price surged 8.4% in the past 3 months. Over the past 1 year, it has given 6.85% negative return. In the past 3 years, it moved up by 0.64%, and in the past 5 years, it gave a 22.18% negative return.

A look into the performance of DFs in FY22 and Q1FY23

1) Bharatpur: Sales growth remained muted at 4%, with PAT of Rs22mn. This circle has reported break even since FY19. In this circle, T&D loss has come down from 32% to ~13% in the past six years. Since FY20, T&D loss has remained at 12-14%; hence, unless significant improvement in demand is seen, substantial uptick in PAT will not be reported.

2) Bikaner: Sales growth in this circle also remained muted at 2%, with PAT of Rs89mn. This circle has reported breakeven since FY20. In this circle, T&D loss has come down from 28% to ~14% in the past six years. Since FY20, T&D loss has remained at 14-15%.

3) Kota: Sales growth in FY22 stood at 11%, but it was largely due to a 17% decline in FY21. Sales at Rs8bn in FY22 still remain below Rs 8.7bn seen in FY20. While sales in FY22 were below FY20 levels, things seem to be turning around on the operational front. T&D loss levels declined to 19.2% in FY22, as against 20.4%/21.8% in FY20/FY21. During Q1FY23, sales growth stood at 17.5%; hence, we believe, there will be significant improvement in performance of Kota circle in the next 18 months. Loss levels in FY22 stood at Rs410mn.

4) Malegaon: Loss stood at Rs575mn. T&D loss levels have remained high at 35-39% during FY21- FY22. We believe improvement in this circle will take some more time.

Valuation and outlook

CESC will likely see double-digit earnings growth in FY23 with 210MW medium-term PPA of Dhariwal (Q1FY23 PAT of Rs750mn vs. Rs250mn YoY), expectation of lower loss in Kota, and demand growth in Noida. We maintain BUY with March'23 Target Price of Rs108.

According to the brokerage firm, the risks include Higher T&D loss levels and lower demand growth.

Disclaimer

The stock has been picked from the brokerage report of Emkay Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.