Buy This Small-Cap Power Sector Stock For Target Price Of Rs 113, Brokerage Expect Gains Up To 42%

Stock outlook & Returns

Today, the stock of CESC Limited opened is Rs 79.95 apiece, the previous close was Rs 79.45 apiece. Currently, the is trading Rs 72.72 above the 52-week low and Rs 22.5 below the 52-week high, respectively. The 52 week low of the stock was recorded in August 2021 at Rs 7.23 apiece and the 52 week high was in October 2021 at Rs 102.45 apiece.

The shares of the company in the past 1 week slid down by 0.25%, whereas, in the past 1 month, the shares gained 9.28%. In the past 1 year, the share price has gained nearly 5.04%, whereas, 5.28% in the past 3 years. In the past 5 years, the stocks delivered negative returns of 13.47%.

 

Power demand goes up across the circle

Sales volume in standalone business increased 17.5% YoY, while it was also up across the Noida and DF segments as demand revived during the peak summer season. Standalone PAT, however, remained flat at Rs 1.4bn. Consolidated PAT, on the other hand, increased 6.1% YoY to Rs 3.0bn, led by strong earnings at Dhariwal (+184% YoY to Rs 710mn) and Noida (+17.2% YoY to Rs 340mn) and a turnaround in Rajasthan DF segment (PAT of Rs 60mn vs a loss of Rs 110mn). This was, however, offset by increased losses in the Malegaon DF business (loss of Rs 190mn vs PAT of Rs 20mn YoY) and lower profitability in the Haldia business (Rs 660mn vs Rs 900mn YoY). We expect the franchisee segment to attain break-even in FY23 and gain a marginal profit of Rs 272mn in FY24.

CESC's Dhariwal begins supplying power to Central Railway under a three-year PPA

CESC's Dhariwal project has started to supply 210MW power to REMCL under a three-year medium-term PPA at a tariff of INR4.1/unit. With this arrangement, the project now has more than 83% of its capacity tied up under PPAs, with only ~60MW lying open to merchant markets. The above arrangement will scale up the segment's PAT to Rs 1.8- 1.9bn, from the current run-rate of Rs 1.2-1.3bn.

Brokerage Maintain BUY for Target Price of Rs 113

While WBERC awarded a multi-year tariff for FY21-23 and annual performance review for FY15-18, its decision on regulatory assets has been deferred. Accordingly, we have maintained our consolidated earnings estimates for FY23/24. On a consolidated basis, CESC is valued at an attractive P/BV of 0.8x and PE of 6.6x for FY24. A high dividend yield of ~5-6% is in line with investor expectations. Hence, we BUY on CESC, with a Target Price of Rs113.

About - CESC Limited

CESC Ltd or Calcutta Electric Supply Corporation Ltd is an integrated power utility company engaged in the generation and distribution of electricity, incorporated on March 28 1978. The company's operation is spanning the entire value chain: right from mining coal to generating power distributing power. They serve 2.9 million customers within 567 square kilometres of Kolkata and Howrah delivering safe cost-effective and reliable energy to their consumers. The company operates in three segments namely Power which is engaged in the generation and distribution of electricity; retail which is engaged in organized retailing and property which is involved in property development.