Stock To Buy: HDFC Securities Suggests Buy This Small Cap Power Sector Stock For Robust 50% Gains

HDFC Securities, a renowned brokerage firm, has maintained its positive outlook on CESC Limited. The brokerage has assigned a buy call on the stock with a target price of Rs 108 per share. The brokerage with the given target price claims a potential upside of up to 50%.

CESC is a Small Cap power sector company having a market cap of Rs 6,578.54 crore. It is an integrated energy utility company that generates, transmits & distributes electricity. The company generates electricity from various sources of energy including wind, thermal, solar & renewable. it is a flagship company of RP-Sanjiv Goenka Group.

Stock Outlook & Returns

The current market price (CMP) of the stock stood at Rs 72.40 apiece on NSE, 0.21% above the previous close of Rs 72.25 apiece. The stock recorded its 52-week high at Rs 94.50 on 17 January 2022, and 52 week low at Rs 68 on 20 June 2022, respectively. 

The stock in a week has fallen 4.92%, in the past 1 month it has fallen 7.06%, and in 3 months it has fallen 8.82%, respectively. The stock in a year has fallen 17.77%, in 3 years it has fallen 2.06% and in 5 years it has fallen 28.71%, respectively.

Power demand declined in DF circle

While power demand in standalone and Noida business increased 8% YoY and +10% YoY respectively in Q2FY23, it declined across DF segment of Rajasthan and Malegaon. As a result, while standalone PAT, increased 3.8% YoY, PAT in Noida was up 78.3% YoY/20.6% QoQ. Consolidated PAT, however, declined 6.2% YoY to INR3.2bn due to lower profitability across the Haldia (-45.0% YoY to INR550mn) and subdued demand in Rajasthan DF segment (loss of INR240mn vs a loss of INR100mn YoY and PAT of INR60mn QoQ). Malegaon circle also reported loss of INR290mn vs loss of INR190 mn QoQ, due to slow down across the Handloom sector which accounts for major power consumption in Malegaon. However, going ahead we expect demand to normalize and the DF segment will attain breakeven in FY23 and marginal profit of INR272mn in FY24.

Power demand declined in DF circle

While power demand in standalone and Noida business increased 8% YoY and +10% YoY respectively in Q2FY23, it declined across DF segment of Rajasthan and Malegaon. As a result, while standalone PAT, increased 3.8% YoY, PAT in Noida was up 78.3% YoY/20.6% QoQ. Consolidated PAT, however, declined 6.2% YoY to INR3.2bn due to lower profitability across the Haldia (-45.0% YoY to INR550mn) and subdued demand in Rajasthan DF segment (loss of INR240mn vs a loss of INR100mn YoY and PAT of INR60mn QoQ). Malegaon circle also reported loss of INR290mn vs loss of INR190 mn QoQ, due to slow down across the Handloom sector which accounts for major power consumption in Malegaon. However, going ahead we expect demand to normalize and the DF segment will attain breakeven in FY23 and marginal profit of INR272mn in FY24.

TP revised downward; Maintain BUY

HDFC Securities said, "We have revised our consolidated PAT estimate downward for FY23E/FY24E by 5.5%/3.9% YoY respectively, factoring the normalization of Haldia Profitability. Accordingly, we have revised our SoTP TP downward to INR108 vs INR113 earlier. However, we maintain our Buy rating on CESC, factoring its attractive P/BV of 0.7x and PE of 6.6x for FY25. The stock also provides a high dividend yield of ~6-7%."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. 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