Up to 44% upside! What brokers say after CESC’s maiden analyst meet

The company is looking to expand its distribution businesses inorganically by acquiring new circles and is betting big on distribution de-licensing and privatisation, analysts who attended the meet said, while suggesting up to a 44 per cent upside for the stock over Monday’s closing price.

ICICI Securities found the stock worth Rs 120, Antique Stock Broking at Rs 118 and Kotak at Rs 98. Edelweiss has upped its target on the stock to Rs 108 from Rs 92 and Emkay to Rs 101 from Rs 98.

To assuage investor concerns, promoters said resources of listed companies won’t be used for the Lucknow IPL franchise buyout. On Tuesday, the scrip jumped over 5 per cent to Rs 88.05 piece.

The RP-Sanjiv Goenka Group company is engaged in electricity distribution across 567 sqkm of its licensed area in Kolkata, Howrah, Hooghly and North & South 24 Parganas in West Bengal. CESC supplies electricity to around 4.3 million customers. Through its subsidiaries and an associate, it also has a portfolio of independent power generation projects and distribution ventures. CESC is also engaged in the distribution franchisee business in circles such as Kota, Bharatpur, Bikaner and Malegao.

“CESC’s growth hinges on its ability to win more distribution circles, which should get a leg-up post-implementation of the Electricity Amendment Act, 2020. A strong balance sheet (1 time debt/equity), high dividend payout (60 per cent) and improving focus on CG makes CESC an attractive investment play,” said Edelweiss Securities.

With regulated Kolkata operations driving the show, Antique Stock Broking has forecast a moderate revenue, Ebitda and net profit growth till FY23. The focus remains on West Bengal Electricity Regulatory Commission’s order on hiking tariffs, which will improve cash collection, it said. “The other catalysts remain winning new distribution franchisees and sweating of renewable assets,” the brokerage said.

In case of power generation, CESC has a portfolio of 2,125 mw of operational thermal assets with varying residual lives. The management expects its thermal assets will not face any operational concerns over the next decade as India had at the COP26 in Glasgow declared it would phase down — instead of phasing out — coal generation.

In case of EV opportunities, CESC has three operational public EV charging stations and is looking to increase its penetration and create a larger scale public and home charging infrastructure, analysts said. “Even the immediate opportunity is huge as 1,000 e-buses are expected to be deployed in Kolkata shortly (80 operational currently). In the BESS (battery energy storage systems) space, the company envisages huge opportunities for voltage and frequency regulations, grid stability and optimising peak power costs, particularly with increasing RE generation in the mix,” said ICICI Securities.

ICICI Securities said the Kolkata licence area continues to be the key focus business and noted that while the tariff order is awaited, CESC continues to optimise costs and maintain profits. “It aims to expand adoption of new technologies, including EV charging, BESS, microgrids, among others, and is performing well on the ESG front,” it said.

Emkay said an improvement or expansion of the distribution business is the key growth driver for CESC. “The Kolkata licence area tariff order is expected in the near term and the dividend yield stands at 5 per cent,” it said, retaining its buy target on the stock.