CESC Limited – What’s next post regulatory approval?

CESC Limited – What’s next post regulatory approval?

Company Name Industry Segment Upside potential Last Price
CESC Ltd Power Generation/Distribution 15% Upside ₹ 594.15
(as of 10th March)

CESC Ltd stock price has witnessed 20% fall from 52 weeks high (Rs.800 levels) reasons;

  • CESC’s stock price has come off by ~20% since the company won back its coal mine in Phase 1 coal auctions. As per analyst thesis the company stands to lose ~10% of its regulated return on this bid.
  • Continued losses in its retail business.

However while the downtrend continued for the last 3 months there’s an opportunity to invest in this stock for the below described rationale;

  •  Regulator has also approved an improved tariff rate of Rs 5.1 / unit for Haldia which should enable that asset to earn a 16% ROE.
  •  At 1.2x PB (consolidated) CESC’s valuations are attractive given most of the value currently is being derived from regulated business which even after the coal mine impact will generate 18% ROE.
  • Sales and EPS forecast by analysts have been recently revised upwards.
  • After 20% correction in stock prices, potential upside to target price has been revised to +15 %
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