Buy CESC, target price Rs 108: Emkay Global

Emkay Global has buy call on CESC with a target price of Rs 108. The current market price of CESC is Rs 76.8.

CESC, incorporated in the year 1978, is a mid cap company (having a market cap of Rs 10180.38 crore) operating in power sector.

Its key products/revenue segments include electricity and other operating revenue for the year ended March 31, 2022.

Financials
For the quarter ended June 30, 2022, the company has reported a consolidated total income of Rs 4293 crore, up 25.53 per cent from last quarter total income of Rs 3420 crore and up 28.42 per cent from last year same quarter total income of Rs 3343 crore. Company has reported net profit after tax of Rs 297 crore in latest quarter.

The company’s top management includes Dr.Sanjiv Goenka, Mr.Chandra Kumar Dhanuka, Mr.Pradip Kumar Kaitan, Mr.Sunil Mitra, Mr.Pratip Chaudhuri, Ms.Rekha Sethi, Mr.Debasish Banerjee, Mr.Rabi Chowdhury, Mr.Shashwat Goenka, Mr.Debanjan Mandal. Company has S R Batliboi & Co. LLP as its auditors. As on 30-06-2022, the company has a total of 133 Crore shares outstanding.

Investment rationale
Medium-term tie-up for the~200MW with Railways from Chandrapura plant has started from 1QFY23 and will result in FY23 PAT of Rs2-2.5bn vs. Rs1.2bn in FY2022. While for the past two years, power demand in Kota circle has been weak, as this circle has a number of coaching centers, which went online.

Moreover, there is general improvement in demand. In FY22, this circle reported loss of ~Rs500mn. This can come down over the next 12 months. Base Kolkata business continues with a Rs 8-8.5 bn profit business. While there hasn’t been any tariff increase, capex has been approved by the regulator.

Presently, dividend stands at Rs4.5-5/share, implying 5.5% dividend yield. FY2025 book stands at Rs98 with 13% RoE. All utilities are trading at around book or higher; hence, CESC should re-rate.

Promoter/FII Holdings
Promoters held 52.11 per cent stake in the company as of 30-Jun-2022, while FIIs owned 13.93 per cent, DIIs 21.34 per cent.