CESC Stock Research Report

RE takes up growth baton…..

CESC is building its renewables platform. While the company has been a late entrant, it is gaining ground by: 1) setting up a team from leading RE developers; 2) securing equipment orders; and 3) acquiring companies with land and transmission connectivity. In Q2FY25, it finalised a PPA of 300MW and acquired companies with land and connectivity worth 750MW. It is targeting 3.2GW RE capacity by FY29E. CESC has already ordered 3.2GW of wind equipment from OEMs. In Q2FY25, it reported consol. revenue of INR 48bn (+2% YoY), EBITDA of INR 10bn (flat YoY) and profit of INR 3.7bn (+2% YoY). It also received tariff order for Kolkata License area, but the regulator has not allowed any tariff hike; however, CESC has begun recovering fuel and power purchase cost, leading to slow build-up of regulatory assets. We maintain BUY, as we roll forward our TP to FY27E, at INR 215 (earlier INR 207).

Expanding RE portfolio

CESC is expanding its RE portfolio, targeting 3.2GW RE capacity by FY29E. It has acquired assets with land and transmission connectivity in Rajasthan and has onboarded an experienced team from leading RE developers. CESC signed agreements for equipment supply, EPC and O&M for wind projects planned over the next 3-4 years. It has also secured PPA for 300MW of RE capacity in Q2FY25.

Easing build-up of regulatory assets

CESC has received tariff order for Kolkata licence area for FY24–26 period, wherein the regulator has not allowed a tariff hike. However, the company is collecting its under-recovery through fuel and power purchase cost. This is leading to a slow build-up of regulatory assets.

Muted Q2FY25

CESC reported muted Q2FY25 numbers. Consolidated revenue grew to INR 48bn in Q2FY25 (+2% YoY). Lower regulatory income is due to the company collecting under-recovery through fuel and power purchase cost; it has been charging 5.7% surcharge for the same, starting Jun’24. EBITDA remained flat YoY at INR 10bn, while PAT was at INR 3.7bn, up 2% YoY.

Maintain BUY; TP revised to INR 215

We reiterate BUY with a SoTP- based revised TP of INR 215 (earlier INR 207).