Buy CESC, target price Rs 692: Emkay Global
The SoTP-based target price has been revised to Rs 698 from Rs 846, but upgraded CESC to buy from Hold as it still provides 50 per cent upside from its current market price.
By ETMarkets.com | Updated:
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Emkay Global has a buy rating on CESC at target price of Rs 692 over 12 months.
CESC had emerged as the lowest bidder for the Maharashtra State Electricity Distribution Company Ltd’s letter of intent (LoI) to distribute power in Maharashtra’s Malegaon circle during Q3FY19 and it took over the franchisee division from 1 March, 2020, for a term of 20 years. The company expects to garner Rs 1 billion revenue after bringing the AT&C loss level to 30 per cent and generate normalised profit of ~Rs 250 million from the circle. At 7.5 times multiple to these earnings, Rs 15 per share contribution from the Malegaon franchisee has been included in the SoTP valuation. The Malegaon franchisee business value has not been included in the SoTP valuation and it will be included after a detailed discussion with management.
The company’s share price moved up by 2.07 per cent from its previous close of Rs 465.40. The last traded stock price was Rs 475.05. Incorporated in 1978, CESC is a midcap company with a market cap of Rs 6177.16 crore, operating in the power sector.
Investment Rationale
CESC’s stock price has plunged 33 per cent in the past one month primarily due to the recent market correction and is attractively valued at 0.7 times FY22E P/BV. The company operates on a risk-averse regulatory business model and generates fixed RoE on its invested equity. However, factoring in weak market sentiment amid Covid-19 concerns, the brokerage has lowered the targeted P/BV multiple across various projects. Accordingly, the SoTP-based target price has been revised to Rs 698 from Rs 846, but upgraded CESC to buy from Hold as it still provides 50 per cent upside from its current market price.
Financials
CESC had emerged as the lowest bidder for the Maharashtra State Electricity Distribution Company Ltd’s letter of intent (LoI) to distribute power in Maharashtra’s Malegaon circle during Q3FY19 and it took over the franchisee division from 1 March, 2020, for a term of 20 years. The company expects to garner Rs 1 billion revenue after bringing the AT&C loss level to 30 per cent and generate normalised profit of ~Rs 250 million from the circle. At 7.5 times multiple to these earnings, Rs 15 per share contribution from the Malegaon franchisee has been included in the SoTP valuation. The Malegaon franchisee business value has not been included in the SoTP valuation and it will be included after a detailed discussion with management.
The company’s share price moved up by 2.07 per cent from its previous close of Rs 465.40. The last traded stock price was Rs 475.05. Incorporated in 1978, CESC is a midcap company with a market cap of Rs 6177.16 crore, operating in the power sector.
Investment Rationale
CESC’s stock price has plunged 33 per cent in the past one month primarily due to the recent market correction and is attractively valued at 0.7 times FY22E P/BV. The company operates on a risk-averse regulatory business model and generates fixed RoE on its invested equity. However, factoring in weak market sentiment amid Covid-19 concerns, the brokerage has lowered the targeted P/BV multiple across various projects. Accordingly, the SoTP-based target price has been revised to Rs 698 from Rs 846, but upgraded CESC to buy from Hold as it still provides 50 per cent upside from its current market price.
Financials
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For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 2344 crore, down -22.13 per cent from last quarter sales of Rs 3010 crore and down -2.94 per cent from last year same quarter sales of Rs 2415.00 crore. The company has reported net profit after tax of Rs 249.00 crore in the latest quarter.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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