Buy This Small Cap Power Company Stock For 33% Upside; Says ICICI Securities

After the sharp sell-off on the previous day, Indian markets in a volatile trade today recovered some losses with Nifty ending above 17,500 mark and broader markets still outperforming.

Meanwhile, brokerage firm has suggested buying the scrip of CESC- a power company engaged in power generation and distribution. The brokerage signals a 33 percent upside in the stock as it is seen to hit a price target of Rs. 120 while the last traded price of CESC is Rs. 90.05.

Virtual investor conference held on November 22- Key takeaways:

1. CESC intends to become more flexible and digital on the distribution front such that capex can be implemented on just in time basis for higher returns.

2. For the medium term, the company focuses on inorganic expansion of its distribution segment by acquiring new areas. The company bets big on distribution de-licensing and privatisation.

3. Kolkata license area continues to be the key focus business.

4. It aims to scale up adoption of new technologies including EV charging, BESS, microgrids, among others, and is performing well on the ESG front.

State of the art technology deployment at its distribution areas including:

1) Big data analytics, AI / ML, IoT for predictive analytics and real-time monitoring,

2) automating redundant practices /services

3) deploying smart metering

4) moving from smart to intelligent grid solutions,

5) digitising customer services and providing value-added services for premium customers,

6) leveraging blockchain technology for demand side management.

Recently won bid:

Lately the company won the bid for acquiring Chandigarh discom (the transfer though is awaiting court direction).

No concerns around generation front in the next decade:

"CESC has a portfolio of 2,125 MW of operational thermal assets with varying residual lives. However, in-
line with the declaration during COP-26, where India insisted on phasing-downof coal generation vs phasing-out approach insisted upon earlier, the management expects its thermal assets will not face any operational concerns over the next decade, despite sustainability-related challenges", said the report.

CESC to scale up in EV charging and battery storage infra:

As of now the company has 3 operational public EV charging stations and is looking to increase its penetration and create a larger scale public and home charging infrastructure.

Performing well on the ESG front: CESC's ESG rating upgrade from B to BB by MSCI is proof of the various steps which the company has taken on the
ESG front. "It considers sustainability as one of the core areas and is working to increase its footprint in tRE, EV, electric cooking and BESS spaces. On the
generation front, despite 100% thermal portfolio, CESC's plants are among the most efficient in the country and there has been a steady decrease in emission intensity in all its generation stations from FY18 to FY20. It also continues to remain committed on biodiversity, employee and community welfare fronts", adds the report.

 

Valuation

"We maintain BUY on the stock with SoTP-based target price of Rs120. The stock is currently trading at FY24E P/E of 6.7x, P/BV of 0.9x, and a dividend yield of 7.2%", says the brokerage firm.

Disclaimer:

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.