HDFC Securities Recommends This Stock To Buy As Its Pick of The Week; Target Price Below Rs 200

The main business of the RP-Sanjiv Goenka Group (RPSG), which has been in business since 1899 and is regarded as India's first fully integrated electrical utility firm, is CESC Limited. HDFC Securities, a brokerage firm, recommends purchasing CESC shares at a target price of less than Rs 200. The brokerage has chosen CESC as its pick of the week since it believes the stock has enormous upside potential over the next two to three quarters.

CESC Target Price

Buy in Rs 161-158 band and add on dips to Rs 150.5, Base Case Fair Value: Rs 179, Bull Case Fair Value: Rs 196.5

"CESC's revenue grew by ~7% YoY, primarily led by increased PLF at Haldia thermal plant (97% vs 78% in Q1FY25) and significant contribution from Chandigarh DISCOM. EBITDA surged 132.3% YoY to Rs.8.6bn and margins grew to 16.6% in Q1FY26, led by higher tariffs realisation from the renewed PPA at Chandrapur thermal plant. T&D losses for Kolkata business reduced, while distribution franchises saw negligible change as the overall losses remained similar to past trends. The management's strategic shift towards expanding the share of renewables, is projected to generate additional revenues of Rs 12bn and improving operational efficiency from distribution vertical is expected to deliver a consolidated 2x PAT growth by FY2030," said HDFC Securities.

"The company has guided for a capex of over Rs 300bn in the next five years, with Rs 60bn earmarked for distribution, Rs 230bn for renewable energy projects, and Rs 30bn for solar manufacturing. Management expects to deliver 15% PAT CAGR over FY25-30 driven by 8% CAGR from distribution (mainly Noida and Chandigarh), 4% CAGR from thermal assets, turnaround of distribution franchises to profitability, and Rs 5bn PAT contribution from utility renewables," the brokerage added.

"We recommend investors to BUY the stock with a Base/Bull case Fair Value of Rs. 179/196.5 as we value Kolkata circle, Renewables and thermal generation business on DCF basis, Distribution Franchise/Licensee business at 1.5x/1.6x P/BV multiple, on the of back long-term revenue visibility, robust cash flows and improving margins through inclusion of renewables," HDFC Securities further stated.

Key Triggers

Here is the rationale behind selecting CESC as the pick of the week as per HDFC Securities.

Earning Stability and cash accrual: CESC Limited's regulated electricity distribution operations in the Kolkata region operate under cost-plus tariff principles, ensuring stable earnings and robust cash accruals. The company's coal-based generation assets are primarily secured by long-term fuel supply agreements with subsidiaries of Coal India Limited, significantly reducing risks associated with fuel availability. This framework, combined with the superior operational efficiency of its own generation plants, which fulfills 80-90% of its own power demand, enables CESC to achieve competitive power generation costs and maintain financial stability.

Regulated returns to fuel cash flows: In accordance with regulatory provisions, CESC Limited is permitted to realize a return of 15.5% on regulated equity invested in its generation segment and 16.5% on regulated equity in its distribution operations. The company's power distribution license in Kolkata has been extended until FY2039, providing substantial earnings visibility over the long term. The regulated return-on-equity model is also implemented for the Noida Power Distribution business, ensuring continued earnings stability and moderate growth prospects for both operations.

CPDL acquisition to contribute healthy cash flows: CESC Limited, through its wholly owned subsidiary Eminent Electricity Distribution Limited (EEDL), acquired 100% shareholding in Chandigarh Power Distribution Limited (CPDL) in a deal worth around Rs. 8.7bn, finalized in early 2025. The acquisition aligns with CESC's strategy to grow its regulated power distribution footprint in India, adding a key urban market with a consumer base of diverse categories. It enhances CESC's operational efficiency and service delivery capabilities in the region, strengthening its position as a leading power distribution player. The move is part of India's ongoing power sector reforms promoting privatization and investment.

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