Recommendation from Power generation and Distribution Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

CESC LTD.:POWER YIELDS PROFITS

HERE IS WHY
✓Focus on cost control
✓Good dividend yield
✓Resilient financial performance

Calcutta Energy Supply Corporation (CESC) Ltd. is India’s first fully integrated electrical utility company and has been on an epic ride ever since 1899 in generating and distributing power in Kolkata and Howrah.[EasyDNNnews:PaidContentStart] It has private participation in generation, transmission and distribution of electrical power. It owns and operates three thermal power plants. These are Budge Budge Generating Station, Southern Generating Station and Titagarh Generating Station. The company owns and operates the transmission and distribution system through which it supplies electricity to consumers.

As of November 2021, the company, through its subsidiaries, has been serving in other regions like Noida, Kota, Malegaon, etc. to over 41.1 lakh customers while handling about 3.4 GW of power. It reported net sales of ₹12,544 crore in FY22 compared to ₹11,638.6 crore in FY21, reflecting growth of nearly 7.7 per cent. The EBIDTA stood at ₹3,930 crore in FY22 as against ₹3,535.3 crore in the previous year. That is a growth of over 11.15 per cent. Also, the PAT saw a slight growth of 3 per cent with an increase from ₹1,362.8 crore to ₹1,405 crore from FY21 to FY22, respectively.

The company is focused on cost optimisation, sustainable loss reduction, enhancing its digital customer experience and providing value-added services to about 12,000 premium consumers as of November 2021 through key account managers for enhanced customercentricity. A decrease of nearly 11.4 per cent can be seen in the cash flows from operating activities that reduced from ₹2,819 crore in FY21 to ₹2,499 crore in FY22. In Q4FY22, revenue grew by 4.44 per cent YoY to ₹3,011 crore from ₹2,883 crore in Q4FY21. On a sequential basis, the top-line was up by 6.55 per cent.

The demand PBIDT excluding other income was reported at ₹1,024 crore, up by 10.11 per cent as compared to the year-ago period and the corresponding margin was reported at 34.01 per cent, expanding by 175 basis points YoY. PAT was reported at ₹445 crore, up by 3.73 per cent from ₹429 crore in the same quarter for the previous fiscal year. The PAT margin stood at 14.78 per cent in Q4FY22, contracting from 14.88 per cent in Q4FY21. On the returns front, the ROE stood at 13.4 per cent and the ROCE was at 12.4 per cent. Being an infrastructure building company, it has high debt in the books as the debt-toequity ratio was at 1.42 times. Notably, the stock is trading at a huge discount if we look at the PE ratio, which currently is at 7.6.

This is way cheaper than the industry average of 38.2. Also, the book value per share is almost at par the current market price of the share. On top of this, it has a good dividend yield of 5.8 per cent which makes this stock attractive for value investors. Even on the ESG front, the company has taken positive steps. Recently, it commissioned its first micro-grid with floating solar and battery energy storage system (BESS). It’s a 100 kw floating solar plant set out on trial and aims to help in crisis management and provide uninterrupted power supply with green energy. Meanwhile, the de-licensing move in the power and distribution sector has been a game-changer and has opened huge growth opportunities for private players like CESC. By virtue of all these factors, we recommend BUY.

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