CESC renewable acquisition lifts capacity visibility despite soft Q1 margins

Investment View and Target Price

In its August 14, 2026 Q1 FY27 result update, Prabhudas Lilladher retained its BUY rating on CESC and increased its target price to Rs 220 from Rs 216. The broker views CESC's renewable expansion as a major growth driver, particularly after Purvah Green Power agreed to acquire ReNew's 1.4 GWp operating renewable portfolio.

The transaction raises CESC's FY29 renewable-capacity target to 4.5 GW from 3.2 GW previously. Prabhudas Lilladher considers the stock attractively valued at about 12 times FY28E EPS, supported by an expected 15 per cent EBITDA CAGR over FY26-28E.

Q1 FY27 Financial Performance

CESC reported a soft Q1 FY27. Consolidated net sales were Rs 56,650 mn, up 4.3 per cent year on year but 6 per cent below Prabhudas Lilladher's estimate of Rs 60,336 mn. Revenue including regulatory income was about Rs 57 bn.

Higher personnel costs, power-purchase costs and other expenses compressed the EBITDA margin. Reported consolidated PAT was supported by lower depreciation and interest costs. The board declared an interim dividend of Rs 6 per share, implying about a 46 per cent payout on Prabhudas Lilladher's FY27E EPS estimate.

Distribution Performance and Key Quarterly Negative

The principal quarterly negative was Malegaon, where the loss widened to Rs 430 mn from Rs 170 mn in Q4 FY26 as transmission and distribution loss rose to 36 per cent from 33 per cent sequentially.

In contrast, standalone PAT increased 4 per cent year on year, Rajasthan distribution businesses reported PAT of Rs 190 mn against Rs 80 mn a year earlier, and Noida PAT rose 4 per cent year on year to Rs 520 mn.

ReNew Portfolio Acquisition

Purvah Green Power's proposed ReNew acquisition comprises 1.36 GWp of solar and 72 MW of wind assets for an enterprise value of Rs 48.6 bn, with closing expected by October 2026.

The portfolio is expected to generate about Rs 6 bn of revenue and Rs 5.2 bn of EBITDA, implying about 9 times EV/EBITDA and an acquisition cost of around Rs 34 mn per MW DC. Its EBITDA yield of about Rs 50 mn per MW AC is below CESC's existing renewable-assets yield of Rs 60-65 mn per MW AC.

The deal raises operational renewable capacity to more than 1.8 GWp from about 0.4 GWp. CESC had consolidated cash of Rs 56 bn at FY26-end, which the broker considers sufficient to fund the acquisition.

Renewable Capacity Growth and Execution Plan

Management expects 2.2 GW of renewable capacity to be operational by FY27-end. Of the 4.5 GWp FY29 target, power-purchase agreements for 4.3 GW have been signed, including acquired capacity, and transmission availability has been secured for planned FY29 commissioning.

The portfolio includes solar, wind, hybrid, round-the-clock and battery energy storage system projects. Management's longer-term objective is a 10 GW renewable portfolio.

Estimate Changes and Valuation

Prabhudas Lilladher incorporated the acquisition into FY27E and FY28E, raising EBITDA estimates by 5.6 per cent and 11.3 per cent respectively, while reducing EPS estimates by 3.9 per cent and 5.1 per cent.

Key Execution Considerations

• Completion and integration of the ReNew transaction.
• Delivery of the renewable commissioning pipeline.
• Continued control of Malegaon losses and transmission and distribution losses.