Brokerage firm Prabhudas Lilladher has initiated coverage on CESC with a target price of INR 204, highlighting a major push into renewable energy. The company plans to grow its renewable power capacity to 4.5GW by fiscal 2029, with most power purchase agreements already signed. Investors will now watch how the company executes this large project while maintaining the stability of its existing power distribution business.
Prabhudas Lilladher has initiated coverage on utility company CESC, setting a target price of INR 204. The brokerage views the company as being in the middle of a significant business transformation, shifting focus from a traditional utility model heavily reliant on power distribution to a more growth-oriented renewable energy player. Historically, CESC has derived roughly 60% of its profit after tax from its steady and predictable power distribution franchise, which remains the company's core strength.
The Shift to Renewable Energy
The core of the investment thesis relies on the company’s ambitious plan to scale its renewable energy capacity. The company aims to move from 0.4GW in the first quarter of fiscal 2027 to 4.5GW by fiscal 2029. Such a significant expansion in capacity is capital-intensive. To manage revenue uncertainty, the company has already secured power purchase agreements for approximately 4.3GW of this targeted capacity. These agreements are crucial for investors, as they lock in buyers for the electricity produced, which helps stabilize future cash flows from these new projects.
Financial Outlook and Key Risks
Analysts at the brokerage project an operating profit growth rate of about 15% through fiscal 2029. While immediate growth in earnings per share is expected to be modest at 6%, the firm anticipates that the renewable energy projects will contribute much more meaningfully to profits starting in fiscal 2030. Despite this potential, investors must consider the execution risk inherent in such a rapid capacity expansion. Large-scale infrastructure projects often face risks related to delays in commissioning, cost overruns, and the need for significant capital expenditure, which can affect debt levels.
What Investors Should Monitor
There are several upcoming milestones that the market will be watching closely. The company is expected to complete the Renew acquisition by mid-November 2026. Additionally, investors will track the commissioning of transmission infrastructure for 400MW of renewable capacity, which is planned for the final quarter of fiscal 2027. Another key area for investors is the operational efficiency in the Malegaon power distribution franchise. The brokerage expects to see updates on the reduction of transmission and distribution losses in this region in the third and fourth quarters of the current fiscal year. With a dividend yield near 5% and the stock trading around its long-term average price-to-book value, the brokerage suggests the current valuation reflects the company's stable historical performance, though the long-term benefit will depend on successfully scaling the renewable business.