Shares of CESC Limited, the power utility giant, surged by as much as 5.17% to ₹182 on the Bombay Stock Exchange (BSE) during Monday’s intraday trading. The uptick follows the company’s announcement on Friday that its wholly-owned subsidiary, Eminent Electricity Distribution, has received a Letter of Intent (LOI) to acquire a 100% stake in a Chandigarh-based electricity distribution company.
Strategic Expansion
The acquisition, valued at ₹871 crore, represents a strategic expansion for CESC into electricity distribution and retail supply in Chandigarh. The deal is expected to be finalised within the next 30 days, further solidifying CESC’s position in India’s power distribution market.
This marks a significant milestone for the flagship company of the RP-Sanjiv Goenka Group, which currently oversees electricity generation and distribution across 567 square kilometres in Kolkata, Howrah, Hooghly, and the North and South 24 Parganas districts of West Bengal.
Operational Capacity
CESC operates three major generating stations located at Budge Budge, Southern, and Titagarh, boasting a combined capacity of 1,125 MW. The proposed acquisition aligns with the company’s broader strategy to expand its footprint and enhance its capabilities in electricity distribution.
Q2 Financial Performance
The company’s robust performance in the second quarter of FY24 has further bolstered investor confidence:
- Net Profit: CESC reported a 1.4% year-on-year (YoY) increase in net profit, rising to ₹353 crore in the quarter ending September 30, 2024, from ₹348 crore in the corresponding period last year.
- Revenue: Revenue from operations grew by 8% to ₹4,700 crore, compared to ₹4,352 crore in Q2 FY24.
- Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA): EBITDA surged 38.7% to ₹896 crore, up from ₹646 crore in the previous year’s quarter.
- EBITDA Margin: The margin improved significantly, climbing to 19% from 14.8%.
- Energy Costs: Energy expenses rose 55.2% YoY to ₹2,543 crore, largely due to increased fuel and power purchase prices.
- Regulatory Income: Regulatory income more than doubled, increasing 2.6 times to ₹689 crore, which played a crucial role in offsetting rising costs and enhancing profitability.
Market Performance
CESC’s shares have demonstrated impressive performance over the past year:
- The stock has risen 30% year-to-date, significantly outperforming the BSE Sensex, which gained 11% during the same period.
- Over the past year, CESC shares have surged by 82%, compared to a 21% rise in the Sensex.
- As of 9:36 AM on Monday, CESC shares were trading 3.44% higher at ₹179 per piece, while the BSE Sensex was up 1.48%, reaching 80,284.39.
The company’s current market capitalisation stands at ₹23,727.71 crore, with shares trading at a price-to-earnings (P/E) ratio of 30.24 times and an earnings per share (EPS) of ₹5.92.
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Investor Sentiment
The announcement of the Chandigarh acquisition and strong Q2 financial results have reinforced investor confidence in CESC’s growth trajectory. Analysts view the acquisition as a strategic move that could unlock significant long-term value by expanding the company’s geographic reach and customer base.
Future Prospects
With the Chandigarh acquisition poised to close soon, CESC is expected to strengthen its foothold in India’s power distribution sector further. Coupled with its robust operational performance and financial resilience, the company is well-positioned to capitalise on emerging opportunities in the energy sector.
As the power industry evolves with increased emphasis on efficiency, transparency, and renewable energy integration, CESC’s proactive approach to expansion and innovation is likely to ensure its continued growth and market leadership.
