On August 27, 2024, shares of CESC Limited experienced a significant surge, climbing over 8% to reach an all time high of ₹206.27 on the National Stock Exchange (NSE). This impressive rise comes in response to multiple brokerages issuing bullish recommendations for the power utility stock. CESC has been a standout performer, boasting a staggering 150% increase over the past year, effectively doubling investors' capital. In contrast, the Nifty index has delivered returns of around 27% during the same period.
Key Factors Driving CESC's Share Price Surge
1. Positive Broker Recommendations:
Elara Capital recently interacted with CESC's management during the Sanjiv Goenka Group Investor Day and issued a buy rating for the stock with a target price of ₹228 per share. This endorsement reflects confidence in CESC's growth trajectory and its strategic initiatives in the renewable energy sector.
Investec also remains optimistic about power stocks, including CESC, citing robust power demand and a favorable earnings outlook. The brokerage noted an 8.3% year on year increase in power generation in July, driven by strong demand, which bodes well for companies like CESC.
2. Increased Power Demand:
The surge in CESC's stock price is closely linked to the overall increase in power demand across the country. In July, coal dispatches to the power sector increased by 25.7% year on year, reaching 65.5 metric tonnes. This uptick in demand has led to a higher plant load factor (PLF) for various energy segments, including coal, gas, nuclear, and renewables.
Analysts anticipate sustained demand for power, which is expected to translate into healthy earnings growth for power companies, including CESC.
3. Strategic Investments in Renewable Energy:
CESC is actively investing in renewable energy, with plans to establish 3GW of renewable energy assets and a green hydrogen production facility with an annual capacity of 10,500 tonnes. These initiatives align with global trends toward sustainable energy and position CESC favorably in the evolving energy landscape.
Elara Capital highlighted that CESC is attractively positioned due to its steady and low risk earnings from regulated operations in Kolkata and Haldia, combined with the potential for incremental earnings from its distribution franchisee in Rajasthan.
4. Strong Financial Performance:
CESC reported a net profit growth of 5.4% year on year for the quarter ending June 2024, amounting to ₹3,880 million. The company's net sales also rose by 12.8% to ₹48,630 million during the same period. For the fiscal year ending March 2024, CESC's net profit grew by 3.6% to ₹14,473 million, with revenue increasing by 7.3% to ₹152,932 million.
The company’s strong financials, coupled with a current Price to Earnings (P/E) ratio of 17.7 based on rolling 12 month earnings, indicate a healthy valuation, further attracting investor interest.
5. Technical Indicators Favoring Continued Growth:
Technical analysts have identified CESC as a stock poised for near term gains based on its trading patterns. The stock is trending within a medium term rising channel, having recently found support at the lower band and advancing toward the upper band. This suggests a continued uptrend.
The stock has confirmed a breakout above a small descending triangle pattern at ₹180 levels, indicating bullish momentum. Analysts predict that CESC could reach levels between ₹209 and ₹216, provided it maintains a stop loss at ₹170.
6. Comparative Performance Against Industry Benchmarks:
CESC's performance over the last year has outpaced that of the broader market. While CESC's shares have surged by 150%, the BSE Power index has recorded a gain of approximately 90% during the same period. This stark contrast highlights CESC's strong positioning and investor confidence in its future prospects.
Conclusion
The recent spike in CESC's share price reflects a confluence of positive market dynamics, including strong demand for power, strategic investments in renewable energy, and favorable broker recommendations. With its robust financial performance and positive technical indicators, CESC stands out as a compelling investment opportunity in the power utility sector. As the company continues to expand its renewable energy portfolio and capitalize on increasing power demand, investors are optimistic about its growth trajectory in the coming years.