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We re-iterate BUY on CESC with Sep’24 TP of Rs105 as operational metrics continues to see improvement. During July and August 2023 cumulatively, CESC License Generation power plant and HEL power plant (1,125MW + 600MW capacity) generated 2,030MUs (16% growth YoY) vs 8% YTD. CESC’s DIL power plant (600 MW capacity) has seen generation growth of 27% YoY during the first two months of 2QFY24 (YTD ~13% growth YoY). YTD PLF for DIL stands at 90% vs 80% YoY. Rajasthan DFs had reported positive bottom line across all three circles (during 1QFY24), with further reduction in T&D loss. Combined PAT for the three circles in Q1FY24 stood at Rs170mn vs. Rs60mn YoY. We believe all the above mentioned improvements will lead to decent EPS growth in coming years which was missing in FY23

Standalone performance on improvement path

During July and August 2023, CESC License Generation power plant and HEL power plant (1,125MW + 600MW capacity) on a cumulative basis generated 2,030MUs (16% growth YoY). This clearly highlights that the strong power demand during 1QFY24 (7.5% YoY) in the license area has further strengthened in 2QFY24. CESC license area/HEL generation growth has been 13.8%/18% YoY for the period July-Aug’23. CESC license area PLF on YTD basis stood at 71.65% vs 67.21% YoY (during 1QFY24 it was 72.7% vs 71% YoY). For HEL, YTD PLF stands at 95% vs 86% YoY. Barring the flat growth rate in April-23 and May-23 on account of unseasonal rains, generation in both these plants has witnessed an upward trajectory from June-23 till August-23. Further company had achieved T&D loss at 7.5% during 1QFY24 vs. 9% as allowed in regulations.

DIL plant performance

Significant performance improvement was seen in CESC’s DIL power plant (600 MW capacity); during July and August 2023, the plant generated 808MUs (27% YoY growth) on a cumulative basis, recording an average PLF of 90% vs. 72%. YTD the plant generated 1,992MUs (~13% growth YoY), recording a PLF of 90% vs. 80% YoY.

Rajasthan DFs turning positive

Rajasthan DFs reported a positive bottom line (during 1QFY24) across all three circles, with further reduction in T&D loss. Combined PAT for the three circles in Q1FY24 stood at Rs170mn vs. Rs60mn YoY. Management remains confident of positive PAT for these circles during FY24 (FY23 reported a loss of Rs250mn).

Valuation

We believe the company’s current profitability has shown signs of improvement. Further, the profitability of Dhariwal and Noida Power has seen an uptick. We roll forward our valuation to Sep’24 with TP of Rs105 and maintain BUY. We see mid-high single digit earnings growth along with ~Rs5 as DPS for the stock.

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