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Valuation at 1x BV and dividend yield of 5%

We retain our BUY rating on CESC with an SOTP-based target price of INR 204. Following the recent correction, the stock trades at ~1x FY29E BV, in line with its 10- year historical average, with an ROE of 12-13%. At the current market price, the stock offers an attractive dividend yield of ~5%. CESC’s diversified power business, anchored by its cash-generative distribution franchise and integrated generation assets, provides stable earnings visibility, while renewables represent the next leg of growth. The distribution business contributes ~60% of PAT, supported by improving T&D losses across newer franchises, while coal-based generation contributes ~40%. The company plans to scale up its renewable capacity from 0.4GW in Q1FY27 to 4.5GW by FY29, with PPAs already secured for 4.3GW, providing strong revenue visibility. We expect EBITDA CAGR of ~15% over FY26–29E, while EPS CAGR is estimated at ~6%, as the ramp-up in renewable capacity is expected to contribute meaningfully to earnings from FY30E. Key stock catalysts include the expected completion of the Renew acquisition by mid-November 2026, commissioning of the transmission line for 400MW of renewable capacity in Q4FY27, and a potential reduction in Malegaon T&D losses in Q3/Q4FY27.

Power distribution franchise is cash cow:

CESC has a high-quality core distribution business, operating 3 distribution licences and 4 franchise areas. Kolkata/Howrah remains the anchor business, providing relatively predictable cash flows. T&D losses are improving across newer franchises—NPCL reduced losses to ~8% and Rajasthan DF to 9.2% in Q1FY27, creating scope for continued earnings improvement through loss reduction. Segment contributes ~60% to its PAT

Integrated generation-distribution model:

CESC’s 70% of generation capacity is linked to its own distribution network, underpinning the strength of its integrated generationdistribution model through greater visibility on power offtake, relatively stable cash flows and lower exposure to merchant power market volatility. Its coal-based generation assets contribute ~40% to PAT, providing a steady earnings base alongside the distribution business. The integration between generation and distribution also enables better demand-supply planning and operational efficiencies, while the balance capacity provides flexibility to optimise power sales across markets.

Renewables emerging as the key growth engine:

It plans to commission 4.5GW of renewable capacity by FY29 from 0.4GW as on 1QFY27. Of the 4.5GW FY29 target, PPAs for 4.3GW are already secured, providing strong revenue visibility. We expect EBITDA CAGR of ~15% over FY26–29E (EPS CAGR of 6% over FY26-29 as RE ramp up contribute to EPS from FY30), supported by the ramp-up in renewable capacity and improving operational performance from power distribution segment

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