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CESC India: A Powerhouse Potential or Overheated Engine?

CESC limited

The company holds a strong position in the power sector and boasts impressive historical growth, current valuation concerns and macro/microeconomic headwinds warrant a cautious approach.

Current Status (Jan 1, 2024):

  • CMP: ₹132.50

  • Market Cap: ₹17,555 Cr

  • Sector: Power Generation & Distribution

  • Key Products/Services: Electricity generation, distribution, and trading

Financial Overview:

  • Strengths: Strong revenue growth (9.31% YoY), high ROE (8.34%), low debt-to-equity (1.22), consistent dividend payout

  • Weaknesses: Profit growth lagging behind revenue (1.78% YoY), relatively high PE ratio (12.13), employee and interest expenses impacting margins

Micro/Macroeconomic Factors:

  • Positives: Growing energy demand, renewable energy push, government electrification initiatives

  • Negatives: Rising coal prices, potential regulatory interventions, economic slowdown concerns

Future Predictions:

  • Mid-term Price Target (1-2 years): ₹150-165 based on potential market correction and stabilizing factors.

  • Long-term CAGR (5-10 years): 8-10% assuming smooth industry growth and successful adaptation to evolving energy landscape.

Historical Growth and Volatility:

  • CESC 5-year CAGR (Revenue & Profit): 9.31% & 1.78% respectively

  • CESC 10-year CAGR (Revenue & Profit): 4.8% & -0.74% respectively

  • Nifty 5-year CAGR: 12.50%

  • Nifty 10-year CAGR: 14.00%

  • CESC Beta: 1.11 (higher than Nifty, indicating higher volatility)

Daily Chart Trend: Currently in a consolidation phase, testing resistance levels.

Investment Recommendation:

  • Hold: Existing investors can hold with a long-term perspective, considering the company's fundamentals and growth potential.

  • Cautious Buy: New investors might wait for a price correction or more clarity on macroeconomic factors before entering.

  • Sell: Investors with short-term risk aversion may consider selling due to potential valuation headwinds.

In conclusion, CESC India presents a mixed bag of opportunities and risks for investors. While its strong historical growth, solid financial fundamentals, and potential benefit from macro trends like rising energy demand paint a promising picture, current valuation concerns, high volatility, and potential headwinds raise caution.


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