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CESC shares up for fourth straight month; what's driving the stock?

CESC shares up for fourth straight month; what's driving the stock?

CESC is a fully integrated power utility company. It is the sole electricity distributor within 567sqkm of Kolkata and Howrah and serves 36 lakh consumers.

Business Today Desk
Business Today Desk
  • Updated Sep 26, 2024 10:25 AM IST
CESC shares up for fourth straight month; what's driving the stock?CESC has a total generation portfolio of 2.1 GW. Most of the capacity is tied up with Kolkata distribution under long-term contracts.

Shares of RP-Sanjiv Goenka group company CESC Ltd have climbed 6 per cent in September so far, taking their winning run to the four straight month. The stock climbed 12.57 per cent in August, 6.21 per cent in July and 10.35 per cent in June, amid optimism over the company's renewable energy capacity expansion targets. 

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Recently, Purvah Green Power a subsidiary of CESC, entered into a binding term sheet with Ecoren Energy India, for setting up wind power project of upto 686.85 MW. The project is likely to be commissioned within three years, subject to relevant licences from various authorities and carrying.

Also, Purvah Green Power recently accepted a Letter of Award (LoA) from CESC, for setting up of 300 MW solar PV power project. The power purchase agreement will remain in force for a period of 25 years from the scheduled commencement of supply date.

CESC is a fully integrated power utility company. It is the sole electricity distributor within 567sqkm of Kolkata and Howrah and serves 36 lakh consumers. The company owns and operates three thermal power plants with a generation capacity of 1,125MW for its Kolkata distribution business.  Additionally, CESC has independent power plants at Haldia (600MW) and Chandrapur (600MW). CESC  has a distribution license within 335 sqkm of Noida and serves 0.162mn consumers. The company also  has distribution franchisees in three cities of Rajasthan and in one city of Maharashtra. 

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The CESC stock offers potential upside, driven by its significant renewable energy capacity expansion targets, Elara Securities said in a recent note. 

"We have positive outlook on CESC given: 1) steady and low-risk earnings from regulated standalone  operations at Kolkata and Haldia distribution businesses, 2) options value of incremental earnings from  the distribution franchisee in Rajasthan with strong balance sheet, 3) plans to invest in 3GW of RE  assets, and 4) setting up a 10,500tonne annual green hydrogen production facility," Elara Securities said earlier this month. 

CESC has a total generation portfolio of 2.1 GW. Most of the capacity is tied up with Kolkata distribution under long-term contracts.  It also has 70MW of merchant capacity currently. 

Post Covid, power demand has increased in Kolkata, from 1-2 per cent during Covid to 6-7 per cent at present.  Noida registered double-digit power demand growth of 15-16 per cent, Elara which met the company management recently said.  

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"Demand from residential and commercial segments is strong.  Distribution losses have been reduced to 7 per cent from 12 per cent five years ago. CESC plans to add 3GW of renewable capacity in the next three years. Renewable energy addition in portfolio will reduce the power purchase cost to Rs 3.5 per unit  from Rs 4.5 per unit. CESC has Rs 2,500 crore regulatory assets and investment in renewable energy is expected to reduce  under recovery," it noted.

CESC has a framework agreement with Inox Wind and Suzlon Energy for wind turbine supply, 
which is to be commissioned over the next 2-4 years. CESC has implemented a 5.7 per cent tariff hike for recovery of fuel and power purchase adjustment  surcharge from June. 

CESC has guided for 3.2GW of renewable energy capacity addition in the next four years with a 
long-term plan for 10GW addition. CESC has already applied for 2,675MW of CTU connectivity, Elara Securities noted.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Published on: Sep 25, 2024 4:23 PM IST
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