- PAT jumped 8% YoY in Q3 FY26 and 11% YoY in the first nine months, setting the stage for double‑digit earnings growth in FY26.
- Malegaon’s transmission & distribution losses fell to 35% YoY, a 2‑point improvement that frees cash for the balance sheet.
- Renewable pipeline: 0.7 GW of PPAs locked for FY27, with a target of 1.2 GW by FY27E and 3.2 GW by FY29E.
- Valuation at only 1.3× FY28E book value, implying a ~4% dividend yield and a target price of ₹204.
- Peer comparison shows CESC trades at a discount to Tata Power and Adani Power, offering a margin of safety.
Most investors missed CESC's profit jump, and that cost them upside.
Why CESC's PAT Growth Beats Sector Trends
CESC's net profit after tax (PAT) rose 8% YoY in Q3 FY26 and 11% YoY over the first nine months. This acceleration is stark against the backdrop of the Indian power sector, which has struggled to break out of low single‑digit CAGR over the past five years. The key drivers are two‑fold:
- Chandrapur plant rebound: Higher unit availability and better heat‑rate performance lifted generation by 6% YoY, offsetting a 4% dip at Haldia.
- Malegaon loss mitigation: Transmission & distribution (T&D) losses slipped to 35% from 37% YoY – a 2‑point improvement that translates into roughly ₹600 million of additional cash flow.
In power‑sector finance, T&D losses are the silent drain on earnings. A 1% loss reduction typically adds 0.5%–1% to net profit, depending on tariff structures. CESC's ability to cut losses faster than the industry average suggests operational discipline that could be replicated across its network.
How Renewable Expansion Rewrites CESC's Cash‑Flow Outlook
Regulatory income from the Kolkata distribution business fell to ₹2.8 bn in 9MFY26 from ₹10 bn YoY, but the decline is strategic. Lower regulatory cash inflows free up capacity to fund renewable projects without over‑leveraging the balance sheet. CESC already secured Power Purchase Agreements (PPAs) for 0.7 GW of its FY27 target, a 58% fill rate. The renewable roadmap – 1.2 GW by FY27E and 3.2 GW by FY29E – aligns with India’s 2030 renewable‑capacity ambition. Each megawatt of solar or wind carries a lower capital cost (≈₹5 crore/MW) versus thermal (≈₹7–8 crore/MW) and benefits from higher capacity utilisation factors, especially in the eastern grid where CESC operates. The net effect is an expected uplift in EBITDA margins from 18% today to ~22% by FY29.
CESC vs Peers: Valuation Gaps and Dividend Appeal
At 1.3× FY28E book value, CESC sits well below the sector median of 1.7×. By contrast, Tata Power trades around 1.8× and Adani Power near 2.0×. The discount is not a red flag; it reflects the market’s lag in pricing the recent loss‑reduction and renewable‑growth tailwinds. A dividend yield of roughly 4% – higher than the average 2.5% for listed power utilities – adds a defensive layer for risk‑averse investors. The implied payout ratio sits at 55% of earnings, comfortably within the sustainable range (<70%) for capital‑intensive utilities. Historically, when Indian power stocks have traded below 1.5× BV, they have delivered a 12%–15% total‑return over the next 12‑18 months, provided they maintain earnings growth above 8% YoY. CESC now checks both boxes.
Technical Snapshot: PAT, T&D Losses, and Generation Mix
Key metrics (FY26E)
- PAT: ₹1,240 crore (projected 10% YoY growth)
- T&D losses: 35% (down 2% YoY)
- Renewable share of capacity: 28% (target 45% by FY29E)
- Debt‑to‑Equity: 0.78× (stable)
Technical definitions for the non‑specialist reader:
- PAT (Profit After Tax): Bottom‑line earnings after all taxes, the most direct measure of profitability.
- T&D losses: Energy lost between generation and end‑user due to theft, technical inefficiencies, or poor infrastructure.
- Book Value (BV): Net asset value of the company; a valuation multiple of BV is common for utilities where cash flow stability matters more than earnings multiples.
Investor Playbook: Bull and Bear Scenarios
Bull case – The upside hinges on three catalysts:
- Continued T&D loss compression to sub‑30% levels, unlocking an additional ₹500 million of cash each year.
- Accelerated renewable commissioning, pushing margins above 22% and reducing fuel‑price exposure.
- Sector‑wide dividend reinstatement, driving the yield toward 5% and attracting income‑focused capital.
If all three materialize, the target price of ₹204 translates to a ~30% upside from the current market level.
Bear case – Risks that could erode the thesis:
- Regulatory setbacks in Kolkata that further depress cash flow, forcing the company to raise debt at higher cost.
- Delays in renewable PPAs or construction overruns, which would keep the thermal mix high and margins subdued.
- Escalating commodity prices (coal, gas) that compress thermal generation profitability.
In a bear scenario, valuation could contract to 0.9× BV and the stock might trade below ₹150, eroding the dividend yield.
Bottom line: CESC’s recent profit acceleration, disciplined loss‑reduction, and aggressive renewable rollout create a compelling risk‑adjusted return profile. The current discount to book and attractive dividend make it a candidate for both growth‑oriented and income‑seeking portfolios.