CESC Ltd’s shares are down about 10% over the past three trading sessions. The reason: A subdued December quarter as its earnings declined 6% year-on-year because of higher losses in its Malegaon distribution segment.
The power generation and distribution company’s consolidated revenue (including regulatory income) and Ebitda were nearly unchanged at ₹3,861 crore and ₹910 crore, respectively. Regulatory income is the difference between the permitted and actual tariffs charged in the company’s distribution area. CESC raised its tariff partially in the September quarter (Q2), helping it clock 10% revenue growth in Q3 even as regulatory income fell sharply.
The company’s electricity generation business, with a total capacity of 2.1 GW, performed better with higher capacity utilization and better pricing for power sold through the exchanges. The business contributed 21% of CESC’s revenue in the nine months to 31 December and 35% to Ebitda in that period.
The distribution business reported a mixed performance in Q3, with Malegaon in Maharashtra and Rajasthan recording higher transmission and distribution (T&D) losses.
Malegaon, accounting for about 5% of CESC’s Q3 revenue, recorded higher T&D losses than the company’s distribution businesses in Noida and Kolkata largely due to power theft. As a result, financial losses of the Malegaon distribution segment widened to ₹123 crore in the nine months to the end of December, up from ₹95 crore in FY24.
CESC is pinning its hopes on the distribution franchisee of Chandigarh, awarded to it in November. The area would add nearly one-tenth to its revenue and has a T&D loss profile similar to that of Kolkata.
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A dim shade of green
CESC is among India’s oldest power sector utilities but has lagged behind rivals in its renewable initiatives. It has only 18 MW of installed capacity and 1.2 GW of capacity under conduction, to be completed by the end of FY27. CESC plans to increase this to 3.2 GW by FY29, although there is no progress on that yet.
Against this backdrop, it’s not surprising that the stock has gained less than 10% in the past year amid a subdued performance and outlook. With an enterprise value of 8.5 times its FY26 Ebitda estimate, as per Bloomberg data, the stock needs an earnings trigger desperately.
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With continued losses at Malegaon and limited upside from its regulated businesses, operationalization of the Chandigarh distribution segment would be a key variable for its earnings trajectory.
“We would like to see some tangible improvement in the earnings profile through greater contribution from the distribution franchisee and improved visibility on the new green initiatives before turning constructive,” Kotak Institutional Equities said in a report dated 13 January.
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