CESC: Nuvama raises target, says RE capex, module optionality not fully priced

Nuvama Institutional Equities has upgraded CESC to ‘Buy’ from ‘Hold’, raising its target price to Rs 200 from Rs 187 earlier. The domestic brokerage cited strengthened renewable energy (RE) growth plans, a new solar manufacturing initiative, and potential upside from regulatory developments as key drivers behind the upgrade.

CESC has laid out ambitious plans to double its PAT to around Rs 2,800 crore over FY25–30E. The company aims to add 1.2 GW by FY27E and 3.2 GW by FY29E, working towards a long-term target of 10 GW by FY32E. Of this, 3.8 GW has already received approvals while 7.6 GW of transmission connectivity applications are in place, primarily in states with high renewable energy potential. Alongside capacity additions, CESC is setting up a 3 GW solar cell and module manufacturing facility, expected to commence operations by FY28E.

Nuvama said while the current market price captures recent tariff hikes and regulatory asset (RA) recovery, stock valuations continue to underplay the upside from the company’s RE pipeline and the solar manufacturing initiative. A potential win in the upcoming UP discom privatisation could further enhance growth optionality. Factoring in a timely RA recovery by FY30E, 3.2 GW of RE at 17 pr cent RoE, and contributions from the new solar venture, Nuvama arrives at a bull-case target price of Rs 200. The base-case scenario, which assumes slower RA recovery, only 1.2 GW of RE by FY30E at 15 per cent RoE, and a 50 per cent probability for the solar module business, yields a target of Rs 174.

While the brokerage remained long-term constructive, it highlighted several variables for investors to monitor. Timely execution of the RE pipeline will depend on land acquisition and grid connectivity, though government support in the sector could mitigate these challenges. Volatility in module prices could influence the ramp-up of the solar cell and module-manufacturing venture. 

The outcome of UP discom privatisation bids will determine the extent of inorganic growth opportunities, while delays in regulated capex or PPAs could impact near-term earnings. Notably, 2 GW of the 3.2 GW RE pipeline will supply CESC’s own discom, supporting faster RA recovery.

Nuvama sees the recent post-Q1FY26 correction in CESC’s stock as an attractive entry point, with long-term value expected to be driven by the company’s renewable energy expansion, new solar manufacturing capabilities, and potential regulatory and market developments, justifying the rating upgrade and higher target price.