CESC:A Victim Of IPL Jinx & Unrelated Diversification ?

For CESC, 490-475 May Be A Good Support Zone

As Par Management, Concern Of Cash-Flow 

On CESC For IPL Is Overdone

CMP: 517

Either buy on breakout above 535-540 or wait for dips around 490-475:

TGT: 560-580*-612 (1-6M)

TGT:710-826-860 & 1030 (12-24M)

TSL<470

Note: Consecutive closing below 470 for any reason, CESC can fall up to 450-425-395* zone in the near term under worst bear case scenario. 

Market is not amused about entry of CESC into Pune IPL Team and terming it as an unrelated & unnecessary investment/ risky diversification for the power distribution company, which has steady cash-flow from its core operations so far.

Analysts at Antique are apprehending around Rs.100 cr cash outflow for this IPL venture on account of  buying players and other operational expenses.

But the CESC management is maintaining that cash-flow outgo may not be huge considering the overall size of CESC group and on a standalone basis CESC will not be affected at all. Its another listed group company (Phillips Carbon Black), which may be affected to some extent for any net cash-outflow. Even the estimate given by CESC for this IPL venture may be around Rs.98 cr as the company will pay Rs.32 cr to BCCI (reverse bidding) and has estimated Rs.66 cr for players buying.

The CEO of CESC although explained that participation in the IPL would be a reward branding exercise but market is not buying that argument either, because except Spencer & may be Saraegama, the group does not have any major consumer fencing business and spending such huge amount (close to Rs.100 cr over two years ??) on brand building is devoid of any logic. But there may be some sort of tax savings on account of IPL investment for the overall group (Phillips Carbon ??).

As par BG metrics & current market parameters:
(without this IPL fallout on net earnings)

(on standalone TTM  & FWD EPS)

Present  median valuation of CESC may be around: 545-560 (FY:15-16/TTM)

Projected fair valuations might be around: 595-625 (FY:17-18/FWD)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
CESC	52.79	545.26	10	548.28	538.59	543.43	569.44	549.49

CESC

56.25

613.45

10

565.96

555.96

560.96

569.44

549.49

CESC

62.15

690.95

10

594.90

584.39

589.64

569.44

549.49

CESC

68.95

776.35

10

626.60

615.53

621.06

569.44

549.49

Analytical Charts: