Market players on Friday de-rated the CESC stock by over 15 per cent to Rs 281.15 as a reaction to its plan to buy controlling stake in Firstsource Solutions. The latter also declined 13.34 per cent. The CESC stock had hit a 52-week high of Rs 345.5 on October 23.

Broking firms, including Citigroup Global Markets, Karvy Stock Broking, Spark Capital and Edelweiss, downgraded the stock to “sell” from “buy”.

Ajay Jaiswal, President Research of Microsec Financial Services, said that CESC’s unrelated acquisition move shocked the market.

According to Citi’s research team, “CESC is spending around 15 per cent of current market capitalisation on this unrelated diversification.”.

However, Motilal Oswal took a contrarian view and said CESC does not foresee any major cash flow problems despite its commitment to power projects (Rs1,000 crore), Spencer (Rs 300 crore), and regulated business (Rs 400 crore). But it echoed the concern over its unrelated diversification.

Spark Capital felt CESC’s cash position is likely to be affected “alarmingly” by FY14 end.

CESC's current debt-equity ratio is 1.09:1.

(This article was published on October 26, 2012)
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