The CESC scrip touched its all-time high on the BSE on Monday, closing at Rs 1020.15 a piece, up by 6.65 per cent than the last closing. On August 29 last year, the company's shares were valued at Rs 649.90, which is 57 per cent lower than its current valuation.
Analysts opined that the rise is primarily on account of clarity over the demerger date which is expected to be October, with the company expected to complete the due diligence process by the end of September.
"As a result of the demerger, the value which will be unlocked will be very high. The shareholders previously were unsure on the date on which it will happen. Now, since there is some clarity and October 1 is the expected date of demerger, its shareholders are reacting positively", Rupesh Sankhe, research analyst with Reliance Securities told Business Standard.
Sankhe further reasoned that when the company had announced the demerger process, its scrip had touched Rs 988.30 in May this year but then hovered around Rs 900 as there wasn't clarity on the deadline.
"The demerger is seen as a big positive for the company", a second analyst opined.
According to HDFC Securities, the demerger would first result in isolation of cash flows from the power vertical from other businesses which is one of the key concerns of the investors so far. Secondly, it will also present the company an opportunity to invest in a pure-play power distribution business with steady cash flows and growth.
"Losses incurred by Spencer's Retail were the key hurdle for this demerger. Now that this division is expected to be profitable, investors' confidence in the company has risen", Sankhe added.
As per the demerger plan, the group's power business will be divided into two - generation and distribution while its retail arm, led by Spencer's Retail will become the third company. The rest of the company's business verticals, which includes its BPO arm, Firstsource Solutions; sports division, New Rising Promoters; the real estate wing, Quest Properties India, the FMCG division, Guiltfree, and others will form the fourth entity.
Secondly, sector analysts opined that the Haldia and Chandrapura plants of the company has been able to sign power purchase agreements in recent times which is seen as a big positive for the power generation business.
The company's chairman, Sanjiv Goenka, had previously made it clear that going forward, distribution will be the core focus area of the company and CESC Ltd is expected not to substantially invest further in thermal power generation.
As per the demerger plan, for every 10 shares of CESC Ltd, the company will be offering five shares of Rs 10 face value each for CESC Ltd and CESC Generation. Also, six shares of Spencer's Retail of Rs 5 face value and two shares of CESC Ventures of Rs 10 face value will be offered to the company's shareholders.