CESC shares drop; need for Firstsource deal questioned
CESC will purchase a 49.5% stake in Firstsource for ₹395 crore
Mumbai: Shares in CESC dropped as much as 17.7% on Friday as investors questioned why the Indian power utility has agreed to buy a stake in business process outsourcing company Firstsource Solutions Ltd.
CESC said on Thursday it would purchase a 49.5% stake in Firstsource for ₹ 395 crore.
Including a mandatory open offer for another 26% of Firstsource shares, the total purchase could amount to around ₹ 650 crore.
CESC said growth opportunities in the power sector were getting challenging, while returns were no longer as lucrative.
Citigroup downgraded CESC to ‘sell’ from ‘buy’, saying the acquisition was “unrelated" to its core business, while noting the utility’s prior record of diversification into the retail sector “has been poor."
The bank added buying Firstsource would increase CESC’s leverage and depress profits, and cut its target price to ₹ 300 from ₹ 345.
CESC shares were down 13.75% to ₹ 286.35 as of 11:10 am. Reuters
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