NTPC Limited and United Spirits: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are NTPC Limited and United Spirits Limited. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between December 2, 2024 and December 6, 2024.

NTPC Limited

NTPC Limited share price was at ₹363.85 (as on November 29, 2024) and its target price is set at ₹430 with an upside potential of 18%.

NTPC Limited: Investment Rationale

• • NTPC is India’s largest energy conglomerate with an installed capacity of 76530.68 MW, comprising 51 owned stations (27 coal-based, 7 gas-based, 1 hydro, 1 small hydro, and 15 solar PV) and 42 Joint Venture/Subsidiary stations (9 coal-based, 4 gas based, 8 hydro, 1 small hydro, 16 solar PV and 4 wind). By 2032, non-fossil fuel-based generation capacity shall make up nearly 50% of NTPC’s portfolio.

• The company is poised to contribute significantly to the energy transition through an optimum combination of renewable energy, energy storage technologies, and clean baseload generation technologies like nuclear power.
• Anushakti Vidhyut Nigam Limited, a joint venture company of NTPC and Nuclear Power Corporation of India Limited has been established for commissioning Pressurized Heavy Water Reactor Nuclear Projects. The Government of India has recently accorded its approval for the transfer of the Mahi Banswara nuclear power project (4 x 700MW) to this JV company.

• It has commissioned 4,013 MW of RE projects through its subsidiary company, NTPC Green Energy Ltd. NTPC Green has entered into a JV agreement with Rajasthan RVUNL for the development of 25 GW of renewable energy projects and one million metric ton per annum of green hydrogen/ derivatives in the state of Rajasthan.
• It is planning to award thermal capacity to the tune of 13.6 GW by the financial year 2026-27. This is in addition to 11.16 GW thermal capacities already under construction. Furthermore, to have greater fuel security, it is enhancing its coal mining capacity as well. It is planned to enhance the estimated NTPC Group coal production from 40 million metric ton in FY25 to about 67 million metric tons up to FY29.
• NTPC Group generated 220 billion units in H1 FY25 as compared to 212 billion units in H1 FY24, registering a growth of 3.77%. NTPC’s stand-alone gross generation in H1 FY25 was 186 billion units as compared to 179 billion units in the corresponding previous year with a rise of 3.91%.
• It registered highest ever coal production of 19.23 million metric ton in H1 FY25 with a growth of over 19.74% as against 16.06 MMT in H1 FY24. A cumulative expenditure of ₹11,585 crores has been incurred on the development of coal mines till 30th September 2024.

NTPC Limited: Shareholding Pattern

Promoter’s shareholding is highest in the NTPC Limited at 51.1%.

NTPC Limited: Valuation

The company has robust thermal assets which provide cash flow visibility. Its focus on overall energy security plans and investment across its value chain indicates the future growth of the company. In H1 FY25, the PLF of coal stations of NTPC was 76.31% as against the national average of 70.63%. Lara station of NTPC with a PLF of 91.63% is the 5th ranked station and Singrauli station with a PLF of 88.83%, is the 13th ranked station in All India PLF Ranking during April-September 2024. Thus, it is expected that the stock will see a price target of ₹430 in 8 to 10 months’ time frame on a one-year average P/BV of 2.23x and FY26 BVPS of ₹193.

NTPC Limited: Risk

• High commodity prices
• Economic slowdown

United Spirits Limited

United Spirits share price was at ₹1,528.50 (as on November 29, 2024) and its target price is set at ₹1,756 with an upside potential of 15%.

United Spirits Limited: Investment Rationale

• • United Spirits is the country’s leading beverage alcohol company and a subsidiary of global leader Diageo plc. The company manufactures sells and distributes a portfolio of premium brands. The Company operates through two segments: Beverage alcohol, and Sports. The beverage alcohol segment is engaged in the manufacture, purchase, franchise, and sale of beverage alcohol and other allied spirits. The sports segment owns the rights to operate sports franchises.
  • A series of product launches and acquisitions is expected to further bolster sales. From parent company Diageo’s global portfolio, USL launched the Godawan artisanal single malt and Don Julio tequila, both of which are top-selling premium brands globally. The company also acquired stakes in Nao Spirits (premium gin), Inspired Hospitality (agave craft spirit), V9 Beverages (zero-proof alcohol), and Indie Brews & Spirits (specialty cold brew coffee liqueur).

• The company has reported muted growth in consolidated net profit to ₹341 crore for September. The company had posted a consolidated net profit of ₹339 crore in the year-ago period. Consolidated revenue from operations was almost flat at ₹6,672 crore whereas margins improved driven by continued productivity across the value chain.

• The company is focusing on digital initiatives to drive a connected omnichannel consumer journey and leveraging the external digital ecosystem platform partner to drive consumer resonance.
• The company’s global brand portfolio continues to witness healthy premiumization trends with the premium and luxury offerings growing ahead of the mainstream Prestige segment and repertoire behavior continuing at the top end.
• The Andhra Pradesh Cabinet approved a new excise policy, which will bring the starting price of select liquor to just ₹99, with effect from Oct 1. The reform is expected to lead to substantial market share gains for larger players, as the previous policy favored local brands and was marred by irregularities during the previous government’s tenure.
• During Q2, the company reported overall flat volume growth, while its Prestige and Above (P&A) segment underperformed with 0.30% revenue growth and a 3.7% volume decline. The popular segment saw a 6.9% decline in value and a 7.9% drop in volume.

United Spirits Limited: Shareholding Pattern

In the overall shareholding of United Spirits Limited, promoters have the highest shareholding of 56.68%.

United Spirits Limited: Valuation

The company has reported steady performance during H1FY25, helped by strong demand for its premium alcohol brands such as Antiquity and Signature. According to the management of the company, the company is optimistic about the festive season and a long-term growth prospect supported by the reopening of the business in Andhra Pradesh after almost five years is a structural tailwind. The management of the company remains focused on enhancing the long-term competitiveness of the portfolio, sustainably delivering in a soft-demand environment, and harnessing every opportunity to create long-term value. Thus, it is expected that the stock will see a price target of ₹1,756 in 8 to 10 months’ time frame on 1 year’s average P/BVx of 13.18x and FY26 BVPS of ₹133.21.

United Spirits Limited: Risk

• Regulatory risks
• Economic slowdown

Conclusion

These two stocks, one from the energy sector and the other from the breweries and distilleries sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.