Buy Nuvoco Vistas Corporation Ltd For Target Rs.680 - Ventura Securities
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Fifth largest cement player with multiple triggers for value unlocking
Nuvoco Vistas Corp. Ltd. (Nuvoco) promoted by Dr. Karsanbhai K. Patel (Nirma Group) is one of the largest cement company and concrete manufacturers in East India. Over FY14-21 Nuvoco has aggressively expanded capacity at 15% CAGR to 22.32 MMTPA (primarily through acquisitions of Lafarge in 2016 and Emami in FY21) to emerge as the 5th largest cement company in India.
Being primarily located in East India (75% capacity) and the North, Nuvoco is well placed to benefit from the cement demand due to higher infrastructural growth, rural housing aided by PMAY-G, and increasing budgetary allocations for various government schemes. We forecast average utilization levels to remain over 80%+ leading to a revenue growth of 17.1% CAGR to INR 12,039.3 crore (volume CAGR of 11.9% to 23.75 MTPA, average realization CAGR of 5% to INR 5069/ton) over the period FY21-24.
Coupled with the higher utilizations and significant cost rationalization initiatives (like reworking logistics and focusing on captive power) EBIDTA/tonne is expected to be enhanced by ~INR 250 by FY23. With the implementation of these measure, we believe Nuvoco would be better placed (than peers) to tide over the headwinds of input cost inflation. In addition, the paring of debt from the IPO proceeds has significantly helped in deleveraging the balance sheet.
At the CMP of INR 549.2, Nuvoco is valued at $105.2 FY24E EV/T. This is at a significant discount to that of its peers operating in the eastern geography. We believe that the valuation discount is unjustified and expect the stock to get re-rated once the market starts taking cognizance of (i) the size of its operations (5th largest cement company in India) (ii) operating leverage from the high utilization levels and cost saving initiatives, and (iii) de-levered balance sheet.
We initiate coverage with a BUY for a 24-month price target of INR 680 (8.9x FY24EV/ EBIDTA, $130 FY24E EV/T), representing an upside of 24.2% from the CMP of INR 547.3.
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