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Nuvoco Vistas Corporation Ltd (NVCL) is the fifth largest cement company in India and the largest in East India in terms of capacity. It offers a range of 50 products across cement, RMX and modern building materials. As of 31st Mar 2021, the company has 11 cement plants (8 in East India and 3 in North India) with a cement capacity of 22.32 MMTPA and WHRS capacity of 44.7 MW. Their solar power plants have a capacity of 1.5 MW and their captive power plants can generate up to 105 MW. These contribute nearly 50% of the total power requirement. As a part of the Nirma Group, NVCL has doubled their capacity over the last 5 years through acquisitions such as that of the Indian cement business of LafargeHolcim in 2016 and NU Vista in 2020 making it the fastest growing cement company in India.

Over the period FY19-21, revenue has grown at a CAGR of 3% to INR 7,488.8 cr despite disruptions caused by the Covid-19 pandemic. EBITDA grew at a faster pace of 26.2% to INR 1,460.5 cr (EBITDA margin +650bps to 19.5%, EBITDA/tonne +INR 233 to INR 966 cr).

The company incurred a loss of INR 26.5 cr in FY19, a profit of INR 249.3 cr in FY20 but suffered a loss again in FY21 to the extent of Rs INR 25.9 cr. Deferred tax expense for the year ended March 31, 2021 includes Rs 54.2 cr being one-time tax impact of goodwill taken out of purview of tax depreciation w.e.f. 1 April 2020 by Finance Bill enacted in March 2021.

Investment Rationale:

NVIL has 79% contribution to turnover coming from the trade segment and this is 800bps higher than peers. The trade segment has better realisations which lead to higher profitability.

Over FY15-20, the demand for cement in the Eastern region has grown at a CAGR of 9-10% and is expected to exhibit a robust growth of 8-9% over the next 5 years on the back of infrastructure and housing development projects. The per capita cement consumption of the Eastern region is the lowest and hence provides a huge scope for potential growth. NVIL is well positioned to benefit from this given that it has 8 cement plants in this region. The second fastest in terms in growth is the central region and the NVIL plants in Chhattisgarh and Rajasthan are ideally placed to serve the adjacent markets of UP and MP in Central India.

The company is going through capacity expansion projects in existing grinding units of Jojobera (4.95 MTPA to 6.45 MTPA) and Bhabua (0.8 MTPA to 2.0 MTPA) which are expected to be operational by FY22 and FY23 respectively. As a result of these expansions, the total capacity will increase to 25.02 MTPA. This capacity expansion along with the captive power projects should help in improving profitability.

Over the period FY21-24, we expect revenue to grow at a CAGR of 16.7% to INR 11,898.5 cr driven by capacity utilizations which is expected to ramp up to 96% by FY24.

EBITDA is expected to grow at 31.0% CAGR to INR 3,285.1cr (EBITDA margin +550bps to 27.6%) by FY24. Reduction in interest expense (due to part repayment of debt from issue proceeds) and the improved operating profitability is expected to help NVCL become profitable in FY22. By FY24, we expect net earnings to grow to INR 1551.1 cr (net profit margin of 13.0%). Operating cash flow is expected to increase to INR 3,389.6 cr by FY24 from INR 1,717.4 cr reported in FY21. Consequently, return ratios RoCE and RoE are set to expand to 14.0% and 13.2% respectively by FY24 from the current negative levels.

The management is looking to raise INR 5000 cr through a maiden public offering (INR 3500 cr through OFS and INR 1500 cr through a fresh issue). The net proceeds from the fresh issue will be utilized for repayment of debt and the balance will go towards other corporate expenses.

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