NCL Industries Ltd : Decent performance in high cost environment; retaining a Buy Says Anand Rathi Share and Stock Brokers
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Decent performance in high cost environment; retaining a Buy
Heavy rains, the high-cost context and weak demand led to NCL’s revenue/EBITDA falling 12%/62% y/y. The Mattampally modernisation is on track, but the Vizag GU expansion continues to be delayed due to pending approvals. While near-term demand and cost pressures persist, the better Boards performance & volume growth led by the Mattampally ramp-up would help. We retain our Buy rating, with a higher TP of Rs242 (earlier Rs240).
Volume decline more due to seasonality. Heavy rains and no huge government projects in its operating regions led to the company’s cement volumes falling 10.8% y/y to 0.6m tons, and revenue by 7% y/y to Rs4.5bn. Aided by price hikes and good demand, the Boards division revenue grew 15% y/y whereas the RMC division continues to suffer. On competitive prices and high RM prices, its revenue fell 28% y/y. The Doors division’s order book continues to improve where volumes grew 18% y/y. Demand in Oct was hurt by heavy rains while prices were hiked by Rs10/bag in Nov.
Cost pressures continue. The high cost situation and coal non-availability led to overall EBITDA declining 62% y/y to Rs237m and EBITDA/ton (cement) 60% y/y to Rs346. While the Doors/RMC divisions continue to report PBIT losses (Rs17m/Rs10m), the Boards’s PBIT grew 27.6% y/y to Rs62m. The two divisions are expected to report losses in the near term, whereas the Cement and Boards divisions’ profitability would rise, aided by price hikes and more demand.
Outlook, Valuation. The Mattampally modernisation will expand cement capacity to 3.1m tons (from 2.7m). The delayed Vizag GU expansion continues on pending environment clearances. Debt at 30th Sep’22 was Rs4.1bn where WC rose on high inventory costs. We expect 6%/4% revenue/EBITDA CAGRs over FY22-25. We introduce FY25e and retain our Buy rating, at a Rs242 TP (5x FY25e EV/EBITDA). Risks: Rise in input costs, demand slowdown.
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