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Subdued growth on top-line: Nuvoco reported its Q1FY25 results, showing a subdued revenue growth with a decline of 6% YoY and 10.1% QoQ to Rs 2,636.5 crore. This was due to a 4% YoY and 9.4% QoQ drop in volumes to 4.08 MT, coupled with muted realizations, which decreased by 2.1% YoY and 0.8% QoQ to Rs 5,493 per ton. Management cited cement demand was muted due to Union & State elections, extreme heatwaves, labor shortages, and early monsoon.

Margins remain under pressure: Due to declining volume growth and lower realizations, the company's profitability metrics remained under pressure. Gross profit declined by 10% YoY and QoQ to Rs 2,111.6 crore, with margins falling to 80.1%, down by 371 bps YoY. Despite a reduction in power and fuel costs by 17.3% YoY and 3.1% QoQ, and a decrease in freight and forwarding costs by 13.3% YoY and 11.8% QoQ, EBITDA margins remained muted at 13%, showing a decline of 97 bps QoQ and 371 bps YoY. Profit after tax (PAT) also fell by 55.8% YoY and 73.3% QoQ, impacting PAT margins, which stood at 1.7%, down by 184 bps YoY and 320 bps QoQ. On a per ton basis, EBITDA per ton decreased by 8.9% YoY and 22.8% QoQ to Rs 715.

Key highlights: 1) Companies current capacity stands at 25MnTPA with 6MnT in North and 19MnT in East apart from this they have 56 ready mix-concrete plants. 2) Company increasing the share of premium products in overall mix, with premiumisation reaching a record high of 40% of trade volume. 3) Cement demand remained muted due to Union & State elections, extreme heatwaves, labor shortages, and early monsoon, while management remains confident that increased spending on infrastructure and housing would drive the demand ahead. 4) During Q1 FY25, pan-India prices declined by 1% QoQ whereas north and east saw a decline in price by 2.0% and 2.4% respectively. 5) Imported petcoke prices at USD 108/ton at the end of Q1FY25. 6) For future capacity expansion, the company first aims to reduce net debt levels to a range of 3500 to 4000 crores. Management expects to achieve this by the end of the fiscal year, which will simultaneously allow for further expansion.7) Trade share at 73% in Q1FY25. 8) Distribution cost during the quarter fell 4% QoQ due to improvement in lead distance. 9) Seeing demand for premium products across West Bengal they launched new premium cement composite, branded as “Concrete UNO”. 10) During the quarter they successfully completed the SAP up gradation across organisation to facilitate co.’s digital transformation journey. 11) Bengal which is their major market saw softness in demand during quarter, while other markets like Bihar, Chattisgarh and Jharkhand performed relatively better.

Outlook & Valuation: Nuvoco Vistas results were below our expectations. Volume growth and operating margins were impacted by factors like Elections, heatwave and early monsoon. Going ahead, we believe cement companies would benefit from industry tailwinds along with that Nuvoco plans to continue with its strategy to focus on right products for right application, increasing share of premium products and higher usage of green power. We expect revival from Q3 onwards driven by demand and pickup in volumes. On the financial front, we have estimated its revenue/EBITDA to grow by 10.4%/17.6% CAGR over FY24-26E while EBITDA margins to improve to 17.1% levels in FY26E. Further, we are anticipating better growth prospects from medium to long term perspective and have maintained a Buy rating with a target price of Rs 450.

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