Buy Nuvoco Vistas Corporation Ltd For Target Rs. 480 By Choice Broking Ltd
Execution on Vadraj Asset to be the Key Driver
We maintain our BUY rating on NUVOCO with an increased target price of INR 480 (vs INR 441 earlier) as 1) We revise our Realisation / EBITDA per ton and EBITDA assumptions higher (Exhibit 2) mostly due to sector tailwinds (positive demand & pricing scenario) and also due to reassurance regarding company specific reasons like the ongoing cost saving (INR 50/t in FY26E) and premiumisation initiatives, 2) Capital structure is optimal with debt levels above 2.0x of EBITDA 3) The RoCE expands by 962 bps from 3.9% in FY25 to 13.5% in FY28E (vs 10.6% earlier) on the back of strong business fundamentals highlighted above. NUVOCO continues to be amongst our top picks in the cement sector.
We forecast NUVOCO’s EBITDA to grow at a CAGR of 25.8% over FY25-28E based on our volume growth assumptions of 5.0%/4.0%/4.0%, and realisation growth of 6.0%/1.0%/0.0% in FY26E/27E/28E, respectively. We like NUVOCO’s focus on premiumization and trade share for a better pricing scenario, expansion plan towards the new western region via the acquisition of Vadraj Cement & its focus towards cost reduction.
We arrive at a 1-year forward TP of INR 480/share for NUVOCO. We value NUVOCO on our EV/CE framework – we assign an EV/CE multiple of 1.36x/1.36x for FY27E/28E. We do a sanity check of our EV/CE TP using implied EV/EBITDA multiple. On our TP of INR 480, FY28E implied EVEBITDA multiple is 6.3x, which makes NUVOCO amongst the cheapest mid to large-sized cement companies in our coverage.
Q1FY26 Results: Volume in line and Realization surprise, but traded off by higher than expected Opex. Overall, results are a tad below our optimistic expectations, but much better than Nuvoco's historical performance and market expectations
NUVOCO reported Q1FY26 consolidated Revenue and EBITDA of INR28,727 Mn (+9.0% YoY, 5.6% QoQ) and INR5,186 Mn (+51.0% YoY, -6.0% QoQ) vs Choice Institutional Equities (CIE) estimates of INR28,179 Mn and INR5,393 Mn, respectively. In our view market expectation of Q1FY26 EBITDA was in the range of INR 4,800-5,500 Mn. Total volume for Q1 stood at 5.1 Mnt (vs CIE est. 5.1 Mnt), up 6.3% YoY and down 10.5% QoQ.
Realization/t came in at INR5,633/t (+2.6% YoY and +5.5% QoQ), which is better than CIE Est of INR5,493/t. Total cost/t came in at INR4,616/t (-3.4% YoY and +5.6% QoQ). As a result, EBITDA/t came in at INR 1,017/t, which is an expansion of ~INR49/t QoQ.
EBITDA/t expected to reach INR 1,069/t in FY26E with the support of the project SPRINT & Project BRIDGE
NUVOCO is targeting ~INR 50/t cost savings in FY26E through multiple initiatives: 1) Ramping up alite slag usage from 45,000 to 75,000 t/month, 2) Upgrading Nimbol WHRS from 4.7 MW to 6.6 MW (with ~INR 100 Mn capex), 3) Increasing AFR usage to 15-16% from 12%, 4) Setting up hybrid wind-solar power in the North, 5) Reducing lead distance by 12-15 km, and 6) Commissioning the Odisha railway siding for 100% clinker movement to Jaipur by Q3. We expect these initiatives will lead NUVOCO to increase its EBITDA/t above INR 1,000/t in FY26.
Risk to the thesis:
Risk in Vadraj Acquisition Financing: INR12 Bn bridge loan hinges on timely conversion into equity-like instruments and securing partners.
Challenge in Sustaining Cement-to-Clinker Ratio: Nuvoco’s C/K ratio of 1.74 may face pressure post-Vadraj, as Gujarat’s OPC-heavy market limits scope for high blending, making the 1.75 level hard to sustain long-term.Regulatory and Demand-Side Risks: Potential hikes in state levies on limestone and slowdown in government spending on infrastructure pose risks to cost structure and demand visibility.
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