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Mixed numbers with strong operating performance while muted volume growth

Subdued growth on top-line: Nuvoco reported Q3FY24 numbers wherein revenue growth was subdued, down by 7% YoY/5.9% QoQ to Rs 2,421cr because of de-growth in volumes by 10.7% YoY/QoQ to 4.02MT while realization improved by 4% YoY/5.3% QoQ to Rs 6,022/ton. Further, muted demand and low offtake in the state of Bihar, West Bengal & Jharkhand have impacted volume growth during the quarter.

Resilient performance continued at operating levels: The company gross profit declined by 11.5% YoY/5.9% QoQ to Rs 1,978.2cr with margins at 81.7%, decrease of 409bps YoY while remained flat sequentially as raw material cost was higher by 19.7% YoY. Further, its EBITDA witnessed significantly strong growth of 53% YoY/24.4% QoQ to Rs 410.4cr and margins stood at 17% which increased by 665bps YoY/413bps QoQ because of better realization, cost efficiency program as well as decline in power & fuel cost by 43.9% YoY/16.3% QoQ. So, EBITDA/ton grew significantly by 71.2% YoY/39.2% QoQ to Rs 1,021/ton led by decline in power & fuel/ton by 37.2% YoY/6.4% QoQ to Rs 1,118/ton as well as decline in total cost/ton by 3.7% YoY to Rs 5,001/ton. On the bottom-line, the company reported profit of Rs 31cr with 1.3% margin as against the marginal profit of Rs 1.6cr in Q2FY24 and loss of Rs 75.3cr in Q3FY23.

Key Highlights: 1) Nuvoco commissioned 1.2MTPA capacity at Haryana cement plant taking the overall cement capacity to 25MTPA. This new capacity will enable the company to cater to the demand in the Northern region. 2) They have good scope of growth in East & North with total capacity of 19MTPA & 6MTPA. 3) Railway sidings laying activity is under progress at Sonadih and Odisha. 4) Currently, the company has 56 plants of ready mix concrete and ahead it would increase to 80-100 plants. 5) Trade share at 73% in Q3FY24. 6) Premiumization stood at 36% of cement trade volumes. 7) It has one of the lowest carbon footprints in the industry with carbon emission at 4621 kg CO2/ton. 8) In terms of prices, cement prices in the east improved just by 0.8% QoQ while pan-India prices increased by 2.1% QoQ. 9) Imported petcoke prices declined to ~USD 118/t at the end of Q3FY24 as against the ~USD 130/ton in Q2FY24. 10) Net debt reduced by Rs 632cr YoY to Rs 4,533cr. 11) Lead distance increased to 342km to Q3FY24 from 340 in Q2FY24. 12) New design has been launched for Nuvoco products which will drive stronger bond between the mother brand and sub-brands. 13) They recently launched a brand new marketing campaign for Duraguard Franchisee - Seedhi Baat Hai, Duraguard Khaas Hai.

Outlook & Valuations: Nuvoco reported mixed numbers with better operating performance while topline remained muted because of slow demand in certain eastern states. Going ahead, the management continues to adopt the strategy of prioritizing value over volume in the east and meanwhile innovation, premiumization, improving utilization and strengthening the brand recall will be its key focus. Besides, positive industry tailwinds of government spending on infrastructure & increasing housing demand as well as moderation in power & fuel cost and efficiency programs taken by the company will continue to aid growth. On the financial front, we have estimated its revenue/EBITDA to grow by 6%/23.6% over FY23-26E and maintain a Buy rating with a target price of Rs 455, valuing at EV/EBITDA of 8x on FY26E EBITDA.

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