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Nuvoco reported good set of numbers for 3Q as the company’s policy of value over volumes resulted in sharper volume contraction but overall EBITDA/mt was better than expectations. Company’s core markets in the east witnessed weak demand which led to volume contraction. The company commissioned its 1.2mn mt Grinding unit at Bhiwani (Haryana) which is expected to bring better volume growth for the company. The management emphasized that it would continue to focus on volume thrust in the north and value in the eastern region by enhancing its premiumisation and geo mix. Company is prioritizing debt reduction over capacity addition and would plan its next set of capex after achieving net debt target of Rs35-40bn. We are building in debt repayment of Rs15bn over FY23-25 for the company, resulting in debt:EBITDA ratio going below 2x by FY25. We have slightly tweaked our EBITDA estimates downward for FY25/FY26 by 2.5%/1.5%. We maintain our Buy rating on the stock with TP of Rs430 (earlier Rs441) based on 9x Sep25 EV/EBITDA.

3QFY24 result highlights

Volumes contracted by 11% YoY at 4mn mt (centrum estimate of 4.37mn mt) whereas blended realizations improved by 5% QoQ (4.5 % ahead of our estimate). Overall revenue at Rs24bn is down 7% YoY and 4% below our estimate. Operating costs were flat on QoQ basis as reduction in power & fuel cost was offset by higher RM and freight costs. Absolute EBITDA came in at Rs4.1bn (11.8% ahead of our estimate) predominantly due to higher than expected realizations. EBITDA/mt came in Rs1021 which is a 10 quarter high for the company. Given the subsequent decline in prices in Eastern region, we believe that maintaining this EBITDA/mt streak will be difficult going forward.

Deleveraging remains a priority

Nuvoco reported net debt of Rs45bn up from Rs44bn as on March23. The management would announce next set of greenfield capex once leverage comes down to Rs35-40bn as the focus would remain on balance sheet improvement which would result in better leverage parameters for the company in the near term.  Company has spent a total capex of Rs 4.5bn for 9MFY24 and it will spend Rs1.5bn in 4QFY24. Capex for FY25 is pegged at Rs 6bn.

1.2mn mt Bhiwani GU commissioned; recently completed projects to aid volume growth

Nuvoco has completed its debottlenecking exercise at Risda (Chhattisgarh) and Nimbhol (Rajasthan) which has added close to 2000tpd of additional clinker capacity. With Haryana grinding unit of 1.2 mn mt also completed, we expect volume growth to be better for FY25.

Valuation and outlook

We expect NVCL to deliver 6% revenue and 27% EBITDA CAGR over FY23-25. We value the stock based on 9x Sep25 EV/EBITDA (unchanged) to arrive at our target price of Rs430. We like NVCL given its 1) scale of operations with ~25mn mt of capacity, 2) focus on improving cement to clinker ratio and premiumization, 3) multiple cost mitigating measures and 4) attractive valuation. Delay in deleveraging and announcement of next set of capex pose key downside risks.

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