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Good results; acquisition led leverage to be watched

Nuvoco reported good numbers for Q4FY25 with reported EBITDA of Rs5.5bn coming in 10% above our estimate. With back-to-back quarters of demand improvement and sustained price hikes in North and East markets, the company was able to deliver volume of 5.7mn mt (+7.5% YoY) and cement realization of Rs 5,337/mt (+3.6% QoQ). This quarter saw Nuvoco achieve its highest-ever quarterly volume and consolidated EBITDA, along with the lowest blended fuel cost in the past 14 quarters at Rs1.43/kcal. On 3rd April 2025, the company received the NCLT’s approval for the acquisition of Vadraj assets. Basis this, we believe that debt will stay elevated for the next two years and volume growth will happen only in FY28. Additionally, we have tweaked our estimates to factor in lower costs and lower-than- expected realizations. We maintain our BUY rating on Nuvoco with a revised target price of Rs416 (Rs472 earlier).

Q4FY25 result highlights

Volume at 5.7mn mt decreased by 7.5% YoY (5.4% above our estimate) while realisations grew 3.6% QoQ owing to sustained price hikes in North and East regions. Overall revenue stood at Rs30.4bn, up 3.7% YoY and 4.5% above our estimate. Operating cost/mt at Rs4,370 declined by 5% on both YoY and QoQ basis and was 2% below our estimate. Apart from a jump in RM cost (+26% QoQ), all other costs largely declined owing to higher inventory levels.  As a result, EBITDA/t came in at Rs968 vs our estimate of Rs927.

EBITDA maximisation to be near term target

This quarter marked the second consecutive quarter of demand improvement. Further price hikes in East and North markets have largely sustained. Owing to long term agreement for slag, we believe that RM costs will be range-bound going ahead. Further, a better fuel mix and softer petcoke/coal prices will contribute to lower blended fuel costs. The company reported its lowest blended fuel cost in the past 14 quarters at Rs1.43/kcal in Q4FY25. With the company’s focus on value over volume, the it will be able to deliver superior EBITDA/t. We expect EBITDA/t to reach Rs821/Rs864 in FY26/FY27.

Delay in deleveraging weighs on Nuvoco stock

During FY21-FY25, Nuvoco has taken significant efforts to reduce net debt from Rs67.3bn to Rs36.4bn. In FY25, the net debt was reduced by Rs3.9bn. But, with the recent acquisition of Vadraj cement, Nuvoco will have to pay Rs18bn to lenders by Q1FY26 and will further require Rs12-15bn for maintenance of the plants. This will keep debt elevated as this acquisition will unlock capacity only by FY28.

Valuation and outlook

We are building in 8%/16% CAGR in Revenue/EBITDA over FY25-FY27E. We have tweaked our estimates to factor in lower realizations and costs along with higher interest cost, thereby cutting our EBITDA estimates by 13.3%/10.6% for FY26/FY27. We value the Nuvoco stock at 9x FY27E EV/EBITDA to arrive at our revised target price of Rs416. Since the stock is currently valued at an undemanding valuation of 8.8x FY26E EV/EBITDA, we maintain BUY . Delay in deleveraging is likely to remain a key overhang.

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