HOLD Nuvoco Vistas Ltd For Target Rs.386 By Choice Broking Ltd
Rising Sales Overshadowed by Widening Losses
Nuvoco Vistas announced its Q3FY25 results yesterday, reporting another substantial loss, despite the growth in sales.
*Q3FY25 consolidated revenues at INR24,094mn, (vs CEBPL est. INR23,807mn), was down 0.5% YoY and up 6.2% QoQ. Total volume for Q3 stood at 4.7mnt, up 16.9% YoY and 11.9% QoQ.
*Consolidated EBITDA for Q3FY25 was reported at INR2,582mn, (vs CEBPL est. INR3,015mn), down 37.1% YoY and up 18.1% QoQ. EBITDA/t for Q3 came at INR549/t, (vs CEBPL est. INR701/t), down 46.2% YoY and up 5.5% QoQ.
*PAT for Q3FY25 reported a loss of INR613mn, (vs CEBPL est. INR32mn), vs INR310mn profit recorded in Q3FY24. EPS for Q3FY25 is INR(1.7).
Vadraj acquisition a positive move, but capital structure adjustments likely: Nuvoco has successfully secured the insolvency resolution application for the acquisition of Vadraj Cement. We anticipate that the company will need to raise funds to complete this acquisition, as it aims to maintain its net debt below INR40,000mn, compared to the current level of INR43,500mn. The fundraise is expected to lead to changes in the company's capital structure. Subject to NCLT approval, the financial impact of this acquisition will be incorporated into our estimates once the approval is granted. Vadraj Cement has a clinker capacity of 3.6 MTPA and a cement capacity of 6 MTPA. This acquisition will boost Nuvoco's total capacity from 25 MTPA to 31 MTPA. Upon receiving NCLT approval, Nuvoco will need to settle Vadraj Cement's debt of INR18,000mn. Furthermore, the company has outlined plans for additional expansions at the acquired plant, requiring a capital expenditure of INR12,000mn.
Targeting 75/t cost reduction from Project Bridge is on track: The company plan to reduce costs by another INR75/t in H2FY25E is on track, with a focus on cutting power, fuel, and freight expenses. Leveraging a long-term raw material supply agreement, positions the company well for cost advantages. Raw material cost reductions have already contributed around INR50/t to savings, with further cost benefits expected in FY26.
View and Valuation: We revise our FY26/27 EPS estimates by -9.9%/19.0% and maintain the rating to ‘HOLD’ with a revised TP of INR386, valuing it at 8.5x on FY27 EBITDA. The management is optimistic about cement volume growth, forecasting a 10% increase in FY26. Alongside this volume growth, cement prices are expected to continue upward trend, with further price hikes anticipated in the coming months.
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