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Nuvoco Vistas Ltd Q2FY25 volumes came at INR4.2mnt, down 6.7% YoY and 12.5% QoQ, impacted due to extended monsoon season and less than expected govt spends. Revenue for quarter came at INR22,686mn, down 11.8% YoY and 14.0% QoQ. EBITDA/t for the quarter came at INR521/t, down 29.0% YoY and 27.2% QoQ. Company had reported loss of INR852mn vs profit of INR13mn in Q2FY24. EPS for Q2FY25 was INR (2.4). Share of premiumization reaching at 43% of trade volumes vs 40% in previous quarter.

* Capex Plan: In FY25E, the company has allocated a total Capex of INR4,000mn. Out of this, INR2,200mn was spent in H1FY25, with the remaining expenditure anticipated to be completed in H2FY25E. The railway siding projects are in advanced stages of completion, with the Odisha project expected to be finalized by Q4FY25E. Additionally, the company has commissioned a new clinker wagon loading system in Sanoidh. They have successfully completed clinker expansions at two states. The Risda expansion has increased capacity to 11,500 tons per day, while the Nimbol site in the North has reached 6,000 TPD, with a current throughput of 5,700 tons per day. The clinker operation is undergoing a shutdown, expected to conclude by January or February, with a target to achieve full capacity of 6,000 TPD by Q4FY25E. Overall, the company’s clinker capacity will be total 28,000 tons per day, with 9,500 tons in the East and 4,500 tons in the North. Company planning to spend INR 9,000mn capex for FY26E

* Targeting cost reduction of INR75/t in H2FY25E- During Q2FY25, the company's total cost/t was INR4,881/t, reflecting a decrease of 2.1% YoY. Regarding cost efficiency, Nuvoco reported that Project Bridge 2.0 is on track, achieving a reduction of INR50/t in operating costs for Q2FY25. Additionally, the company aims to reduce costs by another INR75/t in H2FY25E. Cost reduction remains a key priority, with further cuts planned in power, fuel, and freight expenses. Nuvoco has achieved its lowest fuel cost of INR1.54 per kcal in the past 12 quarters, supported by improved domestic coal supply. The lead distance has decreased by 2 km to 330 km, with additional reductions expected. Currently, the rail-toroad share stands at 40% and 60%, respectively, and with the railway siding project nearing completion, the company anticipates an increase in the rail share in the coming years.

* Realization/t came at INR5,401/t- During the quarter, realizations declined by 5.5% YoY and 1.7% QoQ primarily due to subdued demand in the industry. All-India cement prices dropped by 4% QoQ, with the North region experiencing a decrease of 3%, while the East region faced a more significant decline of 5%. Despite these challenges, the company managed to achieve revenue per ton that outperformed the industry, largely due to its continuous focus on premiumization and geo-optimization. Premiumization remains a critical strategy for the company, with the share of premium products in the trade segment reaching a record high of 43% in Q2FY25.

Outlook and Valuation: The recovery in demand is anticipated to rely on increased spending by govt on infrastructure and housing activities. Key drivers for this growth include a 57% increase in the PMAY budget for FY25E, the acceleration of the Purvodaya Mission for comprehensive development in the eastern region, and the implementation of INR260bn in highway development projects in Bihar. In addition to these factors, the company is prioritizing cost reduction initiatives aimed at enhancing EBITDA/t. Management is forecasting a volume growth of 4% for FY25E. As per our FY27E estimates we expect Volume/Revenue/ EBITDA to grow at a CAGR of 4.5/%3.7%/4.0% respectively over FY24-FY27E. Our target EV/EBITDA multiple is 9.0x on Sept FY27E EBITDA, hence we ascribe a target price of INR349, downgrading our rating to REDUCE.

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