Nuvoco Vistas Corporation Limited — Q2 FY25 earnings call

Call held 24 Oct 2024

Management summary

Nuvoco Vistas reported a challenging Q2 FY25 with revenue at ₹2,269 crores and EBITDA at ₹229 crores, impacted by a 5% YoY volume decline and a 2.7% QoQ drop in realization per ton. The company focused on a 'value over volume' strategy, achieving a record 43% premium product share and reducing operating costs by ₹50 per ton. Despite macroeconomic headwinds and pricing pressures, Nuvoco maintained a declining net debt trend, ending the quarter at ₹4,501 crores, and expressed optimism for H2 demand recovery.

Highlights

  • Revenue for Q2 FY25 stood at ₹2,269 crores.

  • EBITDA for Q2 FY25 was ₹229 crores.

  • Volume declined by 5% year-on-year in Q2 FY25.

  • Blended realization per ton dropped by 2.7% quarter-on-quarter to ₹5,362.

  • Premium product share reached a record high of 43% in Q2 FY25.

  • Operating cost reduced by ₹50 per ton in Q2 FY25 due to Project Bridge 2.0.

  • Net debt as of September 30, 2024, was ₹4,501 crores, a ₹233 crores reduction year-on-year.

  • Management targets a 4% volume growth for the full FY25 and aims to reduce net debt to ₹3,500-₹4,000 crores by Q4 FY25.

Concerns

  • Challenging Macroeconomic Environment & Capex Slowdown

  • Weak Demand & Pricing Pressure

Key financials

  1. Revenue ₹2,269 Cr
  2. EBITDA ₹229 Cr
  3. Volume Growth -5% -5%YoY
  4. Blended Realization per ton ₹5,362 -2.7%QoQ
  5. Net Debt ₹4,501 Cr
  6. Operating Cost Reduction 50 Rs per ton
  7. Premium Product Share 43%
  8. Fuel Cost per ton (trending) ₹1,046
  9. Blended Fuel Cost per Mcal ₹1.54
  10. Emission Rate 457 kg CO2 per ton

What they filed

Q1 FY27: revenue up 8.9%, net profit up 20.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,269 2,409 3,042 2,873 2,458 +8%2,701 +12%3,307 +9%3,129 +9%
EBITDA219 258 552 519 367 +68%384 +49%588 +7%568 +9%
Net profit-85 -61 166 133 36 +142%49 +180%141 −15%160 +20%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Debt

  • Net Debt Debt · next two quarters (by Q4 FY25) · High confidence ₹3,500 to ₹4,000 crores
    well on the way to kind of paring the debt to just about less than 4,000, between Rs. 3,500 crores to Rs. 4,000 crores in the next two quarters.

    — Jayakumar Krishnaswamy

  • Net Debt Debt · by end of this fiscal (FY25) · High confidence lower than last year's ₹4,030 crores

    From ₹4,030 crores today

    by the end of this fiscal we should be lower than last year's Rs. 4,030 crores.

    — Jayakumar Krishnaswamy

  • Net Debt Debt · long term · High confidence ₹3,500 to ₹4,000 crores
    in the long term we are comfortable operating the Company at Rs. 3,500 to Rs. 4,000 crores.

    — Jayakumar Krishnaswamy

Volume

  • Volume Growth Volume · full year (FY25) · Medium confidence 4%
    I am really looking at a 4% volume growth for the full year.

    — Jayakumar Krishnaswamy

  • Volume Growth Volume · second half (H2 FY25) · Medium confidence high single digit
    Certainly, I am targeting a high single digit growth

    — Jayakumar Krishnaswamy

Capex

  • Capex Capex · FY25 · High confidence ₹300 crores to ₹400 crores

    From ₹300 crores to ₹400 crores today

    on the capex front, so in the 1H we have done Rs. 220 odd crores, and we previously said Rs. 300 crores to Rs. 400 crores kind of a capex in the FY '25, and for Rs. 900 crores to Rs. 1,000 crores in FY '26. So, does that number hold? Absolutely holds good. We may even be shy of maybe Rs. 400 crores by 20 odd crores in H2.

    — Jayakumar Krishnaswamy

  • Capex Capex · FY26 · High confidence ₹900 crores to ₹1,000 crores

    From ₹900 crores to ₹1,000 crores today

    for Rs. 900 crores to Rs. 1,000 crores in FY '26. So, does that number hold? Absolutely holds good.

    — Jayakumar Krishnaswamy

  • Chittorgarh Expansion Capex Capex · High confidence ₹1,500 crores to ₹2,000 crores
    And broadly, in terms of the capex, it would be Rs. 1,500 crores to Rs. 2,000 crores kind of a capex? (Madhumita Basu: Yes, Shravan. No specific update over what we shared in the last call.)

    — Shravan Shah (confirmed by Madhumita Basu)

Capacity

  • Odisha Railway Siding Project Commissioning Capacity · Q4 FY25 · High confidence Commissioned
    The Odisha railway siding project is expected to be commissioned by Q4 FY '25.

    — Madhumita Basu

  • North Brownfield Expansion Start Capacity · end of this fiscal or early next fiscal (FY25/FY26) · Medium confidence Start
    looking at an expansion for the Company happening end of this fiscal or early part of next fiscal. So, the technical work is all happening currently, and then sometime end of this year, early next year, we should start our next expansion.

    — Jayakumar Krishnaswamy

  • North Brownfield Expansion Commissioning Timeline Capacity · after expansion start · Medium confidence ~18 months
    I am looking at close to about 18 months for the land to be commissioned.

    — Jayakumar Krishnaswamy

  • Chittorgarh Clinker Capacity Expansion Capacity · High confidence 2 to 2.5 MTPA
    And just to check this Chittorgarh expansion, so previously we have mentioned 2 to 2.5 MTPA clinker. (Madhumita Basu: Yes, Shravan. No specific update over what we shared in the last call.)

    — Shravan Shah (confirmed by Madhumita Basu)

  • Chittorgarh Grinding Capacity Expansion Capacity · High confidence 3.5 million ton, 4 million ton
    And in terms of the grinding level, broadly it would be a 3.5 million ton, 4 million ton that one can look at. (Madhumita Basu: Yes, Shravan. No specific update over what we shared in the last call.)

    — Shravan Shah (confirmed by Madhumita Basu)

Cost

  • Operating Cost Reduction (Project Bridge 2.0) Cost · H2 FY25 · Medium confidence ₹75 per ton

    From ₹50 per ton today

    In H2, we should be looking at about Rs. 75 per ton, given the pace at which these various projects are moving.

    — Madhumita Basu

Risks & concerns

  • Challenging Macroeconomic Environment & Capex Slowdown

    high

    Union Government capex dropped 19% Y-o-Y, central public sector enterprises capex fell 11% Y-o-Y in H1 FY25, and state governments' capex declined by 6% Y-o-Y.

    Management acknowledged

  • Weak Demand & Pricing Pressure

    high

    All India cement prices experienced a dip of 4% quarter-over-quarter, with North down 3% and East down 5%, indicating low pricing power.

    Management acknowledged

  • Monsoon Impact & Project Execution Delays

    medium

    Prolonged and intense monsoon hampered construction activity, and the delay in Union Budget presentation led to a slower rollout of government-funded infrastructure projects.

    Management acknowledged

  • Housing Sector Slowdown

    medium

    Housing sales across the top 30 Tier-2 cities fell by 30% in Q2 FY25, while new launches declined by 34%.

    Management acknowledged

Areas of evasion (2)

  • Quantifying market share loss
  • Specific October pricing trends

Q&A highlights

1 direct, 1 evasive
Debt Repayment Schedule and Covenants Direct
in terms of our payment schedule, in terms of our covenants, I think everywhere we are on course. And as informed to investors in the past calls, we are well on the way to kind of paring the debt to just about less than 4,000, between Rs. 3,500 crores to Rs. 4,000 crores in the next two quarters.

Addresses investor concerns about debt management and financial health, providing specific targets and reaffirming compliance with covenants.

Asked by Satyadeep Jain (Ambit Capital)

October Cement Pricing Trends Evasive
A little bit of a next quarter, so for me to kind of tell anything about this quarter is not appropriate in this call. But suffice to say there has been an upward movement as well as a downward movement. So, it's kind of yoyo in it actually, literally there is no firm trend which is there which is kind of giving any great confidence to the industry that it will go one way up.

Analysts are keen on real-time pricing trends, and management's inability to provide a clear direction suggests continued volatility or lack of positive momentum in the immediate term.

Asked by Kunal Shah (DAM Capital)

Market Share Loss due to 'Value over Volume' Strategy Partial
I am not going to quantify what's the kind of share loss which is happening. ... But given the fact that overall market growth itself is negative to neutral at this point of time, and pricing power for industry is almost the lowest in the last five years in this quarter. So, it's a bit sensible to kind of play the premium game rather than to push volumes.

While management justifies the strategy, the refusal to quantify market share loss leaves investors without a full picture of the trade-off, which is a key concern in a competitive industry.

Asked by Kunal Shah (DAM Capital)

2 min read 6 chapters

Detailed narrative

Q2 FY25 Performance Amidst Macro Headwinds

Nuvoco Vistas reported Q2 FY25 revenue of ₹2,269 crores and EBITDA of ₹229 crores. The quarter was challenging, marked by a 5% year-on-year volume decline and a 2.7% quarter-on-quarter drop in blended realization per ton to ₹5,362. This was attributed to a broader macroeconomic slowdown, including a 19% YTD August drop in Union Government capex and a 30% fall in housing sales in top Tier-2 cities, alongside a 1.8% contraction in core sector output.

Strategic Focus on Value Over Volume and Premiumization

Despite market pressures, Nuvoco prioritized value over volume, achieving a record 43% premium product share in the trade segment during Q2 FY25. This strategy helped manage realization better than the industry average, even as All India cement prices dipped 4% QoQ. The company actively incentivized dealers for premium products and direct sales, with Concreto volumes in Bihar reaching 75-80% and Duraguard Microfibers in Rajasthan and Chhattisgarh trending at 17-18%.

Cost Optimization and Operational Efficiencies

The company demonstrated strong cost control, with power and fuel costs per ton reducing by 3% QoQ, reaching a 12-quarter low blended fuel cost of ₹1.54 per Mcal. Fuel cost specifically trended at ₹1,046 per ton, down ₹30 from Q1, and distribution costs declined by 1% QoQ. Project Bridge 2.0 yielded a significant operating cost reduction of ₹50 per ton in Q2 FY25, with a target to achieve ₹75 per ton reduction in H2 FY25.

Debt Reduction and Capex Plans

Nuvoco continued its debt reduction trajectory, with net debt standing at ₹4,501 crores as of September 30, 2024, a ₹233 crores reduction year-on-year. Management reiterated its target to pare debt to ₹3,500-₹4,000 crores by Q4 FY25 and maintain it at this level long-term. FY25 capex is projected at ₹300-₹400 crores, with ₹220 crores already spent in H1, and FY26 capex is planned for ₹900-₹1,000 crores, with current projects nearing completion.

Capacity Expansion and Project Timelines

The company confirmed clinker capacity expansions at Risda (to 12,000 tons) and Nimbol (to 6,000 TPD, currently 5,700 TPD throughput). The Odisha railway siding project is on track for commissioning by Q4 FY25. A brownfield expansion in the North is expected to commence by end of FY25 or early FY26, with commissioning anticipated within approximately 18 months. The Chittorgarh expansion plans for 2-2.5 MTPA clinker and 3.5-4 million tons grinding capacity with a capex of ₹1,500-₹2,000 crores were also reconfirmed.

Outlook and Demand Revival Expectations

Management expressed caution regarding the immediate demand outlook and pricing dynamics, noting that pricing power was at a five-year low. However, they anticipate a demand pickup post-festive season (November 15th onwards) and are targeting a 4% volume growth for the full FY25, with high single-digit growth in H2. The execution of government infrastructure projects, particularly those under the Union Budget and Purvodaya scheme, remains a key monitorable for demand revival.

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