Nuvoco Vistas hosted a conference call on Feb 10,2022. In the conference call the company was represented by Mrs Madhumita Basu.

Key takeaways of the call

Q3FY2022 was a challenging quarter for the cement industry and was impacted by lower demand. At all India level demand shrunk by 4% YoY and in East India it declined by 16% YoY.

Demand was impacted in East India due to unavailability of sand in Bihar, transporters strike in Chhattisgarh and heavy monsoon and cyclone in Odisha.

Demand started recovering only post mid-December. Price increase in north and East were lower when compared to pan India basis. The increase in prices which the company took in October had to be withdrawn in Nov and early December and the company did not get an opportunity to rise prices once demand improved post mid-December.

Fuel prices also increased significantly with coal price more than doubling and pet coke prices rising by 180% YoY

Q3 Highlights:

Cement volumes were down 30% YoY in Q3 FY2022 and for 9 months it was up 6% YoY.

Revenue for Q3 FY2022 stood at Rs 2165 cr and for 9M stood at Rs 6388 cr. Prices in Q3 increased by 3%.

Premium products contribution stood at 32% of the total sales. Of the total sales 75% was trade sales. In North the premium products share stood at 7-8% and there is sufficient room to grow it to 12-15%

Raw material cost increased by 8% YoY.

Power and fuel cost:Power and fuel cost per ton in Q3 FY2022 stood at Rs 1285/per ton an increase of 50% YoY mainly due to increase in coal and pet coke prices and lower availability of linkage coal. The company has access to 30% of linkage coal as against it the company was able to get only 12%. However, it has started to improve and is touching 27-30%.

Blended cost of power and fuel increased from 1.12 in Q3FY2021 to 2.05 per K.klin. The company does not see any reduction in power and fuel cost for next 2 months.

Transportation and freight cost: It stood at Rs 1371/per ton an increase by 11% YoY.

Ready Mix Concrete: The company added 3 new plants one each in Numaligarh, Miyapur and Vapi taking the total operation plants to 54.

RMC sales volume grew by 34% YoY. Modern Building materials revenue grew by 36% YoY in Q3FY2022. RMS volume for the quarter stood at 420 cubic metres. Alternate fuel rate improved to 6%; Chittor Cement plant achieved one of the highest AFR of 20% in the Indian Cement Industry.

Debt: Net debt was reduced by Rs 1235 cr and the total debt stood at Rs 5495 cr.

Cost of debt has reduced by 165 bps, and the average interest cost now stands at 6.68% for the company.

In January the company has refinanced debt by around Rs 850 crore.

Out of the IPO proceed, Rs 700 cr will used for debt repayment which is due in the month of march 2022.

Internal levers: The company is continuously working on five levers including, Price acceleration program through continues focus on premiumisation and increasing trade mix; Successful integration of Nu vista-driving synergy benefit through project SPRINT; Increase in operational efficiency through by benefiting from WHR at integrated plants and newly commissioned captive power plants at Arasmeta and Jojobera; leverage on scale and maximize incentives and fixed cost reduction. The company is on track to generate incremental EBITDA of Rs 250/ per ton through internal levers and for the 9M FY2022 has generated Rs 167/per ton as against targeted Rs 150/ per ton.

CAPEX:

The company plans to augment cement volumes availability by 2.4 MTPA through de-bottle necking projects at Risda and Nimbol which is on track; upgradation of blending unit at Bhiwani to grinding unit to serve Northern markets at a total CAPEX of Rs 400 cr.

Alternate fuel material handling facility at Risda and Nimbol cement plant which is expected to be commissioned in FY2023 at a total capital outlay of Rs 50 cr.

6,000 TPD clinker capacity in Phase-1 in Gulabarga targeting Maharashtra markets with the total CAPEX of Rs 1500 cr.

In FY2023 the company will incurr a total capex of around Rs 1200 crore.

WHR: Total WHR capacity is45 MW and the company is in 2:1 cement capacity ratio.

East: The company is the leader with respect to capacity in East and has a market share of 17-17.2%.

Outlook

Demand:Q4 is usually a better quarter for the cement industry. This along with pent up demand from Q2 and Q3 will lead to good traction in Q4.

Price: In East the company has increased Rs 30-50/ per bag in January and has increased by Rs 20 per bag in February and expects the same to stabilize.

In North, the company has taken a price increase of Rs 10/per bag. Over all the increase in prices is to the tune of Rs 400 per ton in Q4 FY2022 (till date) when compared to Q3FY2022.

The company did a volume of 5.6 MT in Q4FY2021 and expects to do similar volumes in the range of 5.6-5.7 Mt in Q4FY2022.

Trade sales contributed 75% of the total sales and the company plans to take it to 80% going forward.

On the macro side union budget gave the required imputes with 35% increase in capital allocation. Government is keen on infra projects including highways, metro, Grameen Sadak yojana and Ghati shakthi plans.

Management Commentary:

Commenting on the performance Mr Jayakumar Krishna Swamy, managing Director, Nuvoco Vistas said, “With cement demand in India estimated to grow at a CAGR of 6-7% by FY26, we are well-placed for a growth trajectory in long run. Our investment towards alternate fuel material handling facilities is a testament to our untiring commitment towards a sustainable future. Our current growth investments will help us seize the opportunities predominantly in the northern and western parts of the country, while further strengthening our leadership position in the east.”

He also added, " Amidst these pressures, the company stayed committed to its sustainability goals. We stayed focused on- composite cement, green concrete, and usage of alternate fuel technologies. Our composite cement volumes rose multifold during the quarter. While the Alternate Fuel Rate (AFR) for the company increased by 200 bps, our Chittor cement plant was able to achieve an AFR of 20% during the quarter."