Nuvoco Vistas hosted a conference call on May 24,2022. In the conference call the company was represented by Mr Jayakumar Krishnaswamy-MD, Mrs MadhumitaBasu-Chief of sales, marketing and innovation and Mr Maneesh Agarwal-CFO.

Key takeaways of the call

FY2022 was a challenging year for the cement industry which was impacted by demand as well as soaring power and fuel cost.

As a whole in India FY2022 saw a cement volume growth of 9-10%, however, key market of the company namely East was impacted due to low demand in Bengal and Orissa, transportation strike in Chhattisgarh and ban on sand mining in Bihar.

However, in Q4FY2022 there was good revival in Eastern markets due to improved demand, improved labor availability and lifting of ban on sand mining.

However, input cost remains elevated. Eastern markets witnessed sharper price hikes on the back of improved capacity utilization and subdued pricing situation in Q3 FY22.

Further, the company expects that cement demand to gain momentum in the near term on the back of improved construction and boost in the government infrastructure and housing projects.

Sales volume for Q4FY2022 stood at 5.5 Mt while for FY2022 stood at 17.8 MT.

Revenue grew by 35% QoQ to Rs 2930 cr which was due to higher volumes and improved prices.

Raw material cost stood at 643/ton increase of 19% YoY due to increase in key raw material prices like slag and fly ash.

Power and fuel cost stood at Rs 1251/ ton higher by 43% YoY due to higher coal and petcoke prices and lower linkage coal. However, it was partially offset by increase in Alternate fuel rate which increased to 6% of the total fuel mix. However, it declined by 3% QoQ due to improved efficiency, increase in linkage coal and higher contribution from alternate fuel.

RMC: The company has 53 RMC plant s and has set up new plants in Vaishnodevi and Ahmedabad.

Sales volume for RMC grew by 29% YoY in Q4FY2022 with increase in premium mix to 25% of the total sales. The run rate is around Rs 70 cr per month in Q4. The company targets a ROCE of 7-8% in short term and around 15% by FY2025.

Modern building materials revenue grew by 36% YoY in Q4FY2022. Its revenue grew from Rs 38 cr to Rs 50 cr and expects double digit revenue growth in FY2023. It is part of cement segment.

FY2022: Total revenue for the FY2022 stood at Rs 9318 cr.

Trade sales contribution stood at 75% of the total sales.

Premium cement contribution increased to 34% of the trade sales.

The company registered volume of 1 MT of its composite cement in the first year of launch. Also its leading brand registered highest ever sales volume with 17% YoY growth.

Price: The company has taken price hikes in later part of Q4FY2022 and it remains supportive in Q1FY2023 and expects more price hikes are essential to mitigate further fuel price inflation.

The company under took increase in prices by around Rs 30/ per bag in Q4FY2022 from exit of Dec. Further in April, the company has taken price increase of Rs 30 per bag in Northern markets and Rs 15 per bag in eastern markets.

Fuel mix: Linkage coal stood at 19%, non-linkage coal contributing 42-43% pet coke 30% and AFR of 6% in Q4FY2022.

The prevailing pet coke price is US$ 250-260 per ton and coal is US$ 240.

Expansion:

Ongoing expansion of 1000 ton per day each at Nimbol and Risda through de-bottle necking is on track and expected to be completed by FY2023.

The company is also setting up 1.2 MTPA grinding unit at Bhiwani, North Haryana for which engineering designed has been finalized and negotiation for civil work tender is in progress.

The company plans to take up Gulbarga capacity expansion with 6000 ton per day clinker capacity depending upon the external environment by early FY2024

CAPEX:

The company has incurred total CAPEX of Rs 411 cr in FY2022.

The company plans to incur CAPEX of Rs 500-600 cr in FY2023 and Rs 1500 cr in FY2024.

Debt:

Net debt has reduced by Rs 1666 cr in FY2022 and by Rs 431cr in Q4FY2022. The company has utilized IPO proceeds of Rs 1350 cr for repayment of debt. The company plans to repay net debt of Rs 650 cr in FY2023 and Rs 1100 cr in FY2024.

The company plans to be debt free by Fy2026 including Gulbarga expansion. However, if there are any growth opportunities, then the company is comfortable at Rs 3500-4000 cr net debt.

Outlook

Cement is a cyclical sector and the company has a positive long term view driven by increase in cement demand for low-cost housing, increase in infrastructure spending coupled with pent up demand from urban housing coming back. Also, Rural housing is likely to come back.

Q1FY2023 is a seasonally strong quarter with healthy construction period. The company expects improved demand in near term on back of government infra spending.

The company expects more hikes in prices to pass on cost inflation.

Growth: The company expects double digit revenue growth in Eastern markets on back of improved volumes and better prices.

Management commentary:

Commenting on the financial results, Mr. Jayakumar Krishnaswamy, Managing Director, Nuvoco Vistas Corp. Ltd. said, “FY22 was an exceptionally challenging year. Several crises such as – the resurgence of COVID-19 pandemic, sand unavailability and inflationary pressure – have negatively impacted the industry. In the meantime, we continued to focus on internal levers and operational efficiencies. Market share of our premium products on trade volumes improved to 34% and will remain a major thrust area. Our investments in sustainability projects will further our ESG Agenda. We also remain committed to grow our operations on account of the announced clinker expansion plans at Risda&Nimbol; and Grinding Unit at Bhiwani."