Nuvoco Vistas hosted a conference call on Aug 10, 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

Revenues in Q1FY2023 stood at Rs 2652 cr due to higher volumes and price increase undertaken in North and East. Cement volume grew by 11% YoY to 4.7 MT.

Raw material cost stood at Rs 556/ton in spite of inflationary pressure.

Power and fuel cost stood at Rs 1373/ ton in Q1FY2023 when compared to Rs 1251/ ton in Q4FY2022. Increase in power and fuel cost was Rs 122 /ton QoQ and was lowest when compared to competitors. Power and fuel price is expected to remain at similar levels in Q2FY2023 as the company has procured fuel which will last till September. Linkage coal supply should improve from Q3 as monsoon eases.

The company has procured pet coke at US$ 250-260/ton and coal at Rs 220-230/ton. Currently the company is entering contracts to procure coal at US $ 160-170/ton.

Freight cost stood at Rs 1546/ton up by 15% YoY. Higher diesel prices, higher freight cost and non availability of rakes which led to movement of material through road.

Fuel mix in Q1FY2022: Linkage coal stood at 16%, non-linkage coal contributing 23%, imported coal 2%, pet coke 53% and AFR of 6% in Q1FY2023 as against Linkage coal stood at 19%, non-linkage coal contributing 18%, imported coal25%, pet coke 32% and AFR of 6% in Q4FY2022.

Earlier the company was getting 30% of the domestic coal through rakes which has been disrupted. However, the things are getting normalized.

Rs per K cal: For linkage coal it stood at Rs 1.28, non linkage coal stood at Rs2.64/-, imported coal at Rs 3.3/-, pet coke at Rs 2.47/- and for AFR it stood at Rs 1.45/- in Q1FY2023.

Project Sprint: The efforts undertaken has led to savings under project sprint. The company has saved around Rs 150 /ton in FY2022 and the balance Rs 100 /ton expected to be saved in FY2023. The company says that the savings is in the direction as expected.

Trade sales: Trade sales contributed 72% of the total sales in Q1FY2023.

Premium cement contribution : Premium cement contribution increased by 1.6% YoY and stood at 34% of the total trade sales.

Price: The price increase which was taken in April 2022 was partially rolled back in May, June and July. Since exit in Q1FY2023, the prices per bag declined by Rs 5 in July.

Expansion: Nimbol and Risda clinker capacity enhancement of 1000 TPD at each location through debottlenecking is on track.

Civil work for new Grinding Unit at Bhiwani Cement plant is ready to commence; major orders for key equipment and materials has been placed.

Alternate Fuel material handling (AF) facilities at Nimbol and Risda Cement Plant is underway.

Key equipment for co-processing solid waste system at Risda Cement Plant are under erection; civil work at Nimbol has also been initiated.

The green field expansion which the company plans to undertake in north and west will be delayed by 12-18 months due to prevailing conditions.

Debt: The net debt as on June 30, 2022 stood at Rs 5347 cr. The increase in net debt when compared to Q4 FY2022 was mainly due to higher working capital requirements due to steep rise in fuel prices and seasonality of the business.

There was a marginal increase in interest rate since Mar 2022 for the company when compared to 90 bps increase in repo rate by RBI.

The company expects to technically be debt free by FY2026. However, the company is comfortable at debt level in the range of Rs 3500-4000 cr. The company will use the additional funds generated to fund growth.

The company has a total repayment obligation of Rs 600 cr debt in FY2023 of which it has repaid Rs 130 cr. Further, the company has a repayment obligation of Rs 1100 cr debt in FY2024.

CAPEX: For the overall brown field expansion the company plans to incur CAPEX of Rs 500-600 cr in FY2023 which includes maintenance capex of Rs 150 cr in FY2023. The company has incurred CAPEX of Rs 73 cr in QFY2023.

Slag: The company has entered to 20 years long term contract with Tata Steel for supply of slag. It has also entered into 3 years contract with other steel plants for supply of slag. The company procures around 2.5 Mt of slag from Tata steel per year. Any additional requirement, the company procures from auction.

Outlook:

East and North region cement demand is estimated to improve by 11% and 17% respectively on YoY basis.

Cement demand is expected to remain soft in the near term however expects to grow at a healthy pace in Q3and Q4 of FY2023.

Cement demand is expected to be strong on back of 80 lakh houses to be completed in FY23 for the identified eligible beneficiaries of Pradhan Mantri Awas Yojana; growth in income levels with positive change in demography to support urban demand and Continuous thrust by the Government on infra projects.

In spite of 8-10 MT capacity to be added by Ultratech and Shree Cement in 2nd half of FY2023, the company does not expect any impact as the company expects 8-9% growth in FY2023 and going forward which will result in 85-90% capacity utilization in the east region .

Management Commentary

Commenting on the financial results, Mr Jayakumar Krishnaswamy, Managing Director, Nuvoco Vistas Corp said, As the industry faces continuous headwinds because of soaring fuel prices, we have increased prices to partially offset its impact; more hikes remain essential to offset the full impact. Despite a severe wallop on account of elevated energy prices in the industry, we managed our power and fuel cost effectively by leveraging internal levers and optimizing the fuel mix. In addition, our finance costs have been declining with debt repayments and effective reductions in the cost of debt over time. Moving forward, this should support profitability.”

He further added, “While the seasonally weak period and elevated fuel prices will weigh on near- term profitability, cement demand is expected to show a healthy increase in FY23 due to strong housing demand and government-led infrastructure development projects. Our focus remains on internal levers and operational efficiency while we remain committed to our expansion project at Bhiwani. We also continue to invest in de-bottle-necking projects at Risda and Nimbol along with alternate fuel material handling facilities as part of our sustainability initiatives.”