HDFC Securities Bullish On This Mid Cap Stock, Suggests Buy For 74% Returns

HDFC Securities is bullish on Nuvoco Vistas Corporation Limited, a mid-cap Building Materials Company. The brokerage maintains a buy call on the stock with a target price of Rs 660/share. Considering the given target price, if the stock is purchased at the current market price, it could lead to 74% potential gains. The market capitalization of the company is Rs 13,586.22 crore.

Stock Outlook & Returns Over the Past 5 Years

The stock's last traded share price on NSE is Rs 380.40/share, which is 0.68% below its previous close. The Current market price of the stock is Rs 457.90 apiece. 

In a week, the stock has fallen 5.36%, and in a month, the stock has fallen 4.4%, respectively. In the past 3 months, it gave 14.34% positive returns. Over the past 1 year, it gave 27% negative returns. Since its listing on 23 August 2021, the stock declined 28.46%, giving a negative return. 

The 52-week high is Rs 556.05 recorded on 30 November 2021, and the 52 week low is Rs 260.25 recorded on 16 June 2022, respectively. Its ROE is 0.62%.
 

Q2FY23 performance

Nuvoco reported healthy volume growth of 14% YoY on the back of good demand and capacity ramp-up. NSR declined 4% QoQ (seasonal impact). Opex grew 4% QoQ on higher fuel cost (~input cost rose INR 390 per MT QoQ), the impact of which was moderated by lower freight/ other expense per MT by 9/12% QoQ. Fuel costs were up ~20% QoQ in Q2. In Q1FY23, total freight cost had gone up due to rake shortage, leading to clinker transportation by road. This got rationalised in Q2.

H1FY23 performance

EBITDA fell 34% YoY to INR 5.6bn. Working capital increased by INR 3.5bn (lower vs H1FY22 +INR 7.3bn) and led to an OCF of INR 2.1bn in H1FY23 vs INR 0.64/ 11.6bn in H1FY22/H2FY22. It spent INR 1.7/2.8bn in Capex/interest payment in H1. So, net debt rose 4% (vs Mar-22) to INR 54.3bn and net debt/EBITDA was up to 4.5x (vs 3.5x in Mar-22).

 

Capex, debt and outlook

Nuvoco expects fuel costs to start moderating from Q3 onwards. It plans to increase AFR share to further moderate fuel costs. It maintained its Capex estimate of ~INR 5-6bn for FY23E, mainly for clinker debottlenecking, AFR plant, and Bhiwani plant (1.2mn MT GU expected by Q2FY24E). The Gulbarga expansion is put on hold as the company's immediate focus is to reduce debt to a comfortable level of INR 30-35bn. "We believe this is prudent as the current capacity is sufficient for it to deliver more than 7% volume CAGR for the next 3-4 years. We maintain our earnings estimates for FY23/24/25E," the brokerage has said.

Focus shifts from Capex to debt reduction, buy for Rs 660/share target price

HDFC Securities said, "We maintain BUY on Nuvoco Vistas, with an unchanged Target Price of INR 660/share (11x its consolidated Sep-24E EBITDA). We continue to like it for its leadership presence in the east, large retail focus, and various margin initiatives. In Q2FY23, Nuvoco reported healthy volume growth of 14% YoY on the back of decent demand and capacity ramp-up. Unitary EBITDA fell 44% QoQ, owing to a seasonal price correction and spike in energy costs. Nuvoco has put the Gulbarga expansion on hold for now and it will focus on reducing debt to a comfortable level of INR 30-35bn. As the current capacity is sufficient to fund volume growth for the next 3-4 years, focus on debt reduction should drive valuation rerating."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.