HDFC Securities Is Bullish On This Small Cap Building Materials Stock, Suggests Buy For Robust 75% Returns

Stock Outlook & Returns

On NSE, the stock's Current Market Price is Rs 339.50 apiece. Today gained 2.04%. The stock is currently trading Rs 79.25 above the 52 week low and Rs 238.4 below the 52 week high of the stock. Its 52-week low is Rs 260.25 apiece recorded on June 16, 2022, and the 52-week high is Rs 577.90 apiece recorded on September 6, 2021.

Over a week, the shares of the company gained 0.09%. However, in the past 1 month, the shares jumped 18.94%, and in the past 3 months, the shares gave a positive return of 11.51%. The stock of the company was listed on the stock exchange on 25th August 2021, almost 1 year back. Over the years, the shares of the company have fallen 36.15%.

Q1FY23 performance

Nuvoco reported broadly in-line EBITDA (vs ours/consensus estimate). As volumes fell QoQ (seasonal decline), utilisation moderated to 79% vs 92% QoQ (and 76% YoY). Trade sales stood at 72% vs 75% QoQ. The company reported a healthy 7/6% QoQ/YoY pricing recovery. Its input cost rose marginally QoQ as the raw material cost reduction QoQ moderated the impact of 20% rise in fuel costs. Freight costs went up 10% QoQ, mainly on the rise in clinker movement cost (by trucks vs rakes). Op-lev loss led to unit fixed costs rising 20% QoQ. Price increase offset the cost inflation leading to flattish unitary EBITDA QoQ at Rs 789 per MT. Interest cost fell 11% QoQ to Rs 1.2bn on account of debt repayment at the end of Mar-22. However, net debt/EBITDA stretched to 4x (vs 3.5x QoQ) due to lower EBITDA YoY and ~5% debt increase on account of working capital.

Capex and outlook

Nuvoco expects fuel costs to start moderating Q3 onwards (after peaking in Q2). It maintained its Capex estimate of ~Rs 5-6bn on capacity enhancement for FY23. It is still evaluating the Gulbarga plant and Capex opportunity in the north. In the next few months, it plans to take a firm view on which project to work on FY24E onwards.

Margin sustained QoQ, Buy for target price of Rs 591

Commenting on the stock, HDFC Securities said, "We maintain BUY on Nuvoco Vistas, with an unchanged Target Price of Rs 591/share (11x its consolidated Mar-24E EBITDA). We continue to like it for its leadership presence in the east, large retail focus, and various margin initiatives. In Q1FY22, Nuvoco reported broadly in-line EBITDA (vs ours/consensus estimate). Its unitary EBITDA remained flattish QoQ at INR 789 per MT on healthy price recovery, despite the ~20% rise in fuel prices QoQ."

About -Nuvoco Vistas Corporation Limited

Nuvoco Vistas Corporation Limited (Nuvoco) is a building materials company, and part of India's leading business conglomerate - Nirma Group.

The Nirma Group forayed into the cement business in 2014 through a greenfield cement plant in Nimbol (2.2 MMTPA). Thereafter, grew the business, through the acquisitions of Lafarge India Limited in 2016 (11 MMTPA) and NU Vista Limited, formerly Emami Cement Limited in 2020 (8.3 MMTPA).

Nuvoco has 11 Cement Plants in the states of Chhattisgarh, West Bengal, Odisha, Bihar, and Jharkhand in East India and Rajasthan and Haryana in North India comprising five integrated units, five grinding units and one blending unit. Its integrated plants are equipped with Waste Heat Recovery (WHR) systems with a total capacity of 44.7 MW, solar power plants with a total capacity of 1.5 MW and Captive Power Plants (CPP) with a generation capacity of 150 MW.

The Company has a dedicated Construction Development and Innovation Centre (CDIC) located in Mumbai. This NABL-accredited facility serves as the incubation centre for innovative products and can conduct more than 100 mechanical tests, covering a range of materials including cement, fly ash, ground granulated blast-furnace slag (GGBS), concrete, aggregates, bricks, blocks, and construction chemicals. It also offers third-party external testing services providing products and solutions that have passed the highest standards and is valid globally.