Nuvoco Vistas Corporation Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Volume-led quarter, pricing lags cost: Revenue grew on higher volumes in both East and North, but cement prices softened from end-May and cost inflation in fuel, slag and gypsum squeezed realizations.
• Fuel cost has peaked, relief is distant: Blended fuel cost per kcal rose from INR 2.28 in Q1 to INR 2.64 in Q2, which management believes is the peak; even so, it does not expect a meaningful taper before Q4.
• Balance sheet discipline is non-negotiable: INR 300 crore of the planned INR 600 crore FY23 debt repayment is already done, and FY24's INR 1,100 crore repayment stays on course; management will rebalance capex before it misses a repayment milestone.
• The growth path is brownfield-only until debt falls: No large-scale greenfield expansion will be announced until net debt reaches INR 3,000–3,500 crore; current brownfield projects alone take capacity to 2.5 crore tons, enough for near double-digit volume growth through FY25.
• What to watch next quarter: Whether the November price hikes in the East hold and spread to the North, the trajectory of petcoke and imported coal prices into Q4, and any update on the Bhiwani grinding unit timeline (target: on steam by August).

Volume & Demand Environment

• East led, North followed: East delivered healthy double-digit demand growth YoY, driven by housing and rural segments plus a low base; North saw modest growth, led by housing then infrastructure.
• Near-term tailwinds are in place: Strong urban housing momentum, an expected post-festive rural demand pickup, and retail inflation cooling all support near-term demand; management expects a healthy FY23 uptick from housing and government infrastructure.
• Capacity headroom is deliberate: East is on track to exhaust its capacity in the next 18 months; North is currently selling ~0.36–0.37 crore tons on 0.48 crore tons of installed capacity, leaving room to grow without new assets.
• The 2.5 crore ton milestone: Brownfield projects (Bhiwani grinding unit, Nimbol and Risda debottlenecking) will lift capacity from 2.38 to 2.5 crore tons by FY25, providing sufficient headroom to sustain near double-digit volume growth on the FY22 sales base for two years.

Madhumita Basu: "In FY25, we will be a 2.5 crore ton player. This provides sufficient capacity headroom to sustain near double-digit volume growth on FY22 sales volume base, reinforcing our position as the fifth largest cement group in India on current state basis."

Pricing & Realization

• Prices softened through the quarter: Continuous price softening began end-May, the seasonally weak period; East saw some recovery in September and October as demand picked up, while North prices stayed muted with no hikes during the quarter.
• Internal levers cushioned the blow: Nuvoco's realizations outperformed market prices YoY by leaning on premiumization (premium product share reached 38% of trade volumes, up 4% YoY), trade share optimization, and geographic mix shifts.
• November hikes are a test: A non-trade price increase took effect 1 November in the East, followed by a trade price increase two to three days before the call; management stated further price hikes remain essential to offset soaring costs.
• Cost pass-through cannot be deferred forever: Management views the current inability to pass on cost inflation as unsustainable and expects a system correction within the next one or two quarters, though that remains a hope rather than a commitment.

Jayakumar Krishnaswamy: "I'm only hopeful that the current trend of not being able to pass on the cost inflation cannot be a long-term phenomenon. I think, time will come when we will have to compensate for the cost inflation."

Costs & Efficiency

• Power and fuel: best-in-class but under pressure: Nuvoco achieved one of the industry's most efficient power and fuel consumption rates at INR 1,554 per ton, driven by alternative fuels, waste heat recovery, and procurement strategies; however, blended fuel cost per kcal still jumped from INR 2.28 in Q1 to INR 2.64 in Q2.
• Raw material inflation bit hard: Raw material cost rose 24% YoY on inflationary pressure in slag and gypsum, compounded by higher slag consumption as the company pushed blended cement share.
• Freight normalised, then slipped again: Q1 freight was anomalously high due to severe railway rake shortages (rakes diverted to coal for power plants); rake availability improved in Q2, bringing logistics costs to a more representative level, but shortages returned from 15 October.
• Fuel cost has peaked, management believes: Management stated fuel cost has more or less peaked, with prevailing rates from mid-to-end Q2 still in effect; a marginal ~\$20 reduction in late October was short-lived as petcoke firmed up again. Fuel prices are not expected to taper in Q3, with possible relief only in Q4.

Jayakumar Krishnaswamy: "I guess from across the industry, as well as we are part of the industry, I think fuel cost has more or less peaked."

Balance Sheet & Capital Allocation

• Debt repayment is the binding constraint: Net repayment of INR 600 crore is planned for FY23 (INR 300 crore already done) and INR 1,100 crore for FY24; management is on course to meet both and will rebalance capex spends if the business environment stays difficult to ensure all repayment criteria are met.
• Debt-free target is FY26: The stated goal is to bring net debt to a comfort level, with FY26 as the target for becoming debt-free.
• Greenfield expansion is gated by net debt: No large-scale greenfield expansion in North or West will be announced until net debt reaches INR 3,000–3,500 crore; current brownfield projects alone provide enough headroom to grow sales from 1.78 crore tons to 2.5 crore tons over 24–36 months.
• FY23 capex: INR 500–600 crore: All ongoing brownfield projects (Bhiwani grinding unit, Nimbol and Risda debottlenecking and AFR, Jajpur and Sonadih railway sidings) are on track for completion in the next 9–12 months, with INR 500 crore left to spend.
• FY24 capex: INR 300–350 crore: This assumes a carry-forward of ~INR 80–90 crore from FY23 plus ~INR 200 crore of routine and mandatory spend, and no large-scale expansion.

Jayakumar Krishnaswamy: "In case the business environment and the industry environment continues to be difficult, hopefully it improves, but as of now fuel prices doesn't seem to taper down at least in Q3; it may come down maybe in Q4. So we'll have to kind of find a way to rebalance the CapEx spends to ensure that we meet all the repayment criteria, which I guess we are in good position."

Expansion & Growth Projects

• Clinker debottlenecking is progressing: Risda expansion from 10,500 to 11,000 TPD is complete; Nimbol expansion from 4,750 to 5,750 TPD has civil work done with fabrication underway, and hook-up is expected March–April subject to a shutdown window, taking Nimbol and Chittor both to their target capacities by Q2 next year.
• Bhiwani grinding unit on track for August: The public hearing is done and Environmental Clearance is awaited for the main plant; clinker and cement silo construction is already complete, and the unit is targeted to be on steam by August next year, taking North cement capacity to 0.6 crore tons by Q3.
• North ambition: 0.55–0.6 crore tons: With Bhiwani, the company aims to grow North sales from the current ~0.36–0.37 crore tons to over 0.5 crore tons, leveraging access to Delhi, Haryana and Punjab markets.
• Next-phase sites are ready but on hold: Both West and North sites are in a very good position to start quickly once a decision is taken, but no construction or equipment ordering is planned as of now; the trigger is deleveraging, market dynamics, and overall company performance.

Jayakumar Krishnaswamy: "As of now, it is the brownfield expansion in the Company which will take this company from 2.38 crore tons to 2.5 crore tons... the priority for the company is to kind of make the balance sheet healthy. And once the market improves then we will come back and announce the further mega growth expansion plans."

Sustainability & Cost Levers

• AFR scale-up is a thrust area for FY23–24: AFR consumption improved ~5% YoY to 9% in Q2; management guided that it will trend between 9–10% by January–February, which would be among the best in the industry. Once Risda, Nimbol and Chittor have full-fledged pre-processing and co-processing facilities, those three plants alone could reach close to 20% AFR.
• AFR facilities are being built now: The co-processing system at Risda is commissioned and the full pre-processing facility is underway; Nimbol's full-fledged AFR facility is expected in January; a future facility at Sonadih is planned after the first three are complete.
• Green power exploration: The company is exploring open-access auctions and tie-ups for 24x7 solar power, plus solar plants at grinding units in Panagarh, Bhabua, Jajpur and Nimbol (5–7 MW options).
• Composite cement is scaling: Composite cement capacity is being built to 0.3 crore tons, targeting an end-state share of ~11–12% overall and ~16% in the East, within one year of launch.
• Clinker-to-cement ratio at 1.8x: The ratio reflects the ongoing shift toward blended and composite cement, which also helps manage raw material cost pressure from slag and gypsum.

Jayakumar Krishnaswamy: "I can give guidance on this that by the time it comes to January, February we should anyway trend between 9% to 10% through AFR which will be one of the best in the industry."

Guidance & Commitments

Key Metrics