Nuvoco Vistas Corporation Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Margin recovery takes hold, costs peak: EBITDA rose 40% QoQ to ₹272 crores as power and fuel costs hit their ceiling in Q3 and began declining sharply into December and January.
• Volume growth deliberate, not desperate: Consolidated volumes grew 6% YoY to 4.5 MMT, but management openly chose geo optimization and premiumization over chasing tonnage, a trade-off that protected realizations.
• The balance sheet is the gatekeeper: Net debt declined sequentially to ₹5,165 crores, and the company reiterated that debt must fall to ~₹3,500 crores before any large-scale capacity expansion gets the green light.
• Fuel cost relief is real and arriving: The Q3 fuel cost of ₹2.74/kCal was the peak; January already ran below Q2 levels, and management expects a substantial reduction in Q4 from WHRS, CPP ramp-up, higher AFR, and softer international prices.
• What to watch next quarter: Whether the promised Q4 fuel cost reduction materializes in the P&L, the pace of debt paydown toward the ₹3,500 crore trigger, and any concrete expansion announcement as fiscal '24 begins.

Margin & Cost Structure

• Power and fuel costs peaked in Q3: The quarter carried inflated inventory costs from Q2, pushing the fuel cost to ₹2.74/kCal. By December and January, costs had already fallen below Q2 levels, and management expects Q4 to run at or slightly below Q2.
• Multiple levers are now activating together: CPPs started operating at almost all locations, WHRS is entering full swing, AFR substitution is rising toward a 12% exit rate, and linkage coal share is climbing from 14% toward 17–18%. All four levers hit simultaneously in Q4.
• AFR delivers a clear cost arbitrage: Alternative fuels cost ₹1.6–1.7/kCal versus ₹2.6–2.7 for pet coke and blended coal, a ~₹1/kCal advantage. Q3 substitution was 9%; management is confident of hitting 12% by fiscal year-end and sustaining that rate into FY24.
• Raw material costs rose with a purpose: Cement raw material cost increased 21% YoY as slag consumption rose, which improved the clinker-to-cement ratio to 1.8x and lowered the overall cost line through a reduced clinker factor.
• Freight costs face structural and cyclical pressure: Railways reinstated the busy season surcharge, and wagon unavailability forced clinker movement onto road at ~₹310/ton versus ~₹250–260/ton by rail. Management expects wagon availability to improve over 3–6 months as coal stocks normalize and Indian Railways adds ~10 wagons per day.
• Slag costs are sticky, availability is the bigger worry: Slag prices rose from ₹1,200 to ~₹1,310 per ton sequentially and are expected to hold at that level in Q4. Management flagged that overall slag availability will be a challenge in FY24 and beyond, but Nuvoco is well-placed with a 2.5 MMT tie-up with Tata Steel covering 50–56% of requirements.

J. Krishnaswamy: "Entire quarter had an inflated number, but as Mita said, we have peaked. But I'm happy to say that as we came into December and into January, the power costs have started coming down significantly from the high levels of October and November..."

Volume & Pricing Strategy

• Volume growth was 6% YoY, but the headline understates the choice: Consolidated sales volume reached 4.5 MMT, with double-digit growth on a nine-month basis. Management emphasized that simply dumping volume would not have been difficult; the deliberate decision was to prioritize geo mix, premiumization, and margin profile.
• East delivered the best pricing, but demand was uneven: East region saw the highest price increase among all regions during the quarter, with prices improving in October and November before some December softness. However, West Bengal and Jharkhand, where Nuvoco has significant sales, saw subdued demand growth that moderately impacted overall volumes.
• North ran at healthy double-digit growth: Higher infrastructure execution and rural IHB activities drove the performance, and prices remained stable through the quarter.
• Trade share held steady at 71%: The mix was unchanged from Q2, and management reiterated that the business model is designed around a strategic trade footprint with a triple-brand franchise spanning Concreto, Duraguard, and Double Bull.
• Premiumization is a stated margin lever: The company launched Concreto UNO, a super-premium cement with water-repelling properties, alongside earlier launches of Duraguard F2F and Concreto Glyde. The PCC target is 2 MMT, with PCC and PSC fungible at a 1.8x cement-to-clinker ratio.
• Prices are holding into early 2024: Management noted that prices in January and early February were holding at Q3 levels, and the pricing acceleration program is working well. Since December, prices have been range-bound with optimism around further hikes.

J. Krishnaswamy: "I think if one were to kind of simply sell volumes, it would not be that difficult to sell volume. But, as Mita mentioned multiple times in a call, our focus has been to get the mix going and also choose the geo mix as well as the premiumization. So, if it was simply going and dumping volume, we didn't take that call."

Capacity Expansion & Project Pipeline

• Debottlenecking comes first, large-scale expansion waits on the balance sheet: The immediate objective is to move from 23.8 MTPA to 25 MTPA with minimum capex. Any large-scale expansion will be announced only after net debt reaches ~₹3,500 crores, a threshold management has reiterated since the IPO.
• Bhiwani grinding unit is on track for early H2 FY24: The 1.2 MTPA unit is progressing well: civil work and fabrication are on mark, all major orders are released, and the mill shell arrives in February. Commissioning is targeted for July/August, with adequate volumes expected in H2 FY24.
• Clinker debottlenecking at Risda and Nimbol is underway: Risda is already running at 11,500 TPD with further minor expansion possible. Nimbol is targeting 5,750 TPD by July/August FY24, an increase of ~1,000 tons, with a ~25-day shutdown planned in Q1 FY24 to hook up systems.
• North will reach 6 MMT grinding capacity post-Bhiwani: Supported by clinker from Chittor, where debottlenecking was completed last fiscal, and from Nimbol, which is under commissioning.
• The expansion sequence favors North first, then West: Management's inclination is a brownfield expansion in the North via the Chittor/Nimbahera mines, followed by a Gulbarga integrated and split line in the West. It is too early to put a peg on the ground.
• Railway siding projects will unlock freight savings: The Sonadih siding expansion will enable Risda clinker to move by rail, and the Jajpur siding, previously half-completed under Emami, is under execution. Once complete, all clinker movement to Jojobera, Panagarh, Mejia, and Jajpur will shift to rake.
• Nine-month capex spend was ₹329 crores: The balance of the ~₹550 crore total project outlay beyond FY23's ₹450–475 crores will spill into FY24, with all projects on timeline.

J. Krishnaswamy: "With the changing scenario in the market in terms of demand uptick and the pricing improvement as well as the tempering of costs, we believe that as we get into fiscal '24, we will see improvement in margins, and that will help us come up with the expansion plans for Nuvoco."

Balance Sheet & Debt Reduction

• Net debt declined sequentially to ₹5,165 crores: The primary objective remains balance sheet hygiene, with a stated target of reducing debt to ~₹3,500 crores before pursuing growth capex.
• Interest costs were effectively contained: The increase was limited to ~120 bps versus a 225 bps repo rate increase since March 2022, achieved through opportunistic refinancing and debt repayments.
• Q4 should bring a working capital release: Management expects a decent amount of working capital to release in Q4 due to higher collections and inventory decline, which will aid debt reduction, though it declined to quantify the amount.
• Debt reduction will be sequential from here: Management stated that every quarter will bring positive news on the timing of an expansion announcement if current margin and profitability trends continue.

J. Krishnaswamy: "I cannot do a crystal ball gazing of how the fuel prices will look in the future. ... When we went to IPO, we were very clear, 18 to 24 months from the listing date in August '21, we said we will be ready to reduce the debt levels of the Company to an acceptable level and get our expansion going. But along the journey, we also realized that a lot of market dynamics have changed and there were huge headwinds."

Demand Environment & Regional Dynamics

• East region demand was good overall, but two key states lagged: Rural housing and infrastructure drove YoY growth, aided by a lower base. However, West Bengal and Jharkhand saw subdued demand growth, which moderately impacted Nuvoco's sales volumes given its significant presence in those states.
• North region delivered healthy double-digit growth: Higher infrastructure execution and rural IHB activities were the primary drivers.
• The demand outlook is constructive: Management expects West Bengal and Jharkhand to catch up quickly, supported by the Union Budget thrust and upcoming elections, which should drive demand to absorb additional supplies in the East.
• Volume ambition remains double-digit for FY24: Management is confident of utilizing the 6 MMT headroom from ~19 MMT to 25 MMT over the coming 24 months to grow in line with the industry. FY23 volumes are directionally close to 19 MMT for the full year.
• Ready-Mix Concrete revenues improved more than 20% YoY: Growth was driven by a higher share of value-added products, with more than 50 operational plants across the country and more in the pipeline.

Sustainability & Operational Initiatives

• AFR substitution is scaling toward a 12% exit rate: TSR was steady at 9% sequentially and improved 4% YoY. Chittor hit 32–33% TSR, Risda is trending at 10–11% without co-processing commissioning, and January reached double-digit AFR. The co-processing system at Risda is now commissioned.
• LC3 product development is in the pipeline: Prototyping is complete and the product is under testing with external agencies, with commercialization awaiting BIS specifications.
• Digital and customer-service initiatives are expanding: The company launched the NUVO NIRMAAN direct-to-consumer home assist app, introduced Tech Express Vehicles for on-site services, and rolled out lighter aluminum-body trucks for cement dispatches, an industry first.
• Linkage coal share is rising but logistics remain a bottleneck: Share improved to 14% in Q3 from 10–12% in Q2. Rake shortages constrained availability, but teams secured additional coal via road movement by obtaining road movement clearance, which management called a welcome development.

Guidance & Commitments

Key Metrics