Nuvoco Vistas Corporation Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Value-over-volume strategy delivered: Revenue grew 14% YoY against volume growth of just 5%, as the company consciously prioritized pricing and premium products in a sluggish demand environment.
• Margin recovery underway: Consolidated EBITDA jumped 41% QoQ to ₹383 crores, driven by softening fuel prices and higher thermal substitution rates, though full-year profitability remained under pressure from elevated energy costs.
• Debt reduction on track: Net debt declined to ₹4,414 crores, with management reiterating its commitment to reach ~₹4,000 crores before announcing the next phase of expansion.
• Capacity expansion progressing: The 1.2 MTPA Bhiwani grinding unit and clinker enhancements at Risda and Nimbol are on schedule, with commissioning expected within H1 FY24.
• What to watch next quarter: Whether Bengal and Jharkhand demand recovers from two quarters of sluggishness, the pace of fuel cost savings realization, and any movement on slag cost normalization.

Demand & Volume Dynamics

• Q4 volume weakness: Cement volumes remained impacted as key markets of Bengal and Jharkhand, which together represent ~50% of East volumes, stayed sluggish sequentially for two quarters.
• Full-year strategy divergence: Revenue grew 14% YoY against volume growth of 5%, reflecting an executive decision to prioritize value over volume growth rather than chase tonnage in a soft market.
• FY24 demand outlook: Management expects cement demand to remain strong, citing the government's continued focus on infrastructure development and rural housing, with industry agencies projecting ~7% volume growth for the sector.
• Regional pricing expectations: Better pricing outlook anticipated for East, North, and West versus Center and South, though management declined to provide any forward revenue or performance prediction.

Madhumita Basu: "On a full year basis our revenue growth has been 14% against the volume growth of 5% and this is primarily because of executive decision to prioritize value over volume growth."

Cost Structure & Margin Levers

• Fuel cost target: Management is targeting another ₹100 per ton reduction from Q4 actual levels, though declined to give a precise full-year savings number.
• AFR arbitrage compression: The cost advantage of alternate fuels versus solid fuel has narrowed from ~₹1 per million Kcal to about ₹0.60-₹0.70 paisa, as carbon black demand has increased across industries. Pre-processing shredder facilities at Risda and Nimbol are being commissioned to maximize AFR usage and offset this compression.
• AFR TSR target: Targeting greater than 15% thermal substitution rate at the average level from July onwards, supported by newly commissioned co-processing and pre-processing systems.
• Cement-to-clinker ratio improvement: Improved to 1.83 from 1.74 two years back, driven by increased Concreto Cement volumes, introduction of PCC cement at Panagarh and Jajpur, and Jojobera plant shifting fully from PPC to PCC. Further upside expected from Mejia plant shift and LC3 cement introduction in North, with a two-year blended target of 1.92.

J. Krishnaswamy: "The current market rates for slag is anywhere between 1,900 to 2,100 INR per ton, it is kind of more than equal to the past value of clinker cost. So, that is the kind of irony, which is there."

Balance Sheet & Working Capital

• Net debt trajectory: Reduced from ₹6,730 crores (March 2021) to ₹4,414 crores (March 2023) over three years, driven by focused collections and efficient working capital management.
• Interest cost management: Increased about 160 bps against a repo rate increase of 250 bps since March 2022, achieved through opportunistic refinancing and debt repayments.
• Working capital levers: Record collections from cement channel partners in Q4; receivables broadly in line with last year despite 14% revenue growth, indicating improved DSO; on the RMX side, focus on cash-and-carry model and reduced credit terms; inventory reduction from H1 due to seasonality depletion, lower fuel prices, and strategic buying; payable terms renegotiated with vendors.
• Fuel inventory shift: Linkage coal supplies, which had evaporated in H1 due to the power crisis, increased from November onwards, reducing the need for imported petcoke and coal. AFR consumption increased every quarter.
• Incentive accruals: ~₹190 crores accrued in FY23 (North ₹40 crores, East ₹150 crores). Rajasthan disburses quarterly and has been fully received; East is on accrual basis. Panagarh accrual stopped from April 2023 as a conservative decision; Mejia accrual had stopped years ago.

J. Krishnaswamy: "In the past calls I have been talking about the priority for the Company is to ensure that debt levels are to the tune of about 4,000 crores or thereabouts before we start expanding announcing the next phase of expansion. So, we continue to be committed to what we have been informing you in the quarterly calls and that does not change as we speak."

Capacity Expansion & Projects

• Bhiwani grinding unit: 1.2 MTPA cement capacity expansion in Haryana is ongoing, with civil and fabrication advancement on track, all major orders released, and deliveries progressing. First dispatch expected before H1 of the current fiscal.
• Clinker capacity enhancement: At Risda and Nimbol will be on stream within H1 of FY24. Risda Phase-1 and Phase-2 majority of work is done; higher capacity blowers to be connected during this year's annual shutdown, with full capacity expected by H2. Nimbol still under commissioning, expected by end of H1.
• Railway siding projects: On track at both Jajpur and Sonadih, with commissioning planned later in the financial year.
• AFR systems: Alternate fuel co-processing and pre-processing systems commissioned at Risda (both fully running) and Nimbol (co-processing commissioned, pre-processing shredder under commissioning). Chittor operates at high TSR of 35% in Q4 with no additional CAPEX.
• RMX expansion: Back-to-back commissioning of Guwahati and Coimbatore plants; Guwahati plant is the first all-women-led RMX plant. Company plans to add 12-15 new RMX plants in FY24 at a CAPEX of ~₹25 crores.
• Next phase of expansion: Primary focus is to expand in the North through the North facility, also considering Nimbahera site and Gulbarga. No plans to commence construction in the current quarter; management will update every quarter.
• East clinker utilization: After new additions of ~1.25 crore tons clinker by FY25, clinker capacity utilization in the East is expected at ~87%-88%, which should support price improvement.

Product & Operational Initiatives

• Premium product launches: Added 'Concreto UNO', 'Duraguard F2F', and 'Concerto Glyde' to the premium product portfolio during the year, reinforcing the value-over-volume strategy.
• Digital and brand campaigns: Launched engagement films for brand 'Duraguard', attracting more than 1 crore impressions with stakeholders.
• Operational excellence programs: Program LEAP for process-oriented performance improvement and Project DEN to digitally enable internal and external stakeholders rolled out.
• Sustainability push: POP (Protect our Planet) program launched as a companywide sustainability initiative, chaired by an Exco team.
• BOBY-N wagons innovation: Industry-first innovative solution deployed for clinker movement using BOBY-N wagons, typically used for aggregates and track ballast materials, to address wagon availability issues.
• Nuvoco University launched: Platform to upskill people via e-learning and classroom training.

J. Krishnaswamy: "The rate of carbon black is more or less trending at a much higher level than the old rates of AFR and hence the original arbitrage of Rs. 1 per million Kcal is kind of reduced to about 60, 70 paisa."

Guidance & Commitments

Key Metrics