Nuvoco Vistas Corporation (NUVOCO) has emerged as the fifth largest cement group in India and is amongst top-3 in East region with 23.8mnte capacity (as of Sep’21), post 8.3mnte acquisition of NU Vista (earlier Emami Cement) in Jul’20. We believe cost synergies from the said acquisition, improved cost efficiencies, higher premiumisation coupled with scale benefits and operating leverage may drive ~30% (Rs 265/te) blended Ebitda/te rise to Rs 1,180/te over FY21-FY24E, with industry-leading 22% Ebitda CAGR likely over FY21-FY24E.
Valuation at 8.6xFY24E EV/E or $125/te adequately factors in concerns around higher East region concentration, higher leverage and lower profitability vs peers, in our view. As NUVOCO narrows its Ebitda/te gap vs peers, valuation gap may shrink. We initiate coverage on the stock with a Buy rating and target price of Rs 645/share (11x Sep’23E EV/E). Key risks: lower demand/prices, and high concentration (~70%) in East region.
Acquisition of Nu Vista and expansion to drive 12% volume CAGR over FY21-FY24E: Ramping up utilisation in North (with launch of Double Bull), 1.5mnte grinding unit expansion at Jojobera, Jharkhand, and debottlenecking at various locations coupled with full-year consolidation of Nu Vista would drive 40% volume growth to 22.6mnte by FY24E from ~16mnte in FY21.
‘Net debt to Ebitda’ to fall <2x by FY24E: Net debt is likely to shrink to Rs 46 bn by FY24E from the current Rs 57 bn even as we factor in Rs 36-bn capex over FY22E-FY24E (including Rs 23 bn for the proposed Rs 30 bn Gulbarga expansion).