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Earnings Call Analysis
Q2-2025 Analysis
Nuvoco Vistas Corporation Ltd
The earnings call highlighted a difficult macroeconomic landscape impacting cement demand, with several indicators showing a considerable slowdown. Year-to-date (YTD) data till August indicated a 19% year-over-year (Y-o-Y) decline in capital expenditure from the union government, along with declines from central and state public sector enterprises, ranging from 6% to 11%. This overall environment, compounded by a significant monsoon season, has negatively affected construction activities and the demand for cement.
In Q2 FY '25, the company reported revenues of INR 2,269 crores and an EBITDA of INR 229 crores. The sales volume dipped by 5% Y-o-Y. The price pressure was evident, with all-India cement prices declining by 4% quarter-on-quarter. The eastern and northern regions saw steeper decreases, with the eastern region experiencing up to 5% pricing pressure. The company struggled to balance volume and pricing, resulting in a blended realization per tonne drop of 2.7% from the previous quarter.
Despite these headwinds, the company focused on operational excellence, reducing power and fuel costs per tonne by 3%, achieving the lowest blended fuel costs in 12 quarters. Overall cost reductions were reported due to efficiency initiatives, including Project Bridge 2.0, which resulted in a Q-o-Q reduction of INR 50 per tonne of operational costs. The company is also working on enhancing its premium product offerings, with premium products making up a record 43% of the trade segment.
As of September 30, 2024, the company's net debt stood at INR 4,501 crores, down INR 233 crores year-on-year. The management indicated a focus on maintaining a debt target between INR 3,500 crores and INR 4,000 crores aligned with 2x EBITDA, aiming for continued debt reduction in future periods. The cyclical nature of working capital needs contributed to a temporary increase in net debt compared to March figures.
Looking forward, while the execution of government-announced infrastructure programs remains crucial, the management is cautiously optimistic about potential demand recovery. Key infrastructure allocations, like INR 26,000 crores for various projects in Bihar, signal future opportunities, particularly for the company’s substantial presence in the eastern market. However, the timing of this recovery is uncertain, heavily dependent on project rollouts.
The company reinforced its commitment to premiumization, a strategy aimed at improving margins by emphasizing high-quality products. Additionally, sustainability remains a core focus, with the company reporting an impressive emissions rate of 457 kg CO2 per tonne of cementitious materials in FY '24. This sustainability focus continues to be a critical aspect of the company’s strategy, adding value to stakeholders.
In summary, the company is navigating a challenging environment marked by declining demand and pricing pressures with a clear strategy of premiumization and cost management. While the macroeconomic conditions pose significant challenges, strategic investments in operational efficiency and a focus on innovative cement products may position the company favorably for potential recovery in the second half of the fiscal year.
Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '25 Earnings Conference Call of Novitas. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent development, information or events or otherwise.
[Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Ms. Madhumita Basu, Chief Investor Relations. Thank you, and over to you.
Thank you, Yashasvi. Good afternoon, everyone, and thank you for joining our second quarter of fiscal 2025 earnings conference call. Let me start by briefly discussing the broader macroeconomic landscape linked to cement demand, followed by a review of our performance for the quarter. The macroeconomic environment remained challenging, with key indicators signaling slowdown in capital expenditure. YTD August, union government CapEx dropped 19% Y-o-Y. Central public sector enterprises and other agencies capital expenditure fell 11% Y-o-Y in H1 FY '25, led by a slower pace of investments by railways and the NAGI. State government CapEx declined by 6% Y-o-Y in the first 5 months of FY '25, following a 40% surge in the previous year. States such as Bihar, Gujarat, Haryana, West Bengal and Chattisgarh witnessed 6% to up to 37% drop in state CapEx. [indiscernible] sales across top 30 Tier 2 cities fell by 30% in Q2 FY '25, while new launches declined by 34%.
The industrial landscape is also under pressure, with India's manufacturing PMI dropping to an 8-month low in September. And core sector output contracting by 1.8% in August, the first decline in 42 months. As you are aware, the union budget for FY '25 was presented only in July following the general election, with presidential assent received in August. This delay has led to a slower rollout of capital expenditures, particularly for government-funded infrastructure projects, including PMAY and [ Porudaya ] schemes. Furthermore, the prolonged and intense monsoon this year, while the wound for agriculture has hampered construction activity, delaying projects and dampening demand for materials are cement. Thus, the combination of delayed public spending and weather disruptions have created a tough environment during the fiscal .
Now let's turn our attention to our performance for the quarter, where we will explore our progress and outlook going forward. In Q2 FY '25, the company recorded revenue and EBITDA of INR 2,269 crores and INR 229 crores, respectively. Let me take a moment to break down some of the key elements behind these headline figures. Firstly, let me touch upon the volume which decline by 5% Y-o-Y in Q2 FY '25 attributable to the subdued macro environment outlined earlier. East and North region faced a challenging landscape marked by demand contraction. The subdue demand has not only affected sales volumes across the industry, but has also put significant pressure on price. All India cement rises experienced a dip of 4% quarter-on-quarter. Notably, the North region saw a decrease of 3%, while the East region faced a more pronounced drop of 5%.
In this scenario, Nuvoco has been working on a balancing act between volume and managing prices, resulting in a blended realization per tonne drop of 2.7% quarter-on-quarter which is lower than the industry average. We managed revenue per ton better than industry, primarily driven by our continuous focus on premiumization and geo optimization. Premiumization remains a key focus area for the company with premium product share in the trade segment reaching a record high of 43% in Q2 FY '25. Amongst the offerings, Concreto UNO, a premium cement variant is catering to the growing demand for high-quality construction materials in the East and is gaining traction.
Secondly, given the significant headwinds of weak demand and pricing pressure, the company remained focused on operational excellence. At this point, I'd like to provide an overview of the quarter's performance with respect to key cement cost elements. Power and fuel cost per tonne reduced by 3% quarter-on-quarter. The company has reached the lowest blended fuel cost in the last 12 quarters at 1.54 [indiscernible]. I would like to reiterate that Nuvoco power and fuel cost continues to be amongst the lowest in the industry. On the raw material side, Nuvoco continues to be better placed due to its long-term slack supply agreement. Distribution cost per tonne also declined by 1% quarter-on-quarter due to efficiency in operations. On box efficiency, we are happy to report that Project Bridge 2.0 is on track and has yielded a reduction of INR 50 per tonne in operating costs in Q2 FY '25.
We successfully commissioned new clinker [indiscernible]loading system at Sonadih, which enables enhancement of clinker dispatch via rail and is expected to gain in cost savings. [indiscernible] railway firing project is expected to be commissioned by Q4 FY '25. During this quarter, we also completed grid integration project across integrated units in Chhattisgarh enabling savings in Power post. Our net debt as of September 30, 2024, stand at INR 4,501 crores, which is a reduction of INR 233 crores on a year-on-year basis. Historically, we have maintained a declining credit trend in net debt as debt reduction remains a top priority for us. It is important to note that net debt at the end of September is higher compared to the March period due to cyclical impact of working capital requirements.
Regarding cement demand, as I mentioned earlier in my comments on the macroeconomic situation, the industry has encountered significant challenges due to slowdown in the overall CapEx environment which has impacted the infrastructure sector as a whole. Additionally, this situation was exacerbatedwith a prolonged and intense monsoon. Going forward, the execution of projects announced under the union budget will be a key monitorable for any demand revival. Notably, in the union budget 2024-'25, the government has outlined several programs for the infrastructure development, including development in Eastern region. For example, INR 26,000 crores have been allocated for various infrastructure development in Bihar. The Purvodaya scheme also focuses on the overall development of these two regions. This is promising for Nuvoco, given our substantial presence in the East. However, the timing and pace of demand recovery will depend on the on-ground execution of infrastructure and housing projects.
Additionally, sustainability of price improvement is contingent upon sustained demand growth. Meanwhile, Nuvoco is navigating these volatilities with resilience by prioritizing on premiumization, geo optimization, brand strength building and operational excellence. We are confident that with the main focus remaining on operational cost efficiency, we will also see the benefit when demand and pricing [indiscernible]. With respect to ready-mix and MDM business, focus on innovation continues. In ready-mix business, Ecodio-Turn1 insulated concrete which has reduced indoor temperature and Concreto UNO India's first hydrophobic concrete designed to protect against water damage was launched in Q1 FY '25 and have seen good momentum in Q2 FY '25.
The MVM business introduced zero-in roof sheet, a single component waterproofing coating that reduces surface temperatures by up to 10 degrees Celsius, ensuring cooler living spaces. Our commitment to sustainability is a wider aspect of our operations as evidenced by our position as one of the industry leaders in low carbon emission. Our audited figure for FY '24 shows an impressive emission rate of 457 kg CO2 per tonne of cementitious material. We believe that our sustainable practice will continue to add value to various stakeholders, including the communities we serve. With this, I conclude my opening remarks.
I'm joined here by Mr. Jayakumar Krishnaswamy, Managing Director, Nuvoco Vistas; and Mr. Maneesh Agrawal, our Chief Financial Officer. We are here together to answer your questions.
[Operator Instructions]
We'll take our first question from the line of Satyadeep Jain from Ambit Capital.
Just first question, I wanted to check on the entire debt situation. So maybe can you help us understand what is the debt repayment schedule? And are there any particular restricted covenants that standards? Just on the leverage, I wanted to get some idea.
Yes. Satyadeep, thank you for your question. So first of all, in terms of our debt repayment schedule, I guess, everything is on gross -- this is the first quarter after many quarters where, I guess, the overall industry has not performed well and then consequently [indiscernible] downside. But suffice to say that in terms of our payment schedule in terms of our covenants, I think everywhere we are on course. And as informed to investors in the past calls, as we are well on the way to kind of bearing the debt to just about less than INR 4,000 crore -- between INR 3,500 crores to INR 4,000 crores in the next 2 quarters.
But is there any main major bullet payment or something coming due in the next maybe 12 months or so?
I think that's there. I think we have to -- we have a payment coming in the next -- every year. I think we got payment in the next 10 months also, we've got payments coming. Certainly, I think we are well on the way to kind of ensure payments will happen when it happens. And even if the continued downward, not downward, somewhat muted demand is there, I think you always have the leverage of refinancing it and should not be a problem at all.
Okay. Secondly.
In terms of covenants, I guess, all the -- I think all of us know, these covenants, which are net debt to EBITDA, net debt to equity, security coverage, that all of them were in a published results have declared our quarterly results to the Board, the shareholders and to the other sanitary bodies that the most of them, we are comfortable with meeting all the requirements.
Okay. Secondly, I think last quarter, you mentioned that in certain particular micro markets, I'm not sure if I missed it in the prepared market certain micro markets, like West Bengal, Bihar, Chhattisgarh were, particularly margins were low and the company decided to walk away from certain low-profit micro market. Is that something that continued in this quarter? And you're still seeing that maybe in third quarter so far, these certain micro markets where you are deciding not to be aggressive in the [indiscernible].
In general, as Mita mentioned in the speech, one of the key strategies for the company, which I mentioned in the previous calls as well as certainly one of the priorities is to ensure value over volume. That's something which we have been doing. You'd asked this question 2 quarters ago, and we had a conversation discussion around the objective of company prioritizing value on volume as of now, we're still continuing -- as regards the market scenario, I guess this is a little bit of a indicate months or months or big demand much for the industry. But this year, specifically, the monsoon quarter has been little bit worst than the previous month quarters, at least in the last 6, 7 years, as seen in the industry. But certainly, as regards our strategy of walking away from any market. So let me just clarify to you. Certainly, I think we will never walk away from our market, but it is not kind of participate aggressively in the market to ensure that we push volumes in this key market where the pricing is pretty low.
But then if you really look at the market of Bihar, the historical high content sales has happened in the H1 of this period. We are continuously increasing our premium product share in East unless was in North, our Concreto, regular Concreto, Concreto UNO, Durauard microfiber, these numbers are all kind of trending at historical high levels in terms of percentage. This quarter, we had a 43% premium product sale for the company, which is the highest at least in the last 6, 7 years, I have seen the business. So prioritizing value over volume is important. But in certain markets where the pricing is really back, maybe certain West Bengal 1, 2, 3, there are certain markets where the freight cost is high, reach is expensive and markets are inherently not that -- certainly, we will not push volumes for the sake of pushing volumes.
[Operator Instructions] Next question is from the line of Kunal Shah from Dam Capital.
Yes. So just one question on this value over volume strategy. Now one thing that I'm not able to understand is given the dealer incentives are inherently volume driven in this business for implementation of the strategy and pushing the premium products, we'd be paying more commission to the dealers to offset for the volume loss, right? I mean.
Yes. I guess I do not go into all the nativities of the discount schemes for the company because I think that's something which we owned very closely, how do we run schemes and plan scheme. But if you really look at the various themes in the market, we've got monthly target, quarterly target, annual targets. So the targets are all kind of based on overall volume line. But within the overall volume mix scheme, we also have sub schemes based on direct -- sub schemes based on level of premiums sold. So those things are all added benefits to the dealers. So I guess when we incentivize dealers to kind of on this line, normally tendency for the dealers to sell some of these more, given the fact that market is a little bit tepid so there's a little bit of an added incentive for dealers to push premium or direct sale or [indiscernible]. So it is kind of helping them. So that's how we kind of structure the scheme.
Understood. But just one or maybe just putting it the other way. So let's say, selling these premium products incurring more expenses on the costing, packaging, advertisement, dealer discounts and taking some bit of hit on your potential operating leverage, but you're trying to sales, we'd still be making more absolute EBITDA versus a volume-led strategy.
I look at -- we have to look at it in 2 parts. One is when you push absolute volumes more. Then I guess the overall absolute EBITDA that the company will make will be dependent on the total amount of volumes which you said. But the fact that the market is a little bit tepid, one of the things for us is instead of participating in those markets where the contribution margin or the overall EBITDA is low, we prioritize pushing more premium in the more attractive market. And certainly, when we sell a Concreto or Duraguard microfiber or Concreto UNO the contribution margin for these products vis-a-vis a normal product in the market is much, much more and hence, the realization in it, EBITDA level for the company is better. That's one of the broad themes which you are looking at this point of time. But many cases, brands are so strong in a place like Bihar, we are selling more Concreto than ever before. In Rajasthan and Chhattisgarh, we're selling more Duraguard microfiber than ever before, actually. We have Duraguard microfiber and all trending at close to about 17%, 18% numbers. And Concreto is much higher. In fact, in Bihar, our Concreto volumes are close to 70% to 80%. That's the kind of volumes we're able to push. Hence, net-net, in states where we have a strong position on premium category, we end up getting more realization and better EBITDA margins.
Understood. And one last big year, you mean like mentioned twice on this market being tepid, and that gives some bit of cushioning. But in your experience, does the I don't know how to put it, but does the market share loss sort of aggravate during inflationary times of cement pricing?
I'm not going to quantify what's the kind of share loss, which is happening.
No, no, not some are quantification -- from [indiscernible] perspective is something that I wanted ask?
Yes, I think I would certainly admit that in these times, there's a option available for us to kind of go hammer in terms in pushing volumes in market but thereby not give up our space in the shelf. But given the fact that overall market growth itself is negative to neutral at this point of time and pricing power for the industry is almost the lowest in the last 5 years in this quarter. So we thought it sensible to kind of play the premium game rather than to push volumes.
Understood. And just 1 last bit. In terms of this October pricing because we are getting some sense that Pfizer actually declined in October in your Eastern micro market. So could you just help us how the trend is in October versus the September exit?
A little bit of next quarter. So for me to kind of tell anything about this quarter is not appropriate in this call. But suffice to say there has been an upward movement as soon as downwar movement. So it's kind of[indiscernible] . Literally, there is no firm trend which is there, which is kind of giving any great confidence to the industry that it will go one way up.
[Operator Instructions] We'll take our next question from the line of Shravan Shah from Dolat Capital.
A couple of questions, ma'am. First, a couple of data points lead distance for this quarter, trade share and road rail mix this quarter?
Okay. Road rate mix for quarter 2 is 60% road share and 40% [indiscernible] changes, but I'm [indiscernible] lead distance we are at 330 kilometers. We used to be 332 in Q1, 2 kilometers reduction in the overall lead distance in terms of trade mix, somewhat lower in Q2 than compared to Q1, we are at 71% [indiscernible] in Q2.
And is it fair to say, let's say, when we said that our prices have declined just 2.7%. So the nontrade prices would have declined much higher in Q2 versus the trade prices?
2.7% is the blend of trade and nontrade. And then if you see our my trade share is 71% nontrade is 29%. So you've got to find a mathematic algorithm to get obviously of 70% trade less than 29% nontrade. Obviously nontrade is a little bit more than trade, but the overall compensated.
Okay. Okay. And then given that for 1, we have seen a 4.8% kind of a volume decline -- so just wanted to understand the sense of second half. Is it possible that we can still see the full year will be a negative on the volume front?
Last year, H2 was not very great for the industry as such, actually. To that extent, I think the base number for case Q3 and January and February was not that great for the industry last year. So I'm really looking at a 4% volume growth for the full year. So we would get growth from now on post Puja, post, CheckPoja and Dussehra, so from November until November 15 till March, I guess, there should be a homestretch for the industry and certainly for us as well.
Okay. So that means more than a kind of a 10% growth that we are looking at in the second half?
Certainly, I'm targeting high single-digit growth only the coming October end and till 15th of November, we'll get a good sense of whether there is a little bit of a shift in momentum in the overall offtake as Mita mentioned in her speech, post the budget, a lot of schemes are announced a government, but they have not kicked off on the ground as of now, but I'm optimistic that once the Puja is done and then money has to flow into the market and construction will pick up and then overall -- cement demand will also go up. Plus the monsoon this year was a little bit severe. So that's something which has kind of adverse the impacted broad macro stuff, we look at the states of Bengal, Bihar, Chhattisgarh capital spend is not raised gather momentum change of government has happened. But from now on, things should improve. So overall demand uptake is -- will also improve maybe number onwards.
Got it. And on the CapEx front, so in 1H, we have done INR 220-odd crores and we previously said INR 300 to INR 400-odd crores kind of CapEx in the FY '25 and for INR 900 crores, INR 1,000 crores in FY '26. So that number holds.
Absolutely hold good wood. We may even be shy of maybe INR 420-odd crores in H2. So there are no new projects which are picking up. The big projects are basically the GU in Haryana or railway [indiscernible] grid integration project as well as AFR. All of them are completed or more or less the end of it. I'm not picking a very new project now till the March and just waiting for this year to tie over so that we start our expansion CapEx end of this fiscal early next fiscal.
And's the net debt, the INR 470 crores, obviously, it is a seasonality, which has increased in the 1H. So by end of this year, do we expect that it will come back to normal kind of a 4,000 odd level?
Yes. I just want to guide as part of our presentation, if you see September 21, we were 571; September 22, 5283, September 23, 4734; September 24, 4501 -- this is year-on-year every quarter, we are better off than the previous same quarter previous year. So end of March, certainly will test our this March number. So we should be we have a good position to reduce the debt.
So only then it you to ...
-- join by the queue, please, as we have other participants waiting. We'll take our next question from the line of Aditya Dasada from Motilal Oswal.
I just wanted to know, was this current net debt position? Has been made to was exceedingly strong reduction [indiscernible].
You have to repeat your question.
Please repeat your question.
Yes. So as I was mentioning, what is the company's current net debt position? And how much progress has been made towards achieving the target in that reduction?
Can you repeat the second part of your question, you said something after the companies net debt. What was the second part?
Sir, how much progress has been made towards achieving the targeted debt reduction.
Still not get how much what? Just repeat one more time a little bit slowly. I did pick up the second part of your question, please.
Yes. I'm telling that, I'm asking how much progress has been made towards achieving the target in a reduction.
Okay. Okay. Fine. I kind of make something of your question, if I'm not doing the relevant answer you can ask me again. Current net debt for the company end of September is INR 4,500 crores. And our stated objective is the [indiscernible] INR 3,500 crores to INR 4,000 crores to 2x of our EBITDA numbers. And the view currently I have for our company by end of this fiscal, we should be lower than last year's INR 4034 crores. So we should be thereabouts there by end of this typical. And in the long term, we are comfortable operating the company at INR 3500 crores to INR 4000 crores. 2x EBITDA is what we were comfortable running the company.
Okay. One more thing. How did -- how has the realization per tonne changed over the last quarter?
Yes. Realization per tonne, yes give me a second. Yes, the agitation for the company in Q2 is INR 5264 crore as against a Q1 realization of INR 5120.
Okay. Can you just let me know.
I made a mistake you looked at the wrong year. Our Q2 realization is INR 4843 as against [indiscernible] lower than Q1.
Okay. So let me know what are the factors basically that contributed to these changes? price, right price. Okay. In terms of cost lines, we are equal to or better than many competitors on line by line on the cost side. our fuel cost currently is trending at INR 1046 which is one of the lowest in the industry. We reduced fuel cost by INR 30 from Q1. Our distribution costs came down by close to about 1% over Q1 in terms of other expenditure, cost of material consumed, we have come down by 2%. So the cost banks are well under control, as Mita spoke mentioned in a speech great agenda is certainly benefiting us. So I'm really looking for a price movement in the market on the positive direction, we'll get the leverage on going forward.
I request you to join back the queue, please, as we have other participants waiting for the turn. We'll take our next question from the line of Rajesh Ravi from HDFC Securities.
Just wanted to check the last legal expansion, what is the progress on that?
Yes. Thanks, Rajesh.
We did clicker expansion in 2 sites. One was in Riza.that's done and dusted and we have the capability to take a clinker to 11,500 tonnes and in Nimbo, which is in North, we had taken the clinker expansion to 6,000 PPD. Happy to report that we have already touched 5,700 tonnes per day throuhput so is under shutdown right now. Once the shutdown is done by, I think, January, February, or Q4 this year, our target is to get to 6,000 tonnes. Overall, thinker capacity for the company would be 28,000 tonnes clinker in EAst per day and in North on Eastern 4 million tonnes in North.
[indiscernible].
Okay. So as a broad field expansion. Okay. As informed in the previous call and looking at an expansion for the company happening end of this fiscal or early part of next fiscal -- so the technical work is all happening currently and then sometime end of this year, early next year, we should start our mix expansion.
And how much there we take for that
Rajesh, I'm sorry, I just missed the last sentence, please? Can you repeat it.
How much time it will take for the listing once you start over.
I'm looking at close to about 18 months for the line commission.
We'll take a follow-up question from the line of Shravan Shah from Dolat Capital.
You have mentioned that we have seen a INR 50 cost reduction through the project bridge in -- so this is Q-o-Q we are talking about and how much more further reduction we are looking at in the second half?
So Shravan, bridge 2 agenda just to recall the major edge -- we were looking at the grid indication project covered in my speech. -- slack cost reduction, distribution cost reduction. So these projects are well on track against a budget of on which we had shared earlier. Page 1, we are already trending at -- we hope to see some upside on this figure. In H2, we should be looking at about 75 per tonne given the pace at which these various projects.
Okay. Got it. And just to check this called expansion. So previously, we have mentioned 2 to 2.5 MTPA linker -- and in terms of the branding level, broadly, it would be a 3.5 million, 4 million tonnes that 1 can look at? And broadly, in terms of the CapEx, it would be INR 1,500 crores, INR 2,000 crores kind of Capex.
Yes, Shravan. No specific update over what we shared in the last call.
[Operator Instructions] I would now like to hand the conference over to Ms. MadupitaBasu for closing comments. Over to you.
Thank you, Yashesvi. In conclusion, I would like to share -- we are cautious about the demand outlook and pricing dynamics in the cement industry. While the union budget has announced an infrastructure investment of 11-plus crores, annual disbursement of funds and project execution on the ground remains the key monitorable. Despite these challenges, our strategic priorities will continue to focus on premiumization geo mix optimization, enhancing fuel mix efficiency, strengthening our brand and maintaining focus on cost excellence. Our Investor Relations team will remain available for any further clarification required. I take this opportunity to wish you all a happy Diwali and a prosperous year. Thank you for being with us today.
Thank you, ma'am. On behalf of Novaco Vistas Corporation Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.