Nuvoco Vistas Corporation Limited (NUVOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '25 Earnings Conference Call of Nuvoco Vistas Corporation Limited. 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 a 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 Chhattisgarh 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 ascent received in August. This delay has led to a slower rollout of capital expenditures, particularly for government-funded infrastructure projects, including PMAY and Purvodaya schemes. Furthermore, the prolonged and intense monsoon this year, while the good for agriculture, has hampered construction activity, delaying projects and dampening demand for materials such as 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 subdued demand has not only affected sales volumes across the industry, but has also put significant pressure on price. All India cement prices 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 tonne 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 per Mcal. 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 slag supply agreement. Distribution cost per tonne also declined by 1% quarter-on-quarter due to efficiency in operations. On cost 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 wagon loading system at Sonadih, which enables enhancement of clinker dispatch via rail and is expected to gain in cost savings. Odisha railway siding 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 cost. 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 exacerbated with 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 2 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 cycles turn. With respect to Ready-Mix and MBM business, focus on innovation continues. In Ready-Mix business, Ecodure Thermal Insulated Concrete, which has reduced indoor temperature and Concreto UNO Concrete, 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 MBM business introduced Zero M. Roof Shield, 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 stand out? 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 course. This is the first quarter after many quarters where, I guess, the overall industry has not performed well and then consequently all the players have added a little bit of a 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. Jaya, secondly, I think last quarter, you mentioned that in certain particular micro markets, I'm not sure if I missed it in the prepared remarks, certain micro markets, like West Bengal, Bihar, Chhattisgarh, 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 those markets?

In general, as Mita mentioned in her 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 to the market scenario, I guess this is a little bit of -- in any case monsoon months or weak demand months 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, I have seen in the industry. But certainly, as regards to 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 [indiscernible] 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, Duraguard 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 bad, 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 great, 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 wanted very closely, how do we run schemes and plan scheme. But if you really look at the various schemes 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 these lines, there's 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] dispatches. 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, which still be making more absolute EBITDA versus a volume-led strategy.

It really 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 and hence the EBITDA level for the company is better. That's one of the broad themes, which we are working at this point of time. But in any case, our 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 bit here, you 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 from a quantification, from a trend perspective is something that I wanted to understand.

Yes, I think I would certainly admit that in these times, there's a option available for us to kind of go hammer and tongs 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 one last bit. In terms of this October pricing because we are getting some sense that prices have 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 well as downward 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 rail mix for quarter 2 is 60% road share and 40% rail share. Second [indiscernible] some 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 as compared to Q1, we are at 71% range as against the 72% in Q1.

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 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 [indiscernible].

Okay. Okay. And then given that for 1H, 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 at least 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, Chhath Puja 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 by the 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 adversely impacted. From broad macro stuff, we look at the states of Bengal, Bihar, Chhattisgarh, overall capital spend is not great to gather momentum, change of government has happened. But from now on, things should improve. So overall demand uptake is -- will also improve maybe November 15 onwards.

Got it. And on the CapEx front, so in 1H, we have done INR 220-odd crores and we previously said INR 300 crores to INR 400-odd crores kind of CapEx in the FY '25 and for INR 900 crores to INR 1,000 crores in FY '26. So that number holds?

Absolutely holds good. 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 siding in Sonadih, railway siding in Jajpur and then the grid integration project [indiscernible]. 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 tide over, so that we start our expansion CapEx end of this fiscal, early next fiscal.

And's the net debt, the INR 470-odd 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 [ INR 571 crores ]; September '22, INR 5,283 crores, September '23, INR 4,734 crores; September '24, INR 4501 crores. This is year-on-year every quarter, we are better off than the previous same quarter of previous year. So end of March, certainly will test our this March's number. So we should be -- we have a good position to reduce the debt.

So only then it you to ...

We request you to join back the queue, please, as we have other participants waiting. We'll take our next question from the line of [ Aditya Desarda ] from Motilal Oswal.

I just wanted to know, what is the current net debt position? And no progress has been made towards achieving the targeted [indiscernible] reduction.

You have to repeat your question, Aditya.

Am I audible now?

Yes. Please repeat your question.

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 debt 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 didn't 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 debt reduction.

Okay. Okay. Fine. I kind of make something of your question, if I'm not giving the relevant answer you can ask me a repeat. Current net debt for the company end of September is INR 4,500 crores. And our stated objective is we should pay the debt to INR 3,500 crores to INR 4,000 crores, 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 4,034 crores. So we should be thereabouts there by end of this fiscal. And in the long term, we are comfortable operating the company at INR 3,500 crores to INR 4,000 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 realization for the company in Q2 is [ INR 5,264 ] as against a Q1 realization of [ INR 5,120 ].

Okay. Can you just let me know.

I made a mistake, I looked at the wrong year. Our Q2 realization is [ INR 4,843 ] as against [ INR 5,026 ], INR 180 lower than Q1.

Okay. So let me know what are the factors basically that contributed to these changes?

Price, right price. 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 1,046, 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 lines are well under control, as Mita mentioned in her speech. Grid 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 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.

Am I audible?

Yes.

Is it better now?

Yes.

Just wanted to check this North clinker expansion, what is the progress on that?

Yes. Thanks, Rajesh. We did clicker expansion in 2 sites. One was in Risda, that's done and dusted and we have the capability to take a clinker to 11,500 tonnes and in Nimbol, 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 throughput, so [indiscernible] 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. Overall, clinker capacity for the company would be 28,000 tonnes clinker in East per day and North 12,000, 9.5 million tonnes in East and 4 million tonnes in North.

[indiscernible].

Okay. So as a broad field expansion. Okay. As I informed you in the previous call, I'm 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 next expansion.

And how much time it will take for that [indiscernible] to complete?

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 the project?

I'm looking at close to about 18 months for the line to be commissioned.

We'll take a follow-up question from the line of Shravan Shah from Dolat Capital.

Ma'am, you have mentioned that we have seen a INR 50 cost reduction through the Project Bridge in 2Q. 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 is just to recall the major edge. We were looking at the grid integration project covered in my speech, slag cost reduction, distribution cost reduction. So these projects are well on track against a budget of INR 50 per tonne which we had shared earlier. Page 1, we are already trending at INR 50. We hope to see some upside on this figure. In H2, we should be looking at about INR 75 per tonne given the pace at which these various projects are moving.

Okay. Got it. And just to check this Chhattisgarh expansion. So previously, we have mentioned 2 to 2.5 MTPA clinker. And in terms of the branding level, broadly, it would be a 3.5, 4 million tonnes that one 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 INR 11-plus lakh crores, actual 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 New Year. Thank you for being with us today.

Thank you, ma'am. On behalf of Nuvoco Vistas Corporation Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.