Broker's call: Nuvoco Vistas (Buy)

Updated on: Sep 20, 2021

HDFC Securities

Nuvoco Vistas (Buy)

Target: ₹ 827

CMP: ₹539.2

We initiate coverage on Nuvoco Vistas with a Buy rating and a target price of ₹827 (11x its consolidated Sep’23E EBITDA). The company has grown inorganically to become the sixth largest cement company in India and has consolidated its leadership position in the east.

A large retail presence in the high-growth east region buoyed its operating margin during FY20-21. It should further expand to INR 1,177/MT in FY23E, riding on cost initiatives and synergy benefits from the integration of the recently acquired NU Vista (erstwhile Emami Cements).

The recently concluded IPO has also firmed up Nuvoco’s balance sheet. We expect strong cash flow to help accelerate the company’s Karnataka expansion plan. Asset sweating and leverage reduction should bolster return ratios. Nuvoco’s leverage ratio got stretched, owing to the two mega acquisitions. However, with large ₹1,500 crore equity infusion from the just concluded IPO, strong operating cash flow outlook, and lower Capex outgo, we estimate its net debt/EBITDA to cool off to below 1x FY23E onwards vs nearly 4x during FY17-21. We like Nuvoco for its balance sheet turnaround after two mega acquisitions and robust operating performance, led by structural revenue and cost triggers. In our view, Nuvoco’s continued strong performance should drive valuation multiple rerating.

Published on September 20, 2021
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