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ICICI Securities
Nuvoco Vistas (Buy)
Target: ₹645
CMP: ₹528.6
Nuvoco Vistas Corporation (Nuvovo), led by Dr Karsanbhai Patel Nirma group, has emerged as the fifth largest cement group in India and is amongst top-3 in East region with 23.8 million tonne capacity (as of September 2021), post 8.3 mt acquisition of NU Vista (earlier Emami Cement) in July 2020. We believe cost synergies from the said acquisition, improved cost efficiencies, higher premiumisation coupled with scale benefits and operating leverage may drive nearly 30 per cent (₹265/tonne) blended EBITDA/te rise to ₹1,180/tonne over FY21-FY24. Net debt is likely to shrink to ₹4,600 crore by FY24 from the current ₹5,700 crore even as we factor in ₹3,600 crore capex over FY22-FY24 (including ₹2,300 crore for the proposed ₹3,000 crore Gulbarga expansion).
Valuation at 8.6xFY24 EV/E or $125/tonne adequately factors 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, the valuation gap may shrink. We initiate coverage on the stock with a Buy rating and target price of ₹645/share (11x September 2023E EV/E). Key risks: lower demand/ prices, and high concentration (nearly 70 per cent) in the East region.
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