Nuvoco Vistas Corporation Limited (NUVOCO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call hosted by Nuvoco Vistas Corporation Limited. [Operator Instructions] I now hand the conference over to Mr. Bishnu Sharma, Head of Investor Relations from Nuvoco. Thank you, and over to you.

Thank you, [ Atisi ], and good evening, everyone, and welcome to Nuvoco's Q1 FY '27 Earnings Call. Thank you for joining us today. To begin with, I would like to mention on our performance for the quarter first. We have had a strong start to the year, delivering higher business performance. Volume grew by 5% Y-o-Y to 5.3 million tonnes and EBITDA increased by 7% Y-o-Y to 572, marking the highest ever first quarter volume and EBITDA of the company. The performance is on the backdrop of the geopolitical tension which prevailed during the quarter, which had a capturing effect on business environment in which we operated. The West Asia conflict, which drove up energy, packing bags and other raw material prices was not the only challenge during the quarter. We also faced logistical content with [indiscernible] rate being prioritized for the power sector and [indiscernible] intense end product [indiscernible]. Further, one of our key states in the East was undergoing steel elections during the period. Net-net, we performed well in Q1 FY '27 despite the macro headwinds. The performance reflects resilient execution, supported by continuous focus on cost discipline and operational capacities. To specifically highlight, fuel cost was contained at 1.52 per [ mL ], which remain within the guidance range communicated in the last quarter conference call. This was achieved through few mix optimize and quantity [indiscernible] of team. Coming to Vadraj, I'm pleased to say that we have inaugurated 2 million tonnes per annum of grinding capacity at Surat on 11th July 2026 ahead of schedule. This represents a defining milestone in the history of the company, signifying our first ever capacity expansion in the Western region. This achievement is a strong testament to the company's project execution capability. It will not only enable a significant expansion of our market presence in the West, but also strengthen our position in the North by releasing much needed capacity at our [indiscernible] as for the northern market. The clinker and the grinding unit has cut are also progressing well and remain on track for phased operationalization from Q3 FY '27. Let me highlight some of the key developments and progress made on this unit so far. As such, for the clinker unit deliveries of all major equipment and spares have been completed and execution across all sections remain firmly on track. Reconditioning of coal and raw mills VR gearbox has been completed. Kiln rotation is also complete and is now ready for prelining. We will complete overall of all major equipment and initiate trial preparation within Q2 FY '27. As far as grinding in [indiscernible] is concerned, civil works are underway and progressing as planned. Major [ RNCT ] work in taking plant open building has been completed. Civil works are target for completion by Q2 FY '27, enabling the release of funds for mechanical and electrical installations. On the [indiscernible] cuts, outlook has been completed, and [indiscernible] zipper lane are current in progress once operational residing is expected to enhance logistical efficiency. Moreover, we have also commenced work on the full cement terminal, Sachana in Gujarat, which will also have a dedicated residing. This facility started to be operational by Q2 FY '28, and we let assess strategic distribution hub, helping us strengthen our presence and further expand our reach across the Gujarat market. Our East operations, we continue to progress on our plan to add 4 million tonnes per [indiscernible] of capacity in phases until FY '28. Looking ahead, we continue to hold a positive outlook on cement demand, which stayed healthy throughout the quarter. Just to highlight, central government CapEx increased by 13% Y-o-Y to INR 2.5 lakh crore in the quarter-to-date period through May [ 2026 ], already accounting for nearly 20% of the full year planned CapEx. As highlighted earlier, both central and state governments are targeting CapEx growth at [ 20% ] and 15%, respectively, for FY '27. Accordingly, infra spending led by government CapEx and element housing projects is expected to provide sustained support to demand. From a geopolitical standpoint, we remain watchful and continue to monitor the situation closely. If the geopolitical institution stabilizes and the context deescalate, we are cautiously optimistic about navigating the coming quarters as well. As demonstrated in Q1, we proactively work on an internal level to deliver strong cost and operational performance. We remain confident in our ability to manage through headwinds. Regardless of how the scenario unfolds, we remain firmly committed to driving cost efficiencies and operational excellence across the business. We will continue to pursue with same rigor through prudent procurement, continued cost optimization and ongoing improvement in supply chain efficiency to deliver resilient performance going forward. With that, I conclude my opening remarks. I'm here with Mr. Jayakumar Krishnaswamy, Managing Director of Nuvoco Vistas; and Mr. Maneesh Agrawal, Chief Financial Officer. We are happy to answer any questions you may have. Thank you, [ Atisi ]. Over to you.

[Operator Instructions] We'll take our first question from the line of [ Siddharth Mehrotra ] from Axis Capital. Mr. Mehrotra, I'm sorry, sir. Can you just repeat your question again?

Can you hear me now? Am I audible?

Yes, yes.

Sir, I just wanted to check, since the Surat plant is now online...

I can't -- you have to put it -- don't put on speaker phone, please. Take the handset and talk very, very stable.

Is it better now?

Okay. Do you need to try?

Sir, just wanted to check, sir, given that our Surat plant is now online, what sort of volume cadence are we looking at for this year? And secondly, given the fact that our clinical capacities are yet to come online, what will be the source of clinker for this capacity?

Okay. If you remember in all the previous calls, we have very clearly explained the sequence of start-up with Surat coming in Q2, Q3 this year. And then the clinker capacity in touch comes in Q3, Q4 this year, and then on the WHR and the welding unit later private setting. So right from the beginning, it was clear that when we start Surat, we'll have to get clinker from [indiscernible] not from Kutch. So -- and currently, before Madras started, we renovated close to 1 million tonnes in Gujarat, which came from [indiscernible]. So what's going to happen is the 1 million tonne anyway will come from [indiscernible] in the balance period and also until such time -- given we go all the way of about 1.4 million, 1.5 million tonnes in annual basis from Chittor and Nimbol plant, the balance -- our target is that we complete Q4 this year. Our sale in Gujarat will be anywhere close to put 2 million tonnes in annual sales. So basically, we're about 1.6, 1.7 lakh tonnes per month in the Q4 of this year. It should maybe about 13,000, 14,000, 15,000 tonnes more than the average run rate, which you're selling currently in Gujarat. For that, we need clinkers, and those clinkers will come from our sub [indiscernible] cluster. And that's how even the first dispatches are made through clinker, which is now from [indiscernible] cluster. I can't move clinker from Chittor into Surat because that clinker is needed for the north market. And we're also working at some of the options like bartering with other companies, whereas we can give some clinker needs to also pick up clinker from North, which will be much more economical than moving all our clinker from cluster to cluster into Surat. So net-net, at the initial -- till such time cut comes on stream, which will be -- earliest will be January this year, maybe 1 -- give or take 1 or 2 months [indiscernible]. Start of fiscal FY '28, we'll have cost clinker coming in Surat. So for the balance, currently 1.5 million tonnes sale, and Q4, 2 million tonnes sale, therefore, incremental sales like will come from [indiscernible].

Understood, sir. So my understanding is that on an incremental basis, we will perhaps do close to 1 million tonnes extra in the [ drop ]. Is that correct?

Currently, between 1.3 million, 1.4 million, so balance 0.6 million tonnes. So we will have extra sailing Gujarat [indiscernible] since we have launched the product and then covering most of Gujarat now. Q4, we will sell 2 million tonnes analyzed rates. So the incremental volume [indiscernible].

Got it, sir. That's very clear. Secondly, sir, just wanted to check, our East debottlenecking plants seem to be sort of facing some delays. From what I recall, last time we had CPO for 2 of our plants, around 2 MTPA capacity, but there seems to be no update regarding that. Sir, anything you want to add to that?

No, we have debottlenecking happening in [ Jajpur, Jojobera, Kanaga and Arasmeta ]. So last time in the call, I said we had got our CPO for our [indiscernible] and Jojobera facility. I think those 2 plants are almost done. And Jajpur is a place where we -- if something called an MAPL certificate which you have to get because the new capacity increases, less than 50% of the installed capacity, then you roll go through the normal VC route. So you get through an empty route. So there, I think the Jajpur thing is currently underway. Arasmeta, the technical design is completed. We have modules at the commercial conversations about government procurement and rest of the civil ordering is being done. So by the time we complete this fiscal, we should be ready on all core front. Suffice to say that these capacities which we are install commissioning and expanding a need was not needed to sell products for the fiscal FY '27. It will be needed in fiscal FY '28 only because with the current sales plan and the current ambition for the company in fiscal FY '27, we have adequate capacity in all our branding stations, just that we need more flexibility for statewide capacity. And that's the reason why we are not kind of pursuing a rigorous pace of [indiscernible]. But by the end of the fiscal '27, 3 plants will be fully commissioned and ready for volumes for FY '28. Arasmeta should be on by end of this fiscal '28 and will [indiscernible] fiscal '27 and available in Q1 FY '28. So those plans are also on stream. So I just want to assure all of you that there is no delay because of modification involved or really minor modifications, not major modifications, overall CapEx cost was pretty less for all this plant, just that the timing and the pacing is there. Right now, we have not addressed for capacity. So I'm not kind of going really -- pursuing better [indiscernible] will happen in the next 6 to 8 months.

We'll take our next question from the line of Amit Murarka from Axis Capital.

So just wanted to understand the pricing and cost a bit better. We see that you had quite a strong pricing improvement in the quarter. But at the same time, like there was some moderation in the Y-o-Y growth [indiscernible] roughly 4%. So wanted to understand like was there also a change in mix within trade and nontrade, which happened in the quarter? Or is the pricing gain attributable purely to market level price hikes?

Sir, you're on mute.

Sorry, I was on mute. So thank you for the question. Last time when we met was in the conference call in April and that was when the NPL Middle East was ranging and then one of the big things which was happening in the industry as well as for our sales force, we had to do a price correction to [indiscernible] measures. So which, overall, if you look at the April month and then subsequently the full quarter -- for the quarter, we had a great price increase, which increased more, but then overall, it got tempered. But for a full quarter level, we got a INR 10 per bag increase in trade and INR 20 per bag increase in non-trade in the quarter for NE. And in North, again, we got about INR 10 per bag in trade and about INR 10 crore, INR 12 in non-trade. So throughout the quarter, if you look, we had a price increase of close to about -- what's this again, the previous [indiscernible]?

The bar chart.

Overall, we got an overall price increase of close to about INR 240 in the entire quarter. But the -- one more unique thing is when we went to the end of the quarter, we exited June quarter -- sorry, June quarter with a price increase more than the average for the quarter. And that kind of stay put as we started the month of July. I will also try and give a detailed breakup of the realization and the cost impact. Overall, if you see our realization has gone up by close to about INR 320 Q1 versus Q4. That came mostly through 3 reasons. One was the [ annuality ] increase. Second was the geo mix, which we played in key markets of [ Chhattisgarh, Rajasthan, Missan and Chakan ] and also the price increase in the last spring days of March kind of give select to the first month of the quarter. Hence, we got a [indiscernible] increase of 320. But this INR 320 brought kind of set up by cost inflation, which I mentioned during the previous call. The first cost increase happened for the quarter Q1 versus Q4. Power and fuel went up by approximately INR 14 per tonne. Raw material costs also went up close to about INR 35, INR 40 per tonne. I think that I mentioned about the granular issues as soon as the capacity shortage in the [indiscernible] issue from Bangladesh has overall increased the packing bag cost. That also increased with close to INR [ 50 ] per tonne. And the volume impact from Q4 to Q1 resulted in a little bit of a fixed cost deleverage of close to INR 30, INR 40. And other one which also impacted the quarter 1 was the distribution cost -- bag cost for the company like-for-like from Q4 to Q1 went by close to INR [ 50 ], largely coming out of suboptimal movement because of the diesel shortage and [ drug ] shortage in certain states. And also due to the fact that the railways stopped supplying adequate number of rigs due to cold movement, and we resulted moving clinker by road. Net-net, realization happened INR 320 and the cost increase was close to about INR 270, which reflects the EBITDA impact of close to INR [ 190 ]. That's been the story of Q1 when compared to Q4.

Got it. But pricing, just to understand better, I think you mentioned that you -- your realization improvement was better than the market. That was a function of geo-mix optimization as well as a more trade in the mix or how is it?

Three things. One is obviously pricing has happened. That's something -- that is the biggest lever is the pricing is close to about INR 10 in trade and about INR 15 in non-trade. So that's kind of the biggest impact on the overall relative improvement. Second one is, obviously, we are a premium player with increased sale in country to [indiscernible] microfiber. I'm happy to report to all of you that both these brands have become 1 million brand now. So we are very happy that in a very short span of time, these 2 brands have now become annualized 1 million tonne sales added to contribute which is close to about 3.9 million tonnes. So we have safely say that with 4 million tonnes of concrete, 1 million of microfiber, [ 1 ] million of [indiscernible], we are close to about 5 million tonnes of premium and super premium products. So that's the second reason. The third one was the impact of positive effect to increased sales in Chhattisgarh, [ Chakan ] and Rajasthan and [indiscernible] its markets for us. So 3 reasons. One is price, second is premium, third is geomix.

[Operator Instructions] We'll take our next question from the line of Satyadeep Jain from AMBIT Capital.

So first, I wanted to understand, you discuss all the line items on the cost side. Where the fuel costs have been? What kind of additional inflation do you see in 2Q end? Would that be the peak? And you start seeing moderation? Just trying to understand fuel inventory and bag packaging costs in all our...

Satyadeep, just what basis are you asking about the fuel base for the company, specifically?

No. You said there has been inflation...

If you can speak a little bit louder. I'm missing a few words in your question please.

Yes, yes. So you mentioned the fuel consumption cost was 1.53. Where the fuel costs have trended over the last few months? Where do you see fuel and packaging and all these costs? Has there been improvement on the rail evacuation? Just trying to understand what kind of impact do you see into?

Yes. I'll be able to give you the reasons. So I'd have to split the whole debt into east operations of [ Nuvoco ] and north operations of Nuvoco. North operations of Nuvoco is largely pet booked -- pet booked prevent, with 23%, 24% of AFR and more such [indiscernible] number facility. Whereas on East operations, we have close to about 30% of petro and balances domestic open market. [ Poland ] linkage, Poland, very small amount of AFR to the tune of both maximum is at 10% overall [indiscernible]. That's how we have been operating till this crisis happened. But this -- every crisis is an opportunity for us to look into the operations and leave it at entire assumption. So what we did in Q1 was 3 things we did. One was questions are very principle of using pet coke. And hence, our teams did a wonderful job by curtailing the use of pet coke in not from excess of [ 50%, about 42% ] number. And for the first time, we could move domestic open market coal from charters and clusters to a Chittor plant and also from [indiscernible]. Even though the normal rate we could have used this [ school ], but because the heightened value price of at [indiscernible] needs to become viable and hence, we kind of moved material from [indiscernible] and that's on a North pet coke consumption reduced from over 50% to 40%. So that's the quarter not [indiscernible]. When it came to east, we have the [indiscernible] factory, [ Sunadi ] and Arasmeta. In all these 3 plants, we had sector consumption excess of about 30% was the number. And during this quarter, we were lucky enough to contract coal from Eastern [ Polaris ], which is called [indiscernible], which -- whose ash content is much better than the other linkage [indiscernible] content. I think our purchase team did a wonderful job. So by using the specific variety of coal, which comes from West Bengal, [indiscernible] percent is much lower than the Chhattisgarh coal. And the number 2 thing which we did was we started adding a little bit of sweetener in our [indiscernible] factory. Sweetener is again a better quality limestone. And so we had started using better quality limestone [indiscernible] and LSS is much better in our [indiscernible] scale and also in our solar [indiscernible]. So by increasing sweetener usage, increasing the [indiscernible] coal, we successfully brought down the pet coke consumption during the quarter. So much so in Arasmeta, as we speak, we are operating at 0 pet coke consumption. And in [indiscernible] factories, some close to about 37% the pet coke consumption, we already come to about 25% pet coke consumption. Because the cost of cost increase due to sweetener is much lower than cost increase -- cost reduction coming out of pet coke. So this was a big agenda which we do in our Chhattisgarh cluster and not worth getting linkage full domestic open market [indiscernible] not factoring. All these kind of contributed to the overall fuel costs being capped at [ INR 1.52 per million ] [indiscernible].

And sir, how do you look at the trajectory, given you may have consumed pet coke, which has lower cost and the categories are moving up. So mainly on packaging and fuel cost, and also railway has there been an improvement in [indiscernible]. Just trying to understand what happened in 1Q. Just trying to understand how do you look at the trajectory in 2Q, 3Q?

Okay. So looking at what we've faced in -- going forward in quarter 2, first would be fuel. I think we have adequate inventory of pet coke for the end quarter at similar cost levels. So my fuel inflation is not likely to go up by big numbers. I won't be exactly able to tell whether it will be 1.52 or 1.55, but it's not to spoil my game importers. So that's the first one. The second thing is about packaging bag. I think packaging bag, the peak in Q4 and Q1 with higher demand and West Asia also fueled the granule price. I think landing prices have started coming down and hence the -- and also with the demand also will come down due to monsoons. So bag availability should not be a problem. I would -- the increase in bag, which happened close to about INR [ 50 ] in Q1 versus Q4, I expect cooling off of the price around INR 20, INR 25 in Q2 versus Q1. So that price will come down. [indiscernible] is more or less kind of get capped. And the third one, which kind of hit us negative was the nonavailability of rates, and we ended up moving [indiscernible]. Here again, after 15th of July, once the monsoon sets in, I think the full field will get flooded and it will be very -- it will not be possible for all to move and also the overall power demand in the country will come down with monsoon setting in. Hence, coal, which will be shipped for the government mandate of moving coal from coal fields to the power plant will also taper down. And already in the last 1 week, we typically get about [ 4 rigs ] per day of [ income ] moment. And it kind of comes down to 3.2, 3.3 in quarter 1. We already started getting in the last 1 week, 4 rigs per day. And going forward from now till the next 2 to 3 months to be, certainly 4 rigs per day and we'll stock be in our branding today. And last but not the least, the link season discount will also kick in from 1st of August. And that's a welcome sign. And this time, the government of India has said, even for clinker moment, there's going to be linkage and discount unlike only for cement in the past. So we'll get a benefit of [indiscernible] come down, availability of rates will eliminate our moment of clinker by road. And then packaging bag will kind of cooled off, fuel cost will be almost in the same place. So technically, we are looking at cost lines more or less same. The only thing which will be adverse in Q2 when compared to Q1 will be the power and fuel cost. Fuel remains the same. Power cost will go up by close to about INR 40, INR 50 for time simply because this is a shutdown time when we have to have 2 of our skills going down in the next 2 months, and also all our VRMs and volumes will also go for shutdown in the next 2, 3 months. So there is a decrease in power costs, fuel costs will be kind of cap. Let's say, there will be increased power due to cost by some INR 30, 40 per tonne.

Just one more question on...

Satyadeep, I request you to join back the queue, please, as we have participants waiting for their turn. We'll take the next question from the line of Tejas Pradhan from Citigroup.

Sir, was there any change in the lead distance this quarter versus last quarter?

Very [indiscernible]. I think last quarter, we were close to about 325 GMs. Right now, it's about 320 tonnes, 328. It's not much of a difference in [indiscernible]. Just that the announced [indiscernible] was 62 road and 38 rail. In Q4, it's about 54, 46 right now. [ 64, 36 ], sorry.

Okay, sir. And on the premium product share and share of trade sales for the quarter?

Okay. So premium, we are about -- Q1 versus Q4 was peaked at 44%. This quarter, premium is 42%. Trade mix continues to be the same, 75, 75, so not much of a change in trade mix.

Okay. Understood. And lastly, on the net debt numbers for the quarter?

Net debt, we ended the quarter with [ 4 5 9 5 crores ] and corresponding quarter last year was [ 5 2 7 4 ] [indiscernible] INR 600 crore reduction from last June '25 to June '26.

Next question is from the line of Shravan Shah from Dolat Capital.

Sir, just to get a couple of things. Sir, you mentioned that the exit June, our cement prices or the realization is higher versus the 1Q FY '27 average. Can you quantify, will it be a kind of INR 5, INR 10 per bag higher?

We reported quarter 1 versus quarter 4 was close to INR 320 realization improvement. So which would mean exit June is slightly lower than the average load because the price increase happened at the beginning of the quarter. However, as we start the quarter, one of the things I've seen in this industry for a few years now. And the welcome sign has, there is no price drop in the first 14 days of July, which is a welcome sign. I think they are holding on to our prices. And normally, monsoon, there's always a drop in price. But the first 2 weeks of the month, it's steady, and then I'm holding on to all the prices which I had in the month of June. Even though we didn't get -- we still -- we have not taken a price increase, but I think cost price is holding on first [indiscernible] of July, I think it's something which is unique for this year as it's welcome time. But still, we will not wait an opportunity. As of now, costs are kind of stable. But certainly, I think if the costs were to go southwest, I will take price northwards.

Okay. And now, sir, given that once this -- so we have already started and let's say, in Q3, once we start the commercial production quarter [indiscernible] the Kutch level, maybe in the powerful pages in the Q4. How do we kind of [indiscernible] on that part, if we have to see on a profitability front, will it be around much, much lower currently what we are having a profitability or how one can look at or if it is lower by how many quarters, one can see that profitability of this culture, including the Surat training, would be at par with the company average?

Look, I guess, whenever you expand in any region with huge capacity, any cement players who has expanded capacity in a particular region or in a particular state, something, if you have to kind of get volumes going in that as quickly as possible because having put so much of CapEx, I need volumes, right? I need to get back my investment as fast as possible. So we will play an aggressive way to sell a product. But one thing is for sure, my positioning as a group will never reduce. So our product -- given in the market where we operate in [ Rajasthan, Western UP, Western MP, Western UP, Haryana, Gili ], even in Gujarat, I am a group player, and I'm far ahead of any of those other [ B2 ] players that want to or almost [indiscernible] ahead of us. So that's something which positioning is going to be very, very key for us. And also in Gujarat, non-trade realization contribution is also quite good with OPC and almost equal to rest of the product. So Gujarat contribution will be quite good. But on the initial stages, we need to establish the market. I will have to be aggressive. But what is the position Nuvoco has? Nuvoco is not a new entrant in Gujarat. Nuvoco has been in Gujarat for the last 2 years, and we already sell close to about 1.5 million already. Currently, we're selling 1.3 million, 1.4 million, whose pricing is almost equal to the big players in Gujarat. So when I'm going to increase volume, I'm not going to dilute price. My job is to get more franchisee leaders and expand the dealer network. And I think we have personally -- I have personally made hundreds of dealers and our teams have connected with 300, 400 dealers in the last 5 to 6 months. So market development is at full swing. So we are pretty confident that the people -- the dealers specialized in Gujarat very keen to have Nuvoco in places where we are currently not there. Before launch of Gujarat, we were present in [ Baroda ]. We are present Gujarat. We are present in Surat. We are present in [ Ahmedabad, Karnataka ], all these cases are there. But over a period of last 6 -- past 6 months, we also launched our product in [ Rajkot ], Saurashtra and [indiscernible]. And our pricing has been very good in those products and contribution margin and our relations not less than any other corporate major comment in Gujarat. So net-net, I'm fairly confident that we will not dilute prices to push volumes in Gujarat, of course, you'll have to do some trade schemes to get people working for us. But in general, our positioning will be good. Our premiumization will continue to be there. We'll focus on microfiber. So all this will offset the potential decrease in EBITDA per tonne because the cost will be high in the first year, but that's the nature of the game. So overall, then I don't think we can judge the performance by the first year of launch in Gujarat. But our modeling very clearly says, in year 2 and year 3, EBITDA per tonne in Gujarat will be equal to EBITDA per tonne of rest of North India.

Great, great. Yes. May I...

I request you to join back the queue, please. We take our next question from the line of Pinakin Parekh from HSBC.

My first question is...

Pinakin, can you use your handset more, please? The audio is not very clear.

[indiscernible]

I'm sorry, your voice is muffled.