Cement maker Nuvoco Vistas Corporation Ltd’s stock is up 45% over the past six months, inching ever closer to its 52-week high of ₹477. Investors’ optimism is fuelled by hopes that Nuvoco may have finally struck a balance between growth and capital discipline.
Earlier this month the company announced a fresh four-million-tonne (mt) expansion in eastern Indian, which includes a new grinding mill at the Arasmeta cement plant in Chhattisgarh, and removing bottlenecks and upgrading processes at the Jojobera, Panagarh and Odisha plants in phases. This will cost ₹200 crore and will be fully funded through internal accruals. At $6 per tonne, the planned expenditure is lower than typical expansion costs.
Nuvoco acquired Vadraj Cement earlier this year, which adds 3.5 mt of clinker capacity and 6 mt of cement capacity in west India. The Vadraj project will cost around ₹3,600 crore and should be operational from Q3FY27. With these expansions, Nuvoco targets 35 mt of cement capacity by FY27 from about 25 mt in FY25. After this, its capacity mix will be 66% east, 17% north and 17% west. The east will be the centre of gravity, with capacity rising from 19mt in FY25 to 23mt by FY27.
Is one big-ticket project enough?
According to JM Financial Institutional Securities Ltd, these capacity announcements are likely to address concerns over Nuvoco’s volume growth and market share, while capacity expansion at minimal investment should help to improve overall return ratios. Some Nuvoco plants are already running at high utilisation.
But with elevated competitive intensity in the sector and capacity additions by competitors in east India, can a low-cost expansion and one big-ticket project really change the game for Nuvoco? Execution is the key. For instance, if Nuvoco manages to lift the clinker-to-cement blending ratio from 2 to 2.4 in the east, it will unlock incremental volumes without fresh clinker investment and generate higher returns.
Tight spot
Meanwhile, Nuvoco will gradually reduce its Q1FY26 net debt of ₹3,474 crore. Management is comfortable with ₹3,500-4,000 crore of debt, with net debt remaining below 2.5 times Ebitda and a long-term goal of around 2 times.
Still, risks abound. The east leaves little room for error if blending gains don’t materialise. Meanwhile, management has guided for cost efficiencies, which could provide a cushion. Nuvoco’s mix of a large acquisition and a capex-light expansion points to a disciplined growth path that should lift incremental return ratios.
The stock trades at an EV/Ebitda mutiple of 9.3 based on FY27 estimates. While valuations look undemanding, sustained volume growth, better return ratios, and debt control are crucial for a re-rating.
