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Nuvoco Vistas shares had subdued listing at Indian bourses as the cement company stock opened at discount of around 16 per cent. As per the market observers, this tepid listing of Nuvoco Vistas shares was due to higher valuations and 70 per cent OFS (Offer for Sale) allocation, otherwise financials of the company are still strong. In fact, HDFC Securities has recommended long-term investors to buy Nuvoco Vistas shares, as it may go up to 827 per stock levels — around 55 per cent higher from its current market price in long term.

Highlighting the fundamentals that may support Nuvoco Vistas share price rally in long term; HDFC Securities research report says, "Nuvoco soared to become the sixth largest player in India through two mega acquisitions in the east – Lafarge Cement (India) in 2016 and NU Vista (Emami Cement before the acquisition) in 2020. These moves consolidated its position as one of the top-3 sellers in the eastern region. Nuvoco’s Duraguard and Concreto brands have enjoyed premium positioning in the east for a long time."

Triggers for Nuvoco Vistas shares

HDFC Securities research further added, "Nuvoco has recently added WHRS and is also expanding its CPPs, to bolster its low-cost power consumption share to around 70 per cent from 50 per cent in FY21, adding around 50/MT in cost savings. The integration of the recently acquired NU Vista into Nuvoco, along with focus on further expanding its blended cement production ratio, is expected to unlock another near 200/MT of unitary EBITDA by FY23E. These moves along with healthy pricing should drive up consolidated unitary EBITDA by around 235/MT by FY23E, despite factoring in fuel cost inflation and the impact of accelerated capacity additions by competitors."

Nuvoco Vistas balance sheet back in shape, post-IPO listing

HDFC Securities research report says that Nuvoco’s leverage ratio got stretched, owing to the two mega acquisitions. However, with large 15 billion 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 against around 4x during FY17-21.

"We estimate its debt reduction to continue despite its ongoing 8/15 per cent clinker/cement expansion by FY23E and despite factoring in Capex acceleration towards the Karnataka Greenfield plant by late FY25E," HDFC Securities report said.

Nuvoco Vistas share price target

"We like Nuvoco for its balance sheet turnaround after two mega acquisitions and robust operating performance, led by structural revenue and cost triggers. We initiate coverage on the stock with a BUY rating and target price of 827 per share. In our view, Nuvoco’s continued strong performance should drive valuation multiple rerating," HDFC Securities research report concluded.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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