LIC Housing Finance, Nuvoco Vistas, Ramco Cements, Somany Ceramics And More Q3 Results Review: HDFC Securities

HDFC Securities Institutional Equities

LIC Housing Finance - In search of earnings stability

LIC Housing Finance Ltd.’s earnings continued to remain sub-par with profit and loss outcomes significantly below estimates. Credit costs shot up to ~120 basis points (annualised), as the company shored up its stage-III provisions to 51% (Q2 FY23: 44%) in order to maintain healthy provisioning levels. While there were low incremental impairments (no write-offs during Q3), the slow pace of resolutions, particularly in project loans (gross stage-III at ~46%), remains a concern.

Nuvoco Vistas - Strong pricing offsets cost inflation QoQ

We continue to like Nuvoco Vistas Corporation Ltd. for its leadership presence in the east, large retail focus, and various margin initiatives. In Q3 FY23, Nuvoco reported modest volume growth of 2/6% QoQ/YoY (lost market share). Net sales realisation recovered strongly 6% QoQ. But opex also increased by 3% QoQ. Thus, unit Ebitda recovery was moderated (up Rs 161/metric tonne QoQ) to Rs 617/ metric tonne. Nuvoco has paused its Gulbarga expansion plans to focus on reducing debt to a comfortable level of Rs 30-35 billion. As the current capacity is sufficient to fund volume growth for the next three-four years, we believe focus on debt reduction should drive valuation rerating.

The Ramco Cements - Strong volume continues; margins recover too

We expect The Ramco Cements Ltd. to deliver a 17% volume compound annual growth rate during FY22-25E on capacity ramp-up and traction in the non-trade segment. However, we remain concerned about its elevated net debt/Ebitda during FY23/24E. In Q3 FY23, Ramco Cements delivered strong 19% YoY volume growth (capacity increase plus higher utilisation). Healthy pricing and fuel cost cool-off drove up unitary Ebitda by 4/64% YoY/QoQ to Rs 807 per metric tonne.

Somany Ceramics - Muted volume, high ad spends keep margins weak

We continue to like Somany Ceramics Ltd. for its strong retail distribution, improving product mix, and tightening working capital. In Q3 FY23, Somany Ceramics reported muted tiles volume growth of 4/2% YoY/QoQ. In spite of a ~7% decline in gas prices QoQ in Q3, its margins declined 30 bps owing to higher dealer discounts and ad spends. The expected rebound in tiles exports and continued fall in gas prices should drive margin recovery in coming quarters.

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