Most analysts have ascribed a subscribe rating to the issue. Here’s why
Sunil Shankar Matkar
August 09, 2021 / 08:47 AM IST
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The initial public offering (IPO) of Nuvoco Vistas Corporation will open for subscription today, August 9. The public issue has garnered strong interest from analysts as a majority of them recommended subscribing to the issue for the long term citing reasonable valuations, optimism over the sector, government’s push for infrastructure & affordable housing, strong balance sheet, leadership in the Eastern Region, and below industry average debt to equity ratio.
“The country’s demand growth is likely to be led by East and Central regions and will be primarily from affordable housing and infrastructure creation, and the cement sector is expected to benefit from it. Nuvoco Vistas, being the largest cement company in the east region, is well placed to capitalize on these opportunities,” said Asit C Mehta which recommended to subscribe the issue from a long-term prospective.
KRChoksey Research also recommended to invest in Nuvoco Vistas for long term investment.
Also read – Nuvoco Vistas Corporation IPO opens today; 10 key things to know
“Net debt/EBITDA (earnings before interest, tax, depreciation and amortisation) stands high at 4.5x which will come down with their objective of repayment through IPO proceeds. Hence on valuations parse at upper price band (Rs 570), the issue is asking for a market cap of Rs 20,358 crore with price to book value (P/BV) at 2x FY21. On EV/EBITDA front it is still trading at a discount to most of its largecap peers at 15x-19x FY22E EV/EBITDA and on operational front it stands better at 19 percent margins against industry margins of 14-16 percent,” it reasoned.
The acquisition of Nu Vista from Emami group would remain KRChoksey’s focus to rerate its view on the company.
The price band for the offer has been fixed at Rs 560-570 per equity share.
The company plans to raise Rs 5,000 crore through its public offer which comprises a fresh issue of Rs 1,500 crore and an offer for sale of Rs 3,500 crore by promoter Niyogi Enterprise. The company has already mopped up Rs 1,500 crore from anchor investors on August 6, a day before issue opening.
The net fresh issue proceeds (Rs 1,350 crore) will be utilised for repayment of debts, besides general corporate purposes.
Nuvoco Vistas is promoted by Dr Karsanbhai K Patel and is associated with the Nirma Group. The Nirma Group forayed into the cement business in 2014 through a greenfield cement plant in Nimbol. Thereafter, as a part of the Nirma Group, it has grown the cement businesses, through acquisitions such as the acquisition of the Indian cement business of LafargeHolcim in 2016 and NU Vista in 2020. Earlier, in February 2020, they completed the merger of the cement undertaking of Nirma at Nimbol, Rajasthan with Nuvoco Vistas.
KR Choksey believes Nuvoco Vistas IPO gives investors an opportunity to invest in leading cement manufacturer which has a highest market share in east India.
“We assume Nuvoco Vistas is well positioned to tap the increasing demand in north and west part of India followed by its focus in central region. We are also optimistic about the sector and expect opportunities to scale up with governments continuous push for infrastructure sector,” said the brokerage.
“Also considering its range of distribution channels and direct sales to improve their reach to customers, NVCL stands well to get the favourable and supportive Industry growth to drive sustainable business as well as profitable growth in the medium to long-term with its well-diversified product portfolio and focus on premiumisation,” the brokerage added.
Anand Rathi also recommended a subscribe rating to the IPO. With the planned expansion, lowering debt and other cost control measures, it is confident that company will maintain the growth levels which is seen in the pricing of the IPO.
On the financial front, Nuvoco Vistas is backed by sound balance sheet (i.e. net debt/equity at 0.6x which is also below industry average of 0.8x) and steady cash flows which can help the company to embark on next round of growth, the brokerage feels.
The company’s revenue grew at a CAGR of 3 percent, and operating profit at 26 percent CAGR, during FY19-FY21. It reported a loss of Rs 26 crore each in FY19 and FY21, though posted a profit at Rs 249 crore in FY20.
The company incorporated the acquisition of Nu Vista in FY21, hence overall financials in FY21 are not comparable to FY20.
Nuvoco Vistas has approximately 4.2 percent share in terms of total cement capacity in India, 17 percent in East India and 5 percent in North India.
In terms of volumes, the company sold 17.26 million tonnes of cement in the financial year FY21, comprising 13.47 million tonnes sales in East India, 2.66 million tonnes in North India and 1.13 MMT in Central India.
The company has 11 cement plants (8 in East India and 3 in North India) which are located in West Bengal, Bihar, Odisha, Chhattisgarh, and Jharkhand in East India and Rajasthan and Haryana in North India with an aggregated installed capacity of 22.32 million tonnes per annum (MMTPA). In addition, the company also operates 49 RMX plants (ready mix concrete plants) in key states in India.
The company sells its products in the trade segment (individual home buyers) and non-trade segment (institutional and bulk buyers). It has a strong distribution network with 16,076 dealers and 244 CFAs (clearing and forwarding agents).
In FY21, the sales of company from the Trade Segment of the market constituted 73 percent (East India – 76 percent, North India – 56 percent, Central India – 79 percent) of total cement sales volume, while sales from the nontrade segment constituted 27 percent (East India – 24 percent, North India – 44 percent and Central India – 21 percent) of total cement sales volume.
Among other brokerages, Choice Broking also recommended public issue for long term, while IDBI Capital and Marwadi Financial Services have a ‘subscribe’ rating for the issue.
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