Nirma Group owned Nuvoco Vistas opens for IPO today. The loss-making cement company, also India’s 5th largest player, looks to raise ₹5,000 crore from the market. Given its expensive valuation, the question is should you invest in the IPO?
In this article:
- Key IPO Details
- Business overview
- Strengths and Weaknesses
- Peer Comparison
- Should you invest in Novoco Vistas IPO?
Haven’t we all seen the famous Nirma washing powder ad? Well, it is time for The Nirma Group’s very own cement company to add to the long list of 2021 IPOs. East India’s largest cement company and India’s 5th largest player, in terms of capacity, Nuvoco Vistas Corporation ltd (NVCL) ₹5,000 crore initial public offering (IPO) opens today, as the Mumbai-based company plans to ease its debt burden and fund its capital expenditure requirement. Besides, existing shareholders are divesting their stakes in the IPOs. The IPO will close on 11th Aug 2021.
The ₹5,000 crore IPO comprises a fresh issue of 8.8 crore shares amounting to ₹1,500 crore and an offer-for-sake worth ₹3,500. The company had total borrowings of ₹7,642 crore as of March 31, 2021.
The company has 11 cement plants, comprising 5 integrated units, 5 grinding units, and one blending unit. It operates eight plants in East India and North India.
IPO Key Details
- IPO open from: 9th Aug – 11th Aug 2021
- Face value: ₹10
- Price Band: ₹560-570
- Minimum Investment (Lot Size): ₹ 14,560 (26 shares)
- Listing on: BSE and NSE
- Fresh Equity Issue: ₹1500 cr
- Offer for sale: up to ₹ 3500 cr
- Total issue: up to ₹ 5000 cr
- Promoters: Niyogi Enterprise Private Limited and Dr. Karsanbhai K. Patel
- Book running lead managers: ICICI Securities Ltd, Axis Capital Ltd, HSBC Securities and Capital Markets (India) Private Limited, J.P. Morgan India Private Limited, SBI Capital Markets Ltd
- Registrar: Link Intime India Private Limited
The following will be the change in the promoter holding pattern after the 2-day IPO:
- Pre-Offer Promoter Holding: 95.24%
- Post-Offer Promoter Holding: 71.03%
Utilization of funds
While the selling shareholders will be fully entitled to the proceeds arising from the offer for sale of ₹ 3500 cr, the company plans to use ₹1350 cr of the fresh issue amounting to ₹1500 cr for servicing their debt worth ₹7642.175 cr. This will help them reduce their outstanding indebtedness, debt servicing costs and maintain a favourable debt to equity ratio.
The remaining balance of the net issue, not exceeding 25% of the gross proceeds, will be used for general corporate purposes like strategic initiatives, working capital requirements, and to fund growth opportunities.
The company has changed its identity several times. Originally incorporated in 1999 as “Infra Cement India Private Limited” in Mumbai, and after several name changes, the company name was finally changed to “Nuvoco Vistas Corporation Limited” in 2017.
Their cement plants have an installed capacity of 22.32 million metric tonnes per annum (MMTPA). They also have a whopping 49 RMX (ready mix concrete) plants across India, making them one of the leading RMX manufacturers in India. As of 31st December 2020, their cement production capacity constituted approximately 4.2% of total cement capacity in India, 17% of total cement capacity in East India, and 5% of total cement capacity in North India. They mainly cater to individual home buyers (“Trade segment”) as well as institutional and bulk buyers (“Non-trade segment”), with a focus on the Trade Segment, where their distribution channels are a mix of wholesale, retail dealers, and a sub-dealer network. As of March 31, 2021, the company has 244 CFAs and 16,076 dealers in India
Under the guidance of the successful entrepreneur Dr. Karsanbhai K. Patel, the company has grown through inorganic growth, such as the acquisition of the Indian cement business of Lafarge Holcim in 2016 and in 2020 by acquiring NU Vistas. Over the years, the company has rooted out from being solely cement-based to a building materials company with a vision to “Build a Safer, Smarter and Sustainable World”.
According to the Crisil report, NU Vistas is the fastest growing cement company in terms of capacity addition on percentage terms with installed capacity doubling over the last five years post the acquisition of NU Vistas. They also happen to be one of the players to increase market share in the last two years. For Fiscals 2021, 2020, and 2019, the total capacity utilization of all their plants across India, calculated based on total production capacity, was 77.57%, 90.05%, and 92.99% respectively.
Strengths and weaknesses
+ Largest cement manufacturing company in East India in terms of total capacity
+ Market-leading brands that establish and enhance their brand recognition
+ Strategically located cement production facilities
+ Extensive sales, marketing, and distribution network with a diversified product portfolio
+ Strong research and development and technological capabilities
+ Experienced Individual Promoter and professional management team
– Concentration of revenue profile in the east region
– Increase in fuel cost with no commensurate increase in the selling price
– Debt and leverage in the books
– Low Return ratio’s
The company ended the financial year 2021 in a loss amind Covid-led disruptions.
However, with a strong focus on improving margins and positive industry growth prospects, the future prospect looks promising.
The company is among the largest players in East India and competes with ACC Ltd, Ultratech Cement and Shree Cement. Here is a quick peer comparison of Nu Vistas with other key market players:
*Financials as on FY2021
Valuation and recommendation
At the upper price band of ₹570, the issue is valued at EV/EBIDTA multiple of 17(x) to its FY21 EBIDTA of ₹1,494 cr, which is at a premium compared to other mid-cap peers. Nu Vistas has increased its capacity by 9x in the last 5 years led by two acquisitions. Moreover, the company acquired an 11mt Lafarge asset in FY17 and Emami’s asset of 8mtpa in FY21. With these acquisitions, the company has strengthened its market leadership in the East region.
In the last 4-5 years, East Region demand has been the highest as compared to other regions and Nu Vistas east asset utilization (FY21) at 79% can increase further. In FY21, the company reported EBITDA margin of 20% (company EBITDA/t of ₹966). If compared with peers, its EBITDA margin is low (FY21 peers avg. is 23-24%) and Nu Vistas has guided to increase EBITDA/t by 20% in the next 2 years. This will be driven by streamlining the acquisition and internal efficiency.
We like the company on the back of its market leadership in the east region, well-known market-leading brands that establish and enhance its leadership as a building materials company, and extensive sales, marketing, and distribution network with a diversified product portfolio. However, given its steep valuation, we believe its not a long-term play. However, based on the above factors, we recommend a SUBSCRIBE FOR LISTING GAINS to the issue for high-risk investors.