Nuvoco Vistas IPO: Analysts' take, grey market trend & all you need to know

Nuvoco Vistas IPO: Despite healthy operational performance, higher depreciation and interest cost have led to an inconsistent performance at the PAT level for Nuvovo Vista

The initial public offer (IPO) by Nuvoco Vistas Corp (NVCL), a part of Nirma Group Company, kicked off on Monday, August 9. The company which is the fifth largest cement manufacturer in India in terms of capacity and the largest in East India is looking to raise Rs 5,000 crore via the share sale issue. The IPO is a mix of an offer for sale (OFS) worth Rs 3,500 core and fresh issue of Rs 1,500 crore. The company will not receive any proceeds from the OFS portion. Of the money raised via fresh issue, Rs 1,350 crore will be used to retire debt and the rest for general corporate purposes. 

The IPO is priced in the range of Rs 560 - 570 per share and is valued at 18.5x of FY21 EV/EBITDA and $164 FY21 EV/tonne, which according to analysts looks reasonable compared to peers. The company raised Rs 1,500 crore from anchor investors ahead of its initial share sale.

Financial Snapshot

As of December 31, 2020, Nuvoco's cement production capacity constituted ~4.2 per cent of total capacity in India. Furthermore, the firm is also one of the leading ready-mix concrete manufacturers with 49 RMC plants across India. The company’s cash flow generation has been impressive with its cumulative OCF and FCF standing at Rs 3600 crore and Rs 1900 crore, respectively over FY19-FY21.

Over FY18-21, Nuvoco's EBITDA (earnings before interest, tax, depreciation and amortisation) grew at 11 per cent CAGR (though revenue was flat at 3 per cent CAGR), supported by margin expansion of 395 bps to 19.5 per cent. Despite healthy operational performance, higher depreciation and interest cost have led to an inconsistent performance at the PAT level. The company reported a net loss in two of the four fiscals over FY18-21.

With the repayment of debt from the IPO proceeds and synergy benefits playing out from the recent acquisition, the profitability is expected to improve going ahead, analysts at Motilal Oswal said in an IPO note. 

Grey Market Trend

According to grey market watchers, the company was trading at a premium of Rs 15-20 per share or 3 per cent over the issue price. "The listing for Nuvoco Vistas may not be fanciful due to the issue being large and fully priced in but is expected to garner good response due to the brand of Nirma Group and future prospects," said Manan Doshi, co-founder of UnlistedArena.com.
 

While the company has delivered inconsistent performance, the company had made acquisitions in the recent past and hence the real picture of its performance would get more clear when its operations are integrated and stabilised, Doshi added. He believes the focused development policies of the government in North-Eastern India is likely to benefit the company. 

Analyst Take

Here's a look at what analysts from leading brokerages are recommending on the issue:

Motilal Oswal Financial Services: Subscribe for long-term

We like Nuvoco Vistas due to its leadership position in fast-growing East market, wide premium product portfolio and ability to successfully integrate large acquisitions. The issue is valued at $146 FY21 EV/ton (USD) and 16.6x EV/EBITDA on post-issue basis, which is at a discount to the industry average given slightly weaker financials. As NVCL has a short history of existence, we believe it has the potential to improve its financials in the long run and come at par with its peers as operating leverage kicks in. It is expected to witness strong growth going ahead led by its expansion plans, integration of NU Vista and debt reduction.

Reliance Securities: Subscribe

We believe ongoing integration of operations, the recent rise in realisation in the Eastern region and steady improvement in capacity utilisation are likely to aid the company’s operating performance. Additionally, capacity expansion and reduction in debt are likely to aid NVCL to see a remarkable improvement in net profit in the ensuing years. OCF yield and FCF yield at 8.4 per cent and 5.7 per cent, respectively in FY21 appear to be superior.

Choice Broking: Subscribe for long-term

With favorable macros like reviving real estate sector, continued government’s focus on infrastructure creation and lower per capita consumption on a national level, the sector will continue to have a secular growth trend going forward. NVCL with its presence in high-growth East & Central India and a key focus on the trade segment is likely to benefit from the growth in the sector. Thus considering the above observations, we assign a “Subscribe for Long Term” rating for the issue.

KR Choksey: Subscribe for long term

NVCL gives investors an opportunity to invest in leading cement manufacturers. We assume NVCL is well-positioned to tap the increasing demand in the north and west parts of India followed by its focus in the central region. We are also optimistic about the sector and expect opportunities to scale up with government's continuous push for the infrastructure sector. This could drive sustainable business and profitable growth in the medium to long term for NVCL, with its well-diversified product portfolio and focus on premiumisation. The smart acquisition of Nu Vista from Emami group would remain our focus to rerate our view on the company. Thus, considering all the above factors we recommend investing for the long term.

Anand Rathi: Subscribe for long term

On the financial front, NVCL is backed by a sound Balance sheet and steady cash flows which makes NVCL set for next round of growth. Further with the planned expansion, lowering debt and other cost control measures, we are also confident that the company will maintain the growth levels which is mirroring in the pricing of the IPO. Considering these and the growth prospects in light of affordable housing push by the government, investors may consider an investment with a long-term perspective.

IDBI Capital: Subscribe

NVCL's valuation is at discount to its large-cap peers at 12x-19x FY23E EV/EBITDA. Discount partially factors high debt in its books and low ROCE (return on capital employed). But given the up-cycle in the cement industry and expectation of improvement in margin and balance sheet deleveraging over FY21-23E we recommend Subscribe.

Hem Securities: Subscribe for long term

The company is bringing the issue at price band of Rs 560-570 per share at post issue EV/EBIDTA multiple of 16 on FY21 EBIDTA basis. The company being largest cement manufacturing company in East India in terms of total capacity with market-leading brands that and experienced individual promoter and professional management team has strong future potential.