Nuvoco Vistas IPO: Nuvoco Vistas IPO Allotment Date, Price Band & Review

Nuvoco Vistas IPO opens for subscription on 9th August. The company is looking to raise Rs 5,000 crore through the public issue. Here are the details:

Nuvoco Vistas IPO Date: 9th - 11th August 2021

Nuvoco Vistas IPO Price band: Rs 560 - 570 per share

Issue Size: Rs 5,000 crore (Fresh Issue of Equity Shares aggregating up to Rs 1,500 Crore and offer for sale by promoters and shareholders worth Rs 3500 crore.)

Post issue market cap: 20,358 cr

Reservation: QIB 50%, Retail - 35%, NII 15%.

Employee Reservation: NA

Bid lot: 26 shares, and in multiples of 26 shares

IPO Objective

The funds raised from the IPO will be utilized:

• To repay/prepay and redeem borrowing availed by the firm partially or fully.

• For general corporate purposes.

About Nuvoco Vistas Corporation

• The company was incorporated in 1999 and is part of Nirma Group Company. It is the 5th largest cement company in India. Their cement production capacity constituted approximately 4.2% of the total cement capacity in India (as of 31st December 2020).
• The product offered by the company includes cement, ready-mix concrete (RMX), and modern building materials like wall putty, dry plaster, cover blocks, adhesives, etc.
• The company has a strong distribution network with 15,595 dealers. It sells its products to individual home buyers (trade segment) and institutional and bulk buyers (non-trade segment).
• The company has its plants located in West Bengal, Chhattisgarh, Bihar, Odisha, and Jharkhand in East India and Rajasthan and Haryana in North India. The aggregated installed capacity combined from all locations is 22.32 MMTPA.
• It is the fastest-growing cement company in terms of capacity addition on percentage terms with installed capacity doubling over the last 5 years post the acquisition of Nu Vista.

Nuvoco Products

Cement - The company manufactures different types of cement like Portland Slag Cement (PSC), Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), and Portland Composite Cement (PCC). The best-selling brand for the company is Concreto. The other brands are Concreto, Concreto Green, Duraguard, Duraguard Microfiber, Duraguard Waterseal, Duraguard Silver, Duraguard Rapidx Xtra.

Ready Mix Concrete - This category includes products such as decorative concrete, self-compacting concrete, ready-to-use concrete, concrete with steel fibers, crack-resistant concrete, and lean concrete, as well as concrete with varied characteristics for specialty uses.

Modern Building Materials - This segment is the key differentiator for the company. Different products under this category include a range of construction chemicals, dry plaster, tile adhesives, wall putty, cover blocks, and ready-mix dry concrete.

Nuvoco Vistas IPO: Comparison with listed peers(in FY21):

Total Income in Rs Cr 

• Nuvoco Vistas operates in a highly competitive environment. The competition occurs on the range, quality, delivery, management, and price. 
• The listed peers are some of the biggest names in the cement market. They are UltraTech Cement, ACC, Ambuja Cements, and Shree Cement. 
• As seen from the table above, Nuvoco Vistas is still in its growth stage, and has reported lower total income than larger peers such as ACC, Ambuja Cement, Shree Cement. Ultratech Cement is the biggest player with Total Income of Rs 45,460 cr in FY21.
• All other peers have reported profits, while Novoco has a negative bottomline. Nuvoco’s results in FY21 were impacted due to the acquisition of Nu Vista.

Nuvoco vs peers: Domestic Capacity

• All the listed peers are massive in terms of numbers. Below graph will show the production capacity (in Million tonnes)of these players:



• Nuvoco Vistas ranks fifth in terms of production capacity in this highly competitive Cement industry. 
• They are one of the leading industry players in the RMX industry. Their position in the RMX industry allows them to access key markets in India, particularly in areas where their cement products are not readily available.

Financials

In Rs Cr except % and EPS

• The company’s revenue from operations has increased at a steady CAGR of 3% over the last three years. The company had reported a profit of around Rs 250 crore in FY20, and a loss of Rs 26 crore in FY21. Overall financials in FY21 are not comparable to FY20 as the company incorporated the acquisition of Nu Vista in FY21. 
• Nuvoco’s EBITDA margins have improved from 14% in FY19 to 19.9% in FY21. Going forward, Nuvoco has guided to increase EBITDA/tonne  by 20% in the next 2 years, by streamlining the acquisition and internal efficiency
• Due to the acquisitions, FY21 Net Debt/EBITDA is high at 4.5x (net debt at Rs 6,800 crore). Going forward, Nuvoco has guided to reduce it to 1.2x in the next 2 years. Debt reduction will be driven by proceeds of IPO (Rs 1,400 crore) and internal accruals.
• Nuvoco has not declared any dividend for the last three years. It will follow a prudent dividend policy post listing based on its financial performances and future prospects.

USPs

Market-leading brand - The company has an established record of strong performance and reputation for quality products in cement, RMX, and modern building materials. Their Modern Building Material products and brands are an important value-added business for them.

Strategically located production facilities - All company's plants are strategically located in East and North India. They have three integrated units and five grinding units located in East India, and two integrated units, and one blending unit located in North India.

Strong research and development - The company focuses on innovation and developing a comprehensive product range to meet the requirements of its customers. They have been successfully diversifying their products by leveraging their innovation and technological capabilities and continue to work on it.

Growth Potential

Expansion plan - The company plans to leverage its existing manufacturing facilities and distribution network to capitalize on the expected demand for cement products from its customers. The RMX business already has a comprehensive pan-India presence. There are several tier-2 cities and other regions where opportunities exist for the expansion of their sales footprint.

Strengthening the brand - The company has undertaken brand-specific advertising, such as sponsorship of the Royal Challengers Bangalore, a professional cricket team in the Indian Premier League.

Expanding through acquisitions - Nuvoco has enhanced its business operations, growth, and prospects through the merger of the Nimbol Cement Plant and the acquisition of Nu Vista. With the offer sale, the company will be in a position to undertake future acquisitions. The company has grown from the recent acquisition of Nu Vista (formerly known as Emami). Nuvoco completed the acquisition of Emami’s cement business (8.3 MMTPA) at an enterprise value of  Rs 5,500 crore in July 2020. This acquisition gives them several competitive advantages such as: 

• The inclusion of brand “Double Bull Cement” in their portfolio
• Synergies in cross sourcing of raw materials
• Becoming the 5th largest cement company in India

Key Risks

The Covid Impact - The covid has impacted the construction industry globally and also in India. If the slowdown continues in the construction industry, the company's profitability could be impacted.

Limestone dependency - The business of Nuvoco is dependent on the ability of the company to mine or procure limestone for operations. If the company is unable to do so at reasonable terms, it will affect the operation and hence the financial condition of the company.

Raw material cost - The company is dependent upon the continued availability of coal, water, labor, and raw materials used in the production of cement. The supply and the costs of the above are subject to significant change beyond the company's control (climatic and environmental conditions). The company's margins may change significantly with fluctuations in price of above raw materials.

Acquired assets - As part of its growth strategy, Nuvoco may undertake more acquisitions. An inability to integrate operations or manage the acquired business may result in increased costs and adversely affect results of operations for Nuvoco.

Nuvoco Vistas Corporation: INDmoney Recommendation

Nuvoco Vistas has reported a tepid rise in topline over the last three years, and negative bottomline for FY19 and FY21. The company has seen a healthy 25% rise in its EBITDA over this period, on the back of improvement in cost efficiency. 

Nuvoco Vistas Corporation Ltd., a part of Nirma Group Company, is the fifth largest cement company in India and the largest cement company in East India in terms of capacity. Hence, it enjoys a strong brand value. Nuvoco is currently focussing on increasing its production capacity. It is the fastest-growing cement company in terms of capacity addition on percentage terms with installed capacity doubling over the last 5 years.

Nuvoco has lower EBITDA margin and return ratios as compared to its larger listed peers (20% for Nuvoco in FY21). The peer average is between 24-25%. Further, these larger powers such as Ultratech Cement, Shree Cement, Ambuja Cement and ACC are also profitable at the net level. 

As the earnings are negative, comparison on the basis of P/E ratio is not possible. At the higher price band of Rs 570, Nuvoco Vistas Corp reported 18.54 times EV/EBITDA in FY21 on a post-issue basis. This is lower as compared to Shree Cement (25 times) and Ultratech Cement (19.64 times). Given their better financial profiles, the peers are expected to trade at higher valuations.  

Given the company’s strong brand value, robust growth in capacity addition, good visibility for cement companies due to focus on infra, reduction in debt, and improvement in margins and profitability going forward, we remain positive on the prospects of this issue on a long-term basis.