Nuvoco Vista IPO: Despite healthy operating performance, high depreciation and interest costs have resulted in inconsistent performance at the PAT level for Nuvoco Vista.
The Initial Public Offering (IPO) by Nuvoco Vistas Corp (NVCL), a part of Nirma Group Company, commenced on Monday, 9 August. The company which is the fifth largest cement manufacturer in India in terms of capacity and the largest in the past.
India wants to raise Rs 5,000 crore through share sale. The IPO is a combination of an offer for sale (OFS) of Rs 3,500 crore and a fresh issue of Rs 1,500 crore.
The company will not receive any income from the OFS share. Of the corpus raised through the fresh issue, Rs 1,350 crore will be used to repay debt and the rest will be used for general corporate purposes.
The IPO is priced in the range of Rs 560 – Rs 570 per share and is priced at 18.5x of FY21 EV/EBITDA and FY2121 EV/tonne, which according to analysts looks fair as compared to peers. The company raised Rs 1,500 crore from anchor investors ahead of its initial share sale.
As of December 31, 2020, Nuvoco’s cement production capacity was ~4.2 per cent of the total capacity in India. In addition, the firm is one of the leading ready-mix concrete manufacturers with 49 RMC plants across India. company cash flow
The production has been impressive with its cumulative OCF and FCF of Rs 3600 crore and Rs 1900 crore respectively as compared to FY19-FY11.
In FY18-21, Nuvoco’s EBITDA (earnings before interest, taxes, depreciation and amortization) was at 11 per cent CAGR (though revenue was flat at 3 per cent CAGR) supported by margin expansion of 395 bps by 19.5 per cent.
Despite healthy operating performance, high depreciation and interest costs have led to inconsistent performance at the PAT level. In FY18-21, the company reported net losses in two out of four financial years.
Analysts at Motilal Oswal said in an IPO note that the proceeds of the IPO are expected to improve profitability, with the benefit of repayment of debt and synergies from recent acquisitions.
gray market trend
According to gray market watchers, the company was trading at Rs 15-20 per share or 3 per cent premium to the issue price. Manan Doshi, Co-Founder, UnlistedArena.com, said,
“The listing for Nuvoco Vista may not be hypothetical due to the large and purely priced of the issue, but is expected to receive a good response due to the Nirma Group brand and future prospects.
While the company has delivered inconsistent performance, the company had acquired acquisitions in the recent past and hence the true picture of its performance will become more clear when its operations become integrated and stabilized, Doshi said.
He believes the company is likely to benefit from the government’s focused development policies in Northeast India.
Here’s a look at what analysts from leading brokerage firms are suggesting on the issue:
Motilal Oswal Financial Services: Subscribe for long term
We like Nuvoco Vista due to its leadership position in the rapidly growing Eastern market, wide premium product portfolio and ability to successfully integrate large acquisitions.
The issue price on a post-issue basis is $146 FY21 EV/ton (USD) and 16.6x EV/EBITDA, 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 financial position in the long run and is expected to come in line with its peers in the form of operating leverage.
It is expected to grow further under the leadership of its expansion plans. , integration of NU Vista and debt reduction.
We believe that the continued integration of operations, the recent increase in realizations in the Eastern Region and continued improvement in capacity utilization are likely to support the Company’s operational performance.
Additionally, capacity expansion and debt reduction is expected to help NVCL see a significant improvement in net profit in the coming years. The OCF yield and FCF yield in FY21 appear to be better at 8.4 per cent and 5.7 per cent respectively.
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With the government’s continued focus on reviving the real estate sector, infrastructure creation and favorable macros like low per capita consumption at the national level, a secular growth trend in the sector will continue.
NVCL is likely to benefit from growth in the region with its presence in high growth East and Central India and a major focus on the business segment.
Thus considering the above comments, we assign a “Subscribe Long Term” rating to this issue.
KR Choksi: Subscribe for longer term
NVCL gives investors an opportunity to invest in leading cement manufacturers. We believe that NVCL is well positioned to meet the growing demand in the North and Western parts of India followed by its focus in the Central region.
We are also optimistic about this sector and expect opportunities to grow with continued pressure from the government for the infrastructure sector.
This, with its diversified product portfolio and focus on premiumisation, can drive sustainable business and profitable growth in the medium to long term for NVCL.
The Smart Acquisition of Nu Vista from Emami Group will take our attention to reaffirm our view of 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 strong balance sheet and stable cash flows which prepares NVCL for the next round of growth. Apart from planned expansion, debt reduction and other cost control measures, we are also confident that the company will maintain the level of growth that is being reflected in the pricing of the IPO.
Considering these further growth prospects in the light of promotion of affordable housing by the government, investors can consider investing from a long-term perspective.
IDBI Capital: Subscribe
NVCL is valued at 12x-19x FY23E EV/EBITDA at a discount to its large-cap peers. The discount partly affects the high debt and low ROCE (return on capital employed) on its books. But given the volatility in the cement industry and expectations of improvement in margins and balance sheet in FY21-23E, we recommend to subscribe.
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The company is positioning the issue on a post issue EV/Ebitda multiple of 16 on FY21 Ebitda basis at a price band of Rs 560-570 per share.
The company is the largest cement manufacturing company in Eastern India in terms of aggregate capacity with leading brands in the market and strong future prospects in experienced individual promoters and professional management team.