Nuvoco Vistas Corporation

download 2 1 Nuvoco Vistas Corporation

The last time a cement IPO hit the markets was in 2007, when Burnpur Cements came out with an IPO. Since then, there has been no cement IPO. After a gap of 14 years, a Nirma group company, Nuvoco Vistas, has come out with an IPO. Nuvoco is a company with a history of 22 years in the cement business. It started inorganically by acquiring the cement businesses of Tata Steel, L&T and Raymond and much later it added cement plants of Lafarge India and Emami to emerge. In between, it also set up green field cement plants. Today Nuvoco is the fifth largest cement company in India, with an installed capacity of 22.32 MTPA. Actually, Nuvoco ranks after Ultratech, Lafarge Holcim, Shree Cements and Dalmia Cements in the cement capacity roster. Lafarge Holcim is the combination of ACC and Gujarat Ambuja.

%name Nuvoco Vistas Corporation

While Nuvoco is the fifth largest cement company in India, it is by far the largest cement company in East with 17% of Easter India cement capacity and 5% capacity in the North. Nuvoco also ranks among top-4 ready mix concrete manufacturers in India. As of date, Nuvoco has a total of 11 cement plants and 49 RMX plants across India.

Why investors must take a close look at Nuvoco Vistas IPO?

There are a number of reasons why investors must take a close look at Nuvoco Vistas IPO. Here are a few core reasons.

  • Nuvoco has a leadership position in the fast-growing East India market
  • In cement, costs are determined by proximity to markets and Nuvoco has an edge
  • Boasts of a massive distribution network of 16,000 dealers across India
  • Nuvoco had average period capacity utilization of over 90%
  • Its cement EBITDA/tonne is at a competitive Rs.966

What is the financial picture of Nuvoco Vistas?

The table below captures the gist of the financial performance over 3 fiscal years.

%name Nuvoco Vistas Corporation

Nuvoco Vistas exhibited steady revenues while the EBITDA spiked by over 50% over last 2 years. As a result, the EBITDA margins are up by 620 bps. Since the company is into net losses, ROCE is a better metrics and the ROCE has been stable at above 4%. In addition, the investors have the comfort of a book value at over Rs.230 per share.

The proceeds of the issue will be predominantly used to retire debt. In fact, out of Rs.1,500 crore fresh issue, Rs,1,350 crore will be used for pre-payment of borrowings. Nuvoco has net debt of Rs.6,700 crore, so reduction of debt will help in deleveraging the balance sheet and improve coverage ratios.

Why investors must consider investing in Nuvoco Vistas?

Ideally, investors must look at Nuvoco Vistas as a macro play on cement demand in East India and an indirect play on the infrastructure thrust of the government. Here are some pointers for investors to ponder over.

  • Capacity utilization in cement and clinker is back to pre-COVID levels. This should catalyse better absorption of fixed costs and higher profits going ahead.
  • While East India is its bread and butter, plants in Chhattisgarh and Rajasthan allows Nuvoco to serve growth markets of Uttar Pradesh, Madhya Pradesh and Maharashtra.
  • Nuvoco has a diverse product mix of chemicals, adhesives, wall putty, dry plaster, cover blocks and dry concrete. This positions Nuvoco more as a solution provider.
  • The key to inorganic growth is effective integration of acquisitions and that is something Nuvoco has successfully done in the past.

If you look at pure valuations, then Nuvoco at 50X FY20 earnings may look reasonably full-value. However, you need to remember that Nuvoco Vistas is work-in-progress. The long term benefits of a premium product portfolio will be evident in the coming years.

Disclaimer

The article is for informative purpose and does not suggest to buy or sell or hold. Decision or investing is to be taken by individuals.

Evaluate investing in the IPO based on your individual risk tolerance, investment Span etc.

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