Verdict: Go for it!

Rs. 5,000 cr IPO:

• 70% OFS by promoter Nirma Group (95% holding to drop to 71%)
• 30% fresh issue for paring Rs. 7,130 cr debt by Rs. 1,350 cr

IPO Date: Mon 9^th Aug to Wed 11^th Aug 2021

Price band: Rs. 560-570 per share

Mcap: Rs. 20,350 cr, implying 25% dilution

Listing: 23^rd Aug 2021

India’s Fifth Largest Cement Maker

Nirma Group’s Nuvoco Vistas has 22.32 MTPA cement capacity, 78% in fastest growing East market, where it is #1 player, and balance in North India. Company acquired 8.3 MTPA East-focused Emami Cement (Nu Vistas) in June 2020. 50% of its power requirement is met through captive sources. 1.5 MT capacity at Jharkhand is being commissioned next month, while another 1.2 MT is coming up at Bihar, which would hike total capacity to 25 MTPA by FY23.

FY21 Performance to Improve

FY20’s 90% capacity utilization dropped to 78% in FY21, as Q1FY21 volumes plummeted to 1.75 MT on account of lockdown. However, as the entire sector re-bounded, company’s capacity utilization in H2FY21 jumped to 93%, with sales at 10.4 MT in H2 over 17.3 MT in FY21. In FY21, revenue stood at Rs. 7,500 cr, on an average realization of Rs. 221 per bag. While Q1FY22 volumes have dipped marginally QoQ, volume for FY22 may easily rise to 20 MT i.e. 85% utilization, on strong sector-wise demand outlook. 

EBITDA and Profitability

FY21 EBITDA stood at Rs. 1,500 cr or Rs. 966/MT, impacted due to lower Q1FY21 volumes and one-time costs on Emami acquisition, leading to net loss of Rs. 26 cr in FY21. But Q4FY21 net profit came at Rs. 38 cr, with 4^th quarter EBITDA strengthening to about Rs.1,045/MT, on operating leverage and industry-wide uptick in realisations from early March.

In FY22, EBITDA may improve by about Rs. 150/MT YoY, driven by (i) power cost saving from 2 upcoming plants (ii) Emami synergy benefits (iii) better product mix - 25% premium products over 20% and 85% trade sales from 73% in FY21.

Undemanding Valuation

With an Enterprise value (EV) of about Rs. 24,900 cr, Nuvoco’s EV of $143/MT, as well as EV/EBITDA of 11x, is the lowest among all the large capacity cement makers – Ultratech ($250, 14x respectively), Shree ($280, 18x), Ambuja ($240, 11x), ACC ($150, 11x), Dalmia Bharat ($150, 12x), Ramco ($195, 15x) and JK Cement ($235, 15x). 

Post IPO, company’s debt-equity ratio will halve to 0.5 from 0.9 at present. Net-debt-to-EBITDA of 3x is likely to decline to 1.2x in next 2 years, on expected strong cash generation.

Having established a sizeable capacity, company looks well placed to improve utilization levels as well as expand margins, all backed by very well-respected promoter.  

Conclusion

High Growth Visibility, Strong Sector Outlook and Undemanding Valuation makes this IPO an excellent and quality mid-cap pick, both from the short term and portfolio holding point of view. Apply for Nuvoco!

Grey Market Premium (GMP) of Nuvoco Vistas: Grey Market Premium of Nuvoco Cement is an unofficial figure, against guidelines of SEBI and we are strongly against it. To know how it operates, read our article ‘grey market premium’.

Disclosure: No Interest.