IPO: Nuvoco Vistas Corp Ltd – Price Band: INR560– INR570

Nuvoco Vistas Corporation Ltd (NVCL), part of the Nirma Group, is the 5th largest cement company in India (4.2% of the total capacity) and the largest cement company in East India in terms of capacity.

The largest player in fast growing East India with a significant presence in North: NVCL is the largest player in East India with 17% of the total regional capacity while it constitutes 5% of total capacity in North India. Through its strategically located plants in North/East, it is able to cater to demand in Central India too. North, East, and Central India are the fastest growing cement markets in India. Focus on infrastructure investments and revival of housing segment would drive robust industry demand growth of 6.5% CAGR over FY21-26E (2x of supply growth), resulting in utilization level improving to 71% (vs. avg. of 64% over FY15-21). In addition, NVCL has 79% exposure to trade (vs. industry avg. of 63-68%), resulting in better realization.

Diverse portfolio of premium brands and synergy benefits to drive growth: NVCL doubled its capacity over the last 5 years to 22.3 MMTPA through the acquisition of Lafarge Holcim in 2016 and NU Vista (Emami Cement) in 2020. These acquisitions have led to an extensive portfolio with market-leading brands across the range. Focus on premiumization would improve realization, while upcoming capacity addition would drive volume growth. Further successful integration of NU Vista along with new captive power plants and the full benefit of WHR across plants would result in better operational efficiency.

Robust financials: In FY21, Revenue/EBITDA grew by 10.2%/12.6%, aided by robust cement demand and the acquisition of Emami Cement. Over FY18-21, NVCL EBITDA grew at 11% CAGR (though revenue was flat at 3% CAGR), supported by margin expansion of 395bps to 19.5%. Despite the healthy operational performance, higher depreciation and interest cost have led to an inconsistent performance at the PAT level. 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.

Issue Size: INR50bn IPO consists of OFS of INR35bn (by promoters) and fresh issue of INR15bn, which will reduce promoters’ stake to 71.2% from earlier 95.2%. The funds will be largely utilized for repayment of debt (INR13.5bn).

Valuation & View: We like NVCL due to its leadership position in the fast-growing East market, wide premium product portfolio, and ability to successfully integrate large acquisitions. The issue is valued at USD146 FY21 EV/ton (USD) and 16.6x EV/EBITDA on the post-issue basis, which is at 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 to 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.

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