Nirma's Nuvoco Vistas IPO: Check grey market premium, brokerages' view

Nirma Group’s cement arm Nuvoco Vistas Rs 5,000 crore IPO (initial public offer) is set to hit the street on Monday, August 09. The price band for the cement manufacturer has been fixed at Rs 560-570 per share having a face value of Rs 10 per share. The issue closes on August 11. The Rs 5,000-crore public offer comprises fresh issuance of equity shares of Rs 1,500 crore and an OFS (offer for sale) of Rs 3,500 crore by its promoter entity Niyogi Enterprise. Niyogi Enterprises holds an 86.56% stake in the company. While the cement company will utilise net proceeds from the fresh issues towards repayment of borrowings and general corporate purpose.

Investors can bid for a minimum of 26 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,820 at the higher end of the price band. A retail investor can at max apply for 13 lots or 338 shares for Rs 1,92,660.

Ahead of the IPO shares of Nuvoco Vistas were quoting at a premium of Rs 38 or 6.67% over its offer price of Rs 570 in the grey market.

While the grey premiums are low for the issue but it is worth subscribing for long term gains. Here is what brokerages are saying about the issue.

Anand Rathi | Rating: Subscribe (Long Term)

At the upper end of the IPO price band, Nuvoco Vistas is offered at an EV (enterprise value) /Tonne (enterprise value) of 15,300 which Anand Rathi believes is reasonably priced as compared to its listed peers. On the financial front, the company is backed by a sound Balance sheet (i.e. Net debt/Equity at 0.6x which is also below the industry average of 0.8x) and steady cash flows which make it to embark on the next round of growth.

Further with the planned expansion, lowering debt and other cost control measures, the brokerage firm is also confident that the company will maintain the growth levels which is mirroring in the pricing of the IPO. Considering these and the growth prospects in light of affordable housing push to meet PMAY (Pradhan Mantri Awas Yojna) for all by 2022 target of the Government, investors may consider an investment with a long term perspective.

Marwadi Shares and Finance | Rating: Subscribe

Considering the FY-21 adjusted EBITDA (earnings before interest tax depreciation and amortization) of Rs 1,460.5 crore on a post-issue basis, the company is going to list at an EV/EBITDA of 17.54 with a market cap of Rs 20,357.9 crore while its peers namely Ultratech Cement and Shree Cement are trading at an EV/EBITDA of 21.00 and 26.15 respectively.

Marwadi Shares and Finance has assigned a ‘Subscribe’ rating to this IPO as the company is the largest cement manufacturing company in East India with market-leading brands and strong R&D capabilities. Also, it is available at a reasonable valuation as compared to its peers.

Choice Broking | Rating: Subscribe for long term

At a higher price band of Rs. 570, Nuvoco Vistas is demanding an EV/EBITDA multiple of 18.2x, which is a premium to peer average of 15.2x. With favourable macros like reviving the real estate sector, continued government’s focus on infrastructure creation and lower per capita consumption on the national level, the sector will continue to have a secular growth trend going forward. Companies’ presence in high growth East & Central India and a key focus on the trade segment, is likely to benefit from the growth in the sector.

IDBI Capital | Rating: Subscribe

Nuvoco Vistas has increased its capacity from ~2.5mtpa (million tonnes per annum) in FY16 to 22mtpa in FY21 by way of acquisition (~85% of capacity is inorganic addition). The company plans for organic expansion in the east of 2.7mtpa (12% addition) over FY22E and FY23E.

According to IDBI Capital, the IPO at the upper band is priced at 10x FY23E EV/EBITDA or EV/t of $131. Valuation is at discount to its large-cap peers at 12x-19x FY23E EV/EBITDA. Discount partially factors high debt in its books (FY21 Net Debt / EBITDA of 4.5x) and low ROCE (return on capital employed). But given the up-cycle in the cement industry and expectation of improvement in margin and balance sheet deleveraging over FY21-23E the stock is a long term play.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)