Nuvoco Vistas Corporation, CarTrade IPOs open today: Should you subscribe?

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The buzz in the IPO market continues as two more companies including CarTrade Tech and Nuvoco Vistas Corporation hit the primary market to raise around Rs 8,000 crore on Monday. Where the online classified platform CarTrade Tech has fixed a price band of Rs 1,585-1,618 per share for the initial share sale, cement manufacturer Nuovo Vistas Corporation has set a price band of Rs 560-570. Both of the public offers will conclude on August 11.

Should you subscribe?

CarTrade IPO

The issue is a pure offer for sale (OFS) of 18.53 million shares by existing shareholders and promoters. The OFS will see a sale of 2.26 million shares by CMDB II, up to 8.41 million shares by Highdell Investment, up to 5.08 million shares by Macrithie Investments Pte, up to 1.77 million shares by Springfield Venture International, and 1.83 lakh shares by Bina Vinod Sanghi.

Investors can bid for a minimum of 9 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,562 at the higher end of the price band. A retail investor can at max apply for 13 lots or 117 shares for Rs 1,89,306.

Brokerage Angel Broking has given a ‘Subscribe’ rating on the company. “In terms of valuations, the post-issue FY2021 PE (price to earnings) works out to 73.4x (at the upper end of the issue price band). There are no listed peers for comparison. However, the company is doing better compared to unlisted peers in terms of financial,” it said.

Angel Broking is of the opinion that the company has a strong brand, better technology platforms, a profitable and scalable business model.

Likewise, ICICI Securities also gave Subscribe call to the IPO. It believes that CarTrade Tech enjoys high brand visibility and affinity, as evidenced by around 88% of FY21 unique visitors being organic (unpaid). Pursuant to its asset-light business model (111 out of 114 automalls are leased), controlled employee costs and low balance sheet risk due to minimal carried inventory (unlike some competitors), CTT was the only profitable automotive digital platform among its key peer set as of FY20. That apart the company is a net cash positive company with surplus cash amounting to Rs 650 crore as of FY21. CarTrade Tech offers a unique play on rising digitisation of new and pre-owned vehicle transaction value chain/ecosystem.

However, ICICI Securities is of the opinion that long term wealth generation in CarTrade Tech will be a function of scalability, relevance and journey towards healthier return ratios.

Nuvoco Vistas Corporation IPO

Nuvoco Vista Corporation, a part of Nirma Group Company is among one of the largest cement companies and concrete manufacturers in India. It offers a diversified range of products such as cement, ready-mix concrete (RMX), and modern building materials ie adhesives, wall putty, dry plaster, cover blocks, and more.

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.

The cement manufacturer will utilise its net proceeds from the fresh issues towards repayment of borrowings and general corporate purpose.

Analysts hold a bullish view on Nuvoco Vistas Corporation. Choice Broking said investors can subscribe to the issue for the long term. “At a higher price band of Rs 570, Nuvoco Vistas is demanding an EV/EBITDA multiple of 18.2 times, which is a premium to peer average of 15.2 times. 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 and Central India and a key focus on the trade segment, is likely to benefit from the growth in the sector,” it said.

While giving a ‘Subscribe’ rating to the issue IDBI Capital Market said that Nuvoco Vistas has increased its capacity from around 2.5mtpa (million tonnes per annum) in FY16 to 22 mtpa in FY21 by way of acquisition (around 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 valuation is at discount to its largecap peers at 12 times-19 times 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.