About the company:
The Iconic Nirma group’s cement company Nuvoco Vista Corp Ltd (NVCL) which is India’s 5th largest cement manufacturer by capacity is coming out with an IPO to raise close to Rs.5,000 cr via a combination of Fresh Issue of Rs.1500 cr and Offer for sales of Rs.3,500 cr is Offer for Sale. The issue is opening from 9th Aug and will remain open till 11th Aug, 2021. Price band is set between Rs.560-570 per share for a lot size of 26 shares per lot bid.
Background:
Nuvoco Vista Corporation Limited (NVCL) is promoted by Dr.Karsanbhai K. Patel of Nirma Group. The Nirma Group is a diversified conglomerate that manufactures products ranging from chemicals to detergents, soaps, healthcare products and real estate development. Nirma Group forayed into the cement business in 2014 through a Greenfield cement plant in Nimbol. Thereafter, through acquisition of 11 MTPA from Lafarge Holcim in 2016 and 8 MTPA from NU Vista in 2020, it has now an installed cement capacity of 22.3 MTPA.
The company has increased its capacity from 2.5 MTPA in FY16 to 22 MTPA in FY21 by way of acquisitions (85 percent of capacity is inorganic expansion), so in just 7 years Nuvoco has become India’s 5th largest cement company by capacity via inorganic expansions. And it plans to acquire an additional 2.7 mtpa (12 percent addition) over FY22 and FY23.
NVCL majorly operates in Eastern region (70 percent of capacity) and has highest capacity market share of 17 percent in the region. NVCL has 11 cement plants (8 in East India and 3 in North India) Three of its plants in East India are integrated units and five plants are grinding units. Two of its plants in North India are integrated units and the third is a blending unit. It has waste heat recovery systems at all integrated plants with a total capacity of 44.7 MW, solar power plants with a total capacity of 1.5 MW and captive power plants with generation capacity of 105 MW. As of FY21, these generate 50 percent of its total power requirements. Additionally the company also had Limestone reserves of 1700mt which are sufficient to cater to over 30 years of demand. As of FY21 Nuvoco’s sales from the Trade Segment (B2C) of the market constituted 73 percent (East India - 76 percent, North India - 56 percent) and rest pf 27 percent is Non-Trade (B2B). It’s key cement brand in Super Premium Category is Concreto, in Premium category is Duraguard XTRA, Duraguard microfiber and Double Bull in affordable category.
As you can see from 2014 to 2021 Nuvoco has grown its capacity very quickly and in this process of rapid expansion the company has bloated itself with a lot of debt. As of FY21 Nuvoco had a Net Debt of Rs.6,730 cr on a top-line of just ~Rs.7,488 cr which computes to a Net Debt/EBITDA ratio of 4.5 and this is one of the highest among the peers.
Nuvoco’s exposure in Trade segment which caters predominantly to individual home owners is also very high (73 percent of sales) which means any economic downturns can affect its revenue generating capacity.
Key Metrics with Peer Comparison:
NVCL is the 5th largest cement company by capacity
FY21 Net Debt/EBITDA : NVCL is the highest
EBITDA trend Rs/t: NVCL’s EBITDA/tn is lower than peers
Volatile & Unstable Financials:
| Particulars (Rs.Cr) | FY18 | FY19 | FY20 | 9MFY21 | 3 - year CAGR |
| Revenue | 6855 | 7052 | 6793 | 4857 | -0.50% |
| EBITDA | 1123 | 971 | 1334 | 959 | 9.00% |
| EBITDA Margin (%) | 16% | 14% | 20% | | - |
| PAT | 87.5 | -26.5 | 249 | -63.4 | - |
| PAT Margin (%) | 1% | - | 4% | -1% | - |
| EPS | 0.76 | -1.1 | 10.28 | -2.2 | |
| Net worth | 4172 | 5127 | 5415 | 6920 | 13.90% |
| ROE | 2% | - | 4.90% | NA | - |
| ROCE | 5.6 | 3.7 | 6.9 | 4.7 |
Power & Freight Charges constitute large portion of revenues:
| Particulars (Rs.Cr) | FY18 | FY19 | FY20 | 9MFY21 |
| Revenue | 6855 | 7052 | 6793 | 4857 |
| Cost of Raw Materials | 1285 | 1397 | 1274 | 648 |
| % of Revenue | 18.70% | 19.80% | 18.80% | 13.30% |
| Power & Fuel | 1222 | 1374 | 1226 | 916 |
| % of Revenue | 17.80% | 19.50% | 18.00% | 18.90% |
| Freight Charges | 1830 | 1983 | 1776 | 1311 |
| % of Revenue | 26.70% | 28.10% | 26.10% | 27.00% |
| Finance Cost | 475 | 457 | 419 | 500 |
| % of Revenue | 6.90% | 6.50% | 6.20% | 10.30% |
As far as Nuvoco’s financials are concerned its top-line has grown at a CAGR of -0.5 percent over FY18-FY20 as the company acquired distressed companies like Emami cement and Nu Vista and had no organic growth in the past 3-4 years. Similarly its bottom line hasn’t turned out to be profitable either and it has instead booked losses except FY20 which was the only profitable year. Also despite a robust 33 percent increase in volumes in FY21, the company’s operating margins came in at 20 percent which were below industry average of 24-25 percent. High Fixed costs and debt levels are weighing on the company’s bottom-line. The company aims to reduce its current Net Debt/Ebitda level to 1.2 in the next 2 years, so till the debt isn’t brought under control things could remain uncertain for this cement player.
Key Negatives:
Highly Concentrated towards Eastern Region
As of FY21, 81 percent of Nuvoco’s total sales volume were from East India (covering the states such as West Bengal, Chhattisgarh, Jharkhand, Bihar, Odisha and Assam). In an event of unforeseen act of God, revenues can be affected significantly.
High Contingent Liabilities and Legal Proceedings
As of Dec 31, 2021 the company had contingent liabilities worth Rs.1,356 cr which comprises of 20 percent of its net worth as of 9MFY21.Additionally, it has over 1000 pending litigations to the extent quantifiable as on date of the RHP. As a percentage of net worth of the company, on a consolidated basis as of March 31, 2021, this accounts to 19.3 percent.
70 percent of the issue consists of Offer for Sale
Nuvoco Vistas Promoters currently holds 95.2 percent of the total holdings. Post-issue this number will come down to 71 percent. Its major promoter Niyogi Enterprises Pvt Ltd is selling its 17.5 percent stake in the company. Interestingly Niyogi Enterprises is also promoted by Dr.Karsanbhai Patel who is the largest shareholder in Nuvoco. So the OFS amount will indirectly go to the company’s largest shareholder i.e Dr.Karsanbhai Patel and as per the objective of the prospectus the remaining amount will be utilised for paying off debt, so no amount of the proceeds will actually go towards expansion or any other purposes, which is negative for the company.
Conclusion:
| Name of the Company | Market Cap | EV/EBITDA | ROE | ROCE |
| Nuvoco Vistas | Rs.20,000 cr | 18.5 | -0.5 | 4.7 |
| Ultratech Cement | Rs.2,17,292 cr | 17 | 13.1 | 15.1 |
| Shree Cement | Rs.1,02,421 cr | 23 | 16 | 19.1 |
| Ambuja Cement | Rs.80,200 cr | 10.5 | 10.5 | 18.3 |
| ACC Ltd | Rs.43,968 cr | 12 | 12.8 | 16 |
| Dalmia Bharat | Rs.36,306 cr | 13.1 | 10.6 | 11 |
As far as valuations are concerned Nuvoco Vistas is valued at EV/EBITDA of 18.5x which is quite high as compared to top cement companies. Nuvoco is highly leveraged and faces a number of headwinds. Also, currently there are better alternatives in the same space which are doing relatively better. Given the aforementioned reasons, we recommend investors to “AVOID” this IPO for now.
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