Nuvoco Vistas Ltd - IPO Update

Nuvoco Vistas is the cement arm of the Nirma group of Ahmedabad. Nirma had pioneered the concept to low-cost detergents for households in the 1980s and had taken on the might of Hindustan Unilever. Subsequently, Nirma listed on the stock exchanges and later in 2012 it had voluntarily opted to delist. Now the cement arm of Nirma, Nuvoco Vistas, has filed DRHP with SEBI for a public issue of Rs.5,000 crore. The issue is expected in August 2021.

A quick background of Nuvoco Vistas

Normally, Nuvoco Vistas is not a name you immediately recollect when you talk of cement, but it has the fifth largest cement capacity in India. At 22.32 MTPA, Nuvoco Vistas ranks after UltraTech, Shree Cements, Ambuja/ACC and Dalmia Cements in that order. But, Nuvoco is a cement company largely built on inorganic expansion.

Nuvoco Vistas commenced operations in 1999 by buying the cement business of Tata Steel. Later Nuvoco added the cement business of Raymond in 2000 and the ready mix concrete business of Larsen & Toubro in 2008. In 2016, Nuvoco acquired the India cement business of Lafarge and in 2020 it successfully bid for the cement business of Emami.

In between these acquisitions, Nuvoco also commissioned its own greenfield cement plants in Chittorgarh and Nimbol in Rajasthan and later at Bhiwani in Haryana. Currently, Nuvoco has 11 cement plants spread across West Bengal, Bihar, Odisha, Chhattisgarh, Jharkhand, Rajasthan and Haryana. It is predominant in the East, followed by the North.

How does Nuvoco Vistas stack up on financials?

Here is a quick summary of Nuvoco Vistas financials for the last 3 years till FY21.

Cement companies came under pressure in FY21 due to COVID pressures. However, it would be interesting to see how much valuation a typical large cement company could command. Since profits have been quite volatile, one possible benchmark is the Price to Sales. 

Also read: Nuvoco Vistas the next IPO

The cement with the highest Price to Sales Ratio is Shree Cement at P/S of 8X. However, the median for other companies like Ultratech, Ambuja and Dalmia Cements ranges from 5-6 times P/S. By that parameter, Nuvoco Vistas should get a base case valuation of around Rs.35,000 crore to Rs.40,000 crore on listing, based on normalized sales, excluding the stress of COVID on sales.

What we need to know about the Nuvoco Vistas IPO?

Nuvoco Vistas plans to make a public offer of Rs.5,000 crore, of which Rs.1,500 crore will be by way of fresh issue and the balance Rs.3,500 crore will be by way of offer for sale by the existing shareholders. Cement companies like Ambuja Cements, Dalmia Bharat, Shree Cements and UltraTech have had a dream run on the bourses and are quoting at the higher end of their valuation bands.

While the big push to infrastructure should favour the cement story, there is one more factor. Nuvoco Vistas IPO will be the first cement IPO in India since Burnpur in 2007. For a commodity that builds the foundations of national structures, cement has been an oft-ignored story in the markets. Nuvoco Vistas is, perhaps, in the right place at the right time.