India's fifth largest cement maker Nuvoco Vistas Corporation shares made a weak debut on August 23 as it started off first day trade at a 17.37 percent discount to issue price of Rs 570. The stock opened at Rs 471 on the BSE and at Rs 485 on the National Stock Exchange.
The grey market had already indicated a downward trend due to weak market conditions in the previous week. The impact was already seen in CarTrade Tech listing on Friday that was down 7.3 percent at close in debut trade despite strong subscription.
The Rs 5,000-crore initial public offering of the cement maker had seen tepid response from investors during August 9-11 as it was subscribed only 1.71 times largely driven by qualified institutional buyers (QIBs). The issue had received bids for 10.7 crore equity shares against the IPO size of 6.25 crore equity shares.
The portion set aside for QIBs was subscribed 4.23 times, but non-institutional investors and retail investors' portion remained undersubscribed, subscribing 66 percent and 73 percent respectively.
The offer had comprised a fresh issue of Rs 1,500 crore which will be used for repaying of debts, and an offer for sale of Rs 3,500 crore by promoter Niyogi Enterprise.
All the brokerages had recommended to subscribe the issue for long term, citing optimism over the sector, government's push for infrastructure & affordable housing, strong balance sheet, leadership in the Eastern Region, and below industry average debt to equity ratio.
Nuvoco is the 5th largest cement company in India and the largest cement company in East India in terms of capacity. As of December 2020, cement plants have an installed capacity of 22.32 million tonnes per annum.
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"Considering the growth prospects in light of affordable housing push to meet PMAY (Pradhan Mantri Awas Yojna) for all by 2022, planned expansion, integration of NU Vista, lowering debt and other cost control measures, we recommend to “subscribe” the issue for long term perspective," said Ashika Stock Broking.
KRChoksey Research also believed Nuvoco IPO gives investors an opportunity to invest in leading cement manufacturer which has a highest market share in east India.
"We assume Nuvoco is well positioned to tap the increasing demand in north and west part of India followed by its focus in central region. We are also optimistic about the sector and expect opportunities to scale up with governments continuous push for infrastructure sector," said the brokerage which recommended to invest for long term investment.
The brokerage further said also considering company's range of distribution channels and direct sales to improve their reach to customers, Nuvoco stands well to get the favourable and supportive industry growth to drive sustainable business as well as profitable growth in the medium to long-term with its well-diversified product portfolio and focus on premiumisation.
"Net debt/ EBITDA stands high at 4.5x which will come down with their objective of repayment through IPO proceeds. On EV/EBITDA front it is still trading at a discount to most of its large cap peers at 15x-19x FY22E EV/EBITDA and on operational front it stands better at 19 percent margins against industry margins of 14-16 percent," KRChoksey added.
The Nirma Group forayed into the cement business in 2014 through a greenfield cement plant in Nimbol. It has successfully been able to grow the cement business through acquisitions such as the acquisition of the Indian cement business of LafargeHolcim in 2016 and in 2020 by acquiring NU Vista.
"The smart acquisition of NU Vista from Emami group would remain our focus to rerate our view on the company," said KRChoksey.
"NU Vista deal has brought in lot of synergies to the company and should augur well in the future. The inclusion of its brand 'Double Bull Cement' and its variants in their brand portfolio has supported Nuvoco's growth. On operational front NU Vista has also been EBITDA positive," the brokerage explained.
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