Nuvoco Vistas Makes a Lackluster Debut. Stock Lists at 17% Discount

India's fifth largest cement maker Nuvoco Vistas Corporation shares made a lackluster debut at the Indian stock market today.

The stock listed at Rs 485 per share on the NSE, 15% discount to issue price of Rs 570 apiece.

On the BSE, the stock of the company opened at Rs 471, down 17% from the issue price.

This was in-line with the market expectation as traders were expecting weak listing for the cement maker as grey market premium turned negative for Nuvoco Vistas ahead of listing.

Meanwhile, all the brokerages had recommended to subscribe the issue for long term, citing optimism over the sector, government's push for infrastructure and affordable housing, leadership in the eastern region, and below industry average debt to equity ratio.

Nuvoco Vistas is promoted by Dr Karsanbhai K Patel, who is associated with the Nirma Group.

The Nirma Group is a diversified conglomerate that manufactures products ranging from chemicals to detergents, soaps, healthcare products and real estate development.

Nuvoco Vistas received a tepid response from investors

The Rs 50 bn initial public offering (IPO) of the cement maker had seen tepid response from investors during 9-11 August 2021 as it was subscribed only 1.71 times largely driven by qualified institutional buyers (QIBs).

The issue had received bids for 107 m equity shares against the IPO size of 62.5 m equity shares.

The portion set aside for QIBs was subscribed 4.2 times, but non-institutional investors and retail investors' portion remained undersubscribed, subscribing 66% and 73% respectively.

In fact, this was the first public issue where retail portion subscription was below 100% among the other IPOs launched in second half of the current year.

Utilisation of funds raised through public issue

The proceeds from the fresh issue of shares will be used for repayment in full or part of certain borrowings availed by the company.

As of March 2021, total borrowings (long-term and short-term) of the company stood at Rs 76.4 bn.

Lastly, a portion of the proceeds will go towards other general corporate expenses.

Financial snapshot of the company

For fiscal year 2020, Nuvoco Vistas' revenue from operation stood at Rs 67.9 bn vs Rs 70.5 bn a year ago.

Net profit for the period was at Rs 2.5 bn against a loss of Rs 264.9 m.

For the nine months ended December 2020, the firm reported revenue of Rs 48.6 bn against a net loss of Rs 634.5 m.

On a consolidated basis, Nuvoco Vistas has posted an average earnings per share (EPS) of Rs 2.83 and an average return on net worth (RoNW) of 1.3% for the last three fiscals.

Key Parameters

(Rs m)	FY18	FY19	FY20	Dec-20
Revenues	68,555.2	70,521.3	67,932.4	48,572.2
Revenue Growth (%)		2.9%	-3.7%
Expenses	67,496.5	70,892.9	64,431.9	49,939.2
Profit Before Tax (PBT)	1,620.7	166.0	3,867.5	-1,144.9
Net Profit	875.4	-264.9	2,492.6	-634.5

Data Source: Company's Red Herring Prospectus (RHP)

A few important points favouring to the company's growth outlook

Nuvoco Vistas gives investors an opportunity to invest in leading cement manufacturer which has a highest market share in east India. It's also the 5th largest cement company in India.

Considering the growth prospects in light of affordable housing push to meet Pradhan Mantri Awas Yojna (PMAY) for all by 2022, Nuvoco is well positioned to tap the increasing demand in several parts of India followed by its focus in central region.

Additionally, key infrastructure projects like roads, metros, and irrigation and the government's drive to revive the housing segment are expected to drive potential cement demand in the near future which will help to boost Nuvoco Vistas operational performance.

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.

Nuvoco Vistas said that it plans to strengthen its position in east, north and central India, while it also intends to increase its portfolio of premium products.

The company has increased its cement capacity to 22 m tonne per annum (MTPA) in the fiscal 2021 from 2.5 MTPA in the financial year 2016.

Weak sentiment dampened GMP of the company ahead of its listing

Nuvoco Vistas Corporation witnessed a tepid listing on the bourses despite strong outlook for the sector, as the market environment turned weak due to negative global cues, overvaluations and rising Covid cases globally.

Ahead of its listing, Nuvoco Vistas shares were trading at a marginal grey market premium (GMP) of Rs 5-6 per share over the issue price.

The grey market had already indicated a downward trend due to weak market conditions in the previous week.

To add to that, markets globally have turned cautious amid talks of the US Fed tapering, which has hurt sentiment at the secondary market as well as the primary market.

The impact was already seen in CarTrade Tech listing on Friday that was down 7.3% at close in debut trade despite strong subscription.

About Nuvoco Vistas

Incorporated in 1999, 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 that is adhesives, wall putty, dry plaster, cover blocks, and more.

The company sells its products in the trade segment (individual home buyers) and non-trade segment (institutional and bulk buyers).

It has a strong distribution network with 15,969 dealers and 225 carrying and forwarding agent (CFAs).

Its cement plants are located in the states of West Bengal, Bihar, Odisha, Chhattisgarh, and Jharkhand in East India and Rajasthan and Haryana in North India with an aggregated installed capacity of 22.3 m metric tonne per annum (MMTPA).

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