Verdict: Go for it!
Rs. 5,000 cr IPO:
- 70% OFS by promoter Nirma Group (95% holding to drop to 71%)
- 30% fresh issue for paring Rs. 7,130 cr debt by Rs. 1,350 cr
IPO Date: Mon 9th Aug to Wed 11th Aug 2021
Price band: Rs. 560-570 per share
Mcap: Rs. 20,350 cr, implying 25% dilution
Listing: 23rd Aug 2021
India’s Fifth Largest Cement Maker
Nirma Group’s Nuvoco Vistas has 22.32 MTPA cement capacity, 78% in fastest growing East market, where it is #1 player, and balance in North India. Company acquired 8.3 MTPA East-focused Emami Cement (Nu Vistas) in June 2020. 50% of its power requirement is met through captive sources. 1.5 MT capacity at Jharkhand is being commissioned next month, while another 1.2 MT is coming up at Bihar, which would hike total capacity to 25 MTPA by FY23.
FY21 Performance to Improve
FY20’s 90% capacity utilization dropped to 78% in FY21, as Q1FY21 volumes plummeted to 1.75 MT on account of lockdown. However, as the entire sector re-bounded, company’s capacity utilization in H2FY21 jumped to 93%, with sales at 10.4 MT in H2 over 17.3 MT in FY21. In FY21, revenue stood at Rs. 7,500 cr, on an average realization of Rs. 221 per bag. While Q1FY22 volumes have dipped marginally QoQ, volume for FY22 may easily rise to 20 MT i.e. 85% utilization, on strong sector-wise demand outlook.
EBITDA and Profitability
FY21 EBITDA stood at Rs. 1,500 cr or Rs. 966/MT, impacted due to lowerQ1FY21 volumes and one-time costs on Emami acquisition, leading to net loss of Rs. 26 cr in FY21. But Q4FY21 net profit came at Rs. 38 cr, with 4th quarter EBITDA strengthening to about Rs.1,045/MT, on operating leverage and industry-wide uptick in realisations from early March.
In FY22, EBITDA may improve by about Rs. 150/MT YoY, driven by (i) power cost saving from 2 upcoming plants (ii) Emami synergy benefits (iii) better product mix – 25% premium products over 20% and 85% trade sales from 73% in FY21.
Undemanding Valuation
With an Enterprise value (EV) of about Rs. 24,900 cr, Nuvoco’s EV of $143/MT, as well as EV/EBITDA of 11x, is the lowest among all the large capacity cement makers – Ultratech ($250, 14x respectively), Shree ($280, 18x), Ambuja ($240, 11x), ACC ($150, 11x), Dalmia Bharat ($150, 12x), Ramco ($195, 15x) and JK Cement ($235, 15x).
Post IPO, company’s debt-equity ratio will halve to 0.5 from 0.9 at present. Net-debt-to-EBITDA of 3x is likely to decline to 1.2x in next 2 years, on expected strong cash generation.
Having established a sizeable capacity, the company looks well placed to improve utilization levels as well as expand margins, all backed by very well-respected promoter.
Conclusion
High Growth Visibility, Strong Sector Outlook and Undemanding Valuation make this IPO an excellent and quality mid-cap pick, both from the short term and portfolio holding point of view. Apply for Nuvoco!
The original review has been penned by Geetanjali Kedia, appears on sptulsian.com and is available here.
Verdict: GR = Good fundamentals + Reasonable valuation
Rs 963 cr IPO: entirely OFS (no fresh issue) by PE investor (83% of OFS) and promoter (13%)
IPO Date: Wed 7th Jul to Fri 9th Jul 2021
Price band: Rs. 828-837 per share
MCap (at upper band): Rs. 8,093 cr, 12% dilution
Listing Date: 19th July 2021
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IPO Snapshot
Indian Railway Finance Corporation (IRFC) is launching a Rs. 4,633 crore IPO, between Mon 18th Jan 2021 to Wed 20th Jan, 67% of which is fresh issue and 33% offer for sale (OFS) by Government of India, in the price band of Rs. 25-26 per share. Surprisingly, there is no retail discount, unlike most PSU IPOs of the past. Issue represents 13.6% of post-issue capital, with listing on 29th Jan.
IPO to raise Capital, and not simply Disinvestment
Unlike most PSU IPOs which are OFS to only meet government’s disinvestment target, majority of this IPO will provide growth capital, as this wholly-owned subsidiary of the government, funds wagon purchase/project assets of Indian Railways. Being an NBFC, company’s need for funds is high, with last fund raise being a Rs. 2,500 crore rights issue at face value of Rs. 10 in March 2020. Sovereign backing helps keep cost of funds low and NPAs nil.
Zero Tax Paying Company
While company is not exempt from income tax, its actual tax liability was nil in FY20 as well as H1FY21 and will continue to be so, as long term financial leasing of wagons and projects yields huge unabsorbed depreciation in the company’s books and MAT is not applicable. Thus company’s earnings, which is spreads on lease rentals over borrowing cost, translates into profitability, as operating expenses are minimal.
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IPO Snapshot:
Prince Pipes is entering the primary market on Wednesday 18th December 2019, to raise Rs. 500 crore, via an IPO of equity shares of Rs. 10 each, comprising fresh issue of up to Rs. 250 crore and an offer for sale (OFS) of up to Rs. 250 crore by promoters, in the price band of Rs. 175-178 per share. Issue, split 50:15:35 among institutional, HNI and retail investors respectively, represents 26% of the post-issue share capital and will close on Friday 20th December, with listing likely on 31st December.
Company Background:
Prince Pipes is a 30 year old, family run business, making polymer pipes and fittings at 6 plants (in Silvasa, Haridwar, Kolhapur, Chennai, Rajasthan) with total installed capacity of 2.4 lakh tonne per annum (TPA) while production capacity is assessed at 1.9 TPA. While Rajasthan plant is new (started in Q2FY20), its installed capacity is being expanded from current 6,221 TPA to 17,021 TPA by Dec 2019 and to 20,909 TPA by FY20-end. Company also plans a 51,943 TPA greenfield facility at Telangana, likely to be operational by Dec 2020, implying 28% capacity hike in the next 18 months. About less than 10% of production is also outsourced to 5 contract manufacturers (in Aurangabad, Guntur, Odisha and Bihar) as logistics cost are vital, given the bulky nature of products. Company markets its products pan-India under brands Prince and Trubore, via 1,027 distributors. Going forward, it plans to focus on plumbing and drainage segments and less on irrigation, given latter’s lower margins.
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Aavas Financiers is entering the primary market on Tuesday 25th September 2018, to raise up to Rs. 400 crore via fresh issue of equity shares of Rs. 10 each and an offer for sale (OFS) of upto 1.62 crore equity shares by 4 promoter group entities and 2 top management personnel, both in the price band of Rs. 818 to Rs. 821 per share. Representing 27.93% of the post issue paid-up share capital, total issue size is Rs. 1,734 crore at the upper end of the price band, of which, OFS accounts for 77%. Issue closes on Thursday 27th September and listing is likely on 8th October.
Company Overview:
Aavas Financiers, established by listed NBFC AU Small Finance Bank (formerly AU Financiers) in March 2012, as AU Housing Finance, is a Jaipur, Rajasthan head-quartered affordable housing finance company, providing home loans of Rs. 8 lakh average ticket size to 60,000 customers, through its 166 branches in tier 2 to tier 6 towns across 8 Indian states, with gross loan book of Rs. 4,356 crore (30-6-18).
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Garden Reach Shipbuilders and Engineers is entering the primary market on Monday 24th September 2018, with an offer for sale (OFS) of up to 2.92 crore equity shares of Rs.10 each by the Government of India (GoI), in the price band of Rs. 115 to Rs. 118 per share, with a discount of Rs. 5 per share for retail category. Representing 25.50% of the post issue paid-up share capital, total issue size is Rs. 340 crore at the upper end of the price band. Issue closes on Wednesday 26thSeptember and listing is likely on 5th October.
Company Overview:
Garden Reach Shipbuilders and Engineers is a Mini-Ratna Category 1 company under the Ministry of Defence, manufacturing warships for Indian Navy and Indian Cost Guard (90%+ revenue derived from them) under its ship building division. It also has an engineering division, accounting for less than 10% of revenues, manufacturing deck machinery for ships, pre-fabricated steel bridges and marine pumps. With 3 manufacturing facilities in Kolkata, company’s order book position (31-7-18) of Rs. 20,314 crore is very healthy, as it includes order for 3 ships for the Indian Navy, aggregating Rs. 19,300 crore, to be delivered from FY24 onwards. This will contribute to revenues meaningfully from FY21 onwards, as company is yet to commence work on these orders. Till then financial performance may be subdued as revenue peaks in the middle of the typical contract duration of 5-6 years.
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IPO Snapshot:
CreditAccess Grameen Limited is entering the primary market on Wednesday, August 8, 2018, to raise upto Rs. 630 crore via fresh issue of equity shares of Rs. 10 each and an offer for sale (OFS) of upto 1.19 crore equity shares by promoter, both in the price band of Rs. 418 to Rs. 422 per share. Representing 18.70% of the post issue paid-up share capital, total issue size is Rs. 1,131 crore at the upper end of the price band, of which 44% is the OFS portion. The issue closes on Friday, August 10, 2018 and listing is likely on 23rd August.
Company Overview:
CreditAccess Grameen is India’s 3rd largest micro finance institution (MFI) providing unsecured loans to women with annual household income upto Rs.1.6 lakh (urban area) and Rs. 1 lakh (rural area), of average ticket size of Rs. 20,000. With asset under management (AUM) of Rs. 4,975 crore (31-3-18) and a deep rural focus (81% customers in rural), 86% of loans provided is for income generating activities, 10% for home improvement and balance for emergency and family welfare. Despite widespread network of 516 branches across 132 districts in 9 Indian States and Union territory, company’s AUM is concentrated in Karnataka (58% of total) and Maharashtra (27%). While other MFIs have converted to banks (Bandhan, Equitas, Ujjivan, Bharat Financial on the verge of merger with Indusind), CreditAccess does not plan to tap the banking route and is comfortable being a standalone MFI.
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Verdict: A ‘no-brainer’ Buy
IPO Snapshot:
HDFC Asset Management Company (AMC) Limited is entering the primary market on Wednesday 25th July 2018, with an offer for sale (OFS) of up to 2.55 crore equity shares of Rs.5 each, by both the promoters, HDFC (34% of OFS) and UK’s Standard Life (66% of OFS), in the price band of Rs. 1,095 to Rs. 1,100 per share. Representing 12.01% of the post issue paid-up share capital, total issue size is Rs. 2,800 crore at the upper end of the price band. The issue closes on Friday 27th July and listing is likely on 6th August, which will be the 5th listing from HDFC stable.
Company Overview:
HDFC AMC, 56.97% subsidiary of HDFC Ltd, with foreign JV partner UK’s Standard Life owning 37.98% stake, is India’s second largest AMC (behind ICICI Prudential) with asset under management (AUMs) of Rs.2.91 lakh crore (31-3-18) and 13.7% market share. Company is the largest AMC with equity oriented funds (at 51.3% of AUM vis-à-vis industry average of 43.2%), which also helps it become the most profitable AMC in India, having earned net profit of Rs. 722 crore in FY18 or 18.1% market share of the industry PAT, due to higher fees earned in equity as against debt product. Thus, with only 13.7% market share in total AUM, 16.8% market share in actively managed equity-oriented AUM help the company garner 18.1% market share in net profits of the industry, comprising of 42 players. Besides high profitability, company also enjoys benefit of retailisation of portfolio, with 62% AUM coming from retail investors, unlike industry average of ~50%, again highest market share in retail AUM of 15.7%. Systematic investment plan (SIP) products, with average ticket size of Rs. 3,800, also provide high revenue visibility, as 77% of company’s SIPs are signed up for 5 years.
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Verdict: The Cool and Nice Stock
IPO Snapshot:
TCNS Clothing Co. Limited is entering the primary market on Wednesday 18th July 2018, with an offer for sale (OFS) of up to 1.57 crore equity shares of Rs.2 each by PE investor, promoters, current MD and former employees, all in the price band of Rs. 714 to Rs. 716 per share. Representing 25.63% of the post issue paid-up share capital, total issue size is Rs. 1,125 crore at the upper end of the price band. Issue closes on Friday 20th July and listing is likely on 30th July.
Company Overview:
TCNS Clothing Co. is a New Delhi head quartered branded apparel maker for ethnic women wear, operating 3 brands – W, Aurelia and Wishful, with sales mix of 57:33:8. Its 465 exclusive branded outlets (281 for W, 183 for Aurelia, 1 for Wishful) accounted for approximately 50% of FY18 topline of Rs. 838 crore. Further, products are sold through 1,469 large format stores, 1,522 multi-brand outlets and online/ e-commerce websites, which account for 28%, 11% and 10% of the topline respectively. While design operations are in-house, manufacturing is completely outsourced. The brand outlets, all on long term leases, are either company operated or franchised out. Company plans to open 75-80 new stores each year, to strengthen its brands.
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Verdict: I C it as an expensive Security
IPO Snapshot:
ICICI Securities is entering the primary market on Thursday 22nd March 2018, with an offer for sale (OFS) of up to 7.82 crore equity shares of Rs. 5 each by promoter ICICI Bank, in the price band of Rs. 519 to Rs. 520 per share. Representing 23.98% of the post issue paid-up share capital, ICICI Bank will rake in Rs. 4,017 crore at the upper end of the price band, which will help it partly off-set higher loss provisions. Issue is closing on Monday 26th March and listing is likely on 5th April.
Company Overview:
ICICI Securities, a wholly owned capital market arm of ICICI Bank, offers broking (through ICICIdirect.com), investment banking, portfolio management services (PMS) and financial products distribution (mutual fund and insurance) to retail and institutional customers, through its marketing network of 200 own branches, 2,600+ branches of ICICI Bank, 4,600+ sub-brokers and independent financial associates. The technology, whether broking or mutual fund distribution is a ‘me-too’ or easily replicable, and most other full-fledged broking firms like Motilal Oswal or a discount broker such as Zerodha or many fin-tech start-ups in mutual fund distribution have similar offerings. Hence, its technological capabilities are not out-of-the-world and are simply keeping up with the changing times. Approximately 60% of income is generated through broking, 10% from investment banking, 15% from mutual fund distribution and balance through distribution fee of insurance and other products.
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