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Salient features of the IPO:

* Nirma Group’s cement company Nuvoco Vistas Corporation Ltd. (NVCL), is coming up with an IPO to raise Rs. 5,000cr, which opens on 9th Aug. and closes on 11th Aug. 2021. The price band is Rs. 560 - 570 per share.

* The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS portion. Of the net proceeds from the fresh issue, Rs. 1,350cr will be utilized for the repayment/prepayment of certain borrowings. Rest proceeds will be used for general corporate purposes.

Key competitive strengths:

* Largest cement manufacturing company in East India in terms of total capacity

* Market-leading brands that establish and enhance its leadership as a building materials company with strong brand recognition 

* Strategically located cement production facilities that are in close proximity to raw materials and key markets

* Extensive sales, marketing and distribution network with diversified product portfolio

* Growth in the business and operations from acquisitions and, in particular, the recently concluded acquisition of NU Vista

* Strong research & development and technological capabilities

* Experienced individual promoter and professional management team

Risk and concerns:

* Subdued economic activities during pandemic times

* Unexpected pricing pressure

* Unfavorable movements in the raw material prices

* Delay or difficulty in asset integration and expansion

* Rise in interest rates

* Competition

Below are a few key observations of the issue:

* After two years of above normal growth, there was a contraction in cement demand in FY20 and FY21, respectively, which was mainly due to subdued economic activities and stress in key consuming real estate sector. During this period higher, investments in road and other infrastructure projects were the key volume contributor. With improving affordability real estate sector is likely to revive, while with continued focus of the government on infrastructure creation, cement demand is expected to grow by 6-7% CAGR over FY21-26.

* Anticipating a healthy growth outlook, cement manufactures have planned to add around 80mn tonnes by FY24, which will be the highest addition in a block of three years in a decade. This will take the sector’s installed capacity to around 618mn tonnes from an installed base of 540-542mn tonnes in FY21. Major capacity additions are expected in Eastern and Central India, which is characterized by lower per capita consumption, strong demand growth and higher capacity utilization of cement plants.

* NVCL is the fifth largest cement manufacturer in India with a consolidated capacity of 22.32mn tonnes per year (4.2% of all-India installed capacity). In terms of capacity, it is the largest cement company in East India with an installed capacity market share of 17%. The company also has a market share of 4.7% in North India market. Its product portfolio has a range of over 50 products across cement, RMX and modern building materials. NVCL is also one of the leading manufacturers of ready-mix concrete (RMX) in India.

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