IPO Analysis: Nuvoco Vista and CarTrade Tech

By Morningstar |  10-08-21 | 

Two new Initial Public Offer (IPO) opened for subscription on August 9, 2021. They are Nuvoco Vista Corporation Limited and CarTrade Tech. Here is an analysis from two investment bankers/brokerage houses about these IPOs.

Nuvoco Vista Corporation Limited

IDBI Capital: Subscribe

Nuvoco Vista Corporation Limited (NVCL) is promoted by Dr. Karsanbhai K. Patel of Nirma Group. The Nirma Group is a diversified conglomerate that manufactures products ranging from chemicals to detergents, soaps, healthcare products and real estate development. Nirma Group forayed into the cement business in 2014 through a Greenfield cement plant in Nimbol.

Nuvoco Vista Corp (NVCL), India’s fifth-largest cement manufacturer (22 million tonne capacity) is coming out with an IPO to raise Rs 5,000 crore. The IPO size is ~25% of post-issue equity with promoter selling stake of Rs 3,500 crore and fresh issue of Rs 1,500 crore. NVCL operates in East region (70% of capacity) and has the highest capacity market share of 17% in the region. The company has increased its capacity from ~2.5 million tonne per annum (mtpa) in FY16 to 22 mtpa in FY21 by way of acquisition (~85% of capacity is inorganic addition). NVCL has plan of organic expansion in east of 2.7mtpa (12% addition) over FY22E and FY23E.

The IPO at the upper band is priced at 10x FY23E EV/EBITDA or EV/tonne of $131. Valuation is at discount to its large cap peers at 12x-19x FY23E EV/EBITDA. Discount partially factors high debt in its books (FY21 Net Debt/EBITDA of 4.5x) and low ROCE. But given up-cycle in the cement industry and expectation of improvement in margin and balance sheet deleveraging over FY21-23E.

Investment Rationale

Capacity addition by acquisition: NVCL a Nirma group company has increased its capacity by 9x in the last 5 years led by two acquisitions. NVCL acquired 11mt Lafarge asset in FY17 at EV/t of USD126 and Emami asset of 8mtpa at $95/t in FY21. With the acquisitions, NVCL has strengthened its market leadership in the East region. In the last 4-5 years East Region demand has been highest versus other region and NVCL east asset utilization (FY21) at 79% has the bandwidth to increase.

EBITDA margin is low vs peers: NVCL in FY21 has reported EBITDA margin of 20% (company EBITDA/tonne of Rs 869). If compared with peers its EBITDA margin is low (FY21 peers avg. is 24-25%) and NVCL has guided to increase EBITDA/ per tonne by 20% in the next two years. This will be driven by streamlining the acquisition and internal efficiency.

Key Risk: NVCL outlook is tied up with economic activity in Eastern Region. On balance sheet, due to acquisitions, FY21 Net Debt/EBITDA is high at 4.5x (net debt at Rs 6,800 crore) and NVCL has guided to reduce it to 1.2x in the next 2 years. Debt reduction will be driven by proceed of IPO (Rs 1,400 crore) and internal accruals.

Profit After Tax: FY 2021: Rs (25.91 crore), FY 2020: Rs 249.25 crore, FY 2019: Rs (26.48 crore)

(Brackets indicate loss)

Risks and Concerns on NVCL business

  • Concentration of revenue profile in the east region
  • Increase in fuel cost with no commensurate increase in the selling price
  • Debt and leverage in the books
  • Low Return ratios

IPO Details

  • Issue Date: Opened on August 9, 2021, and closes on August 11, 2021
  • Type of Offering: Offer Share and Fresh issue
  • Total Offer Size: Rs 5,000 crore
  • Price Band: Rs 560-570 per share
  • Minimum Investment: Rs 14,820
  • Minimum Bid: 26
  • Listing Date: August 23, 2021

Share holding pattern

  • Pre-Issue: Promoter 95.2%, Public 4.8%
  • Post-Issue: Promoter 71%, Public 29%

(Source: IDBI Capital)

Cartrade Tech

Nirmal Bang: Subscribe

Cartrade Tech was incorporated in April 2000. It is a multi-channel auto platform with coverage and presence across vehicle types and value-added services. Its platforms operate under several brands: CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz.

Through these platforms, CarTrade enables new and used automobile customers, vehicle dealerships, vehicle OEMs and other businesses to buy and sell their vehicles in a simple and efficient manner. The company’s vision is to create an automotive digital ecosystem which connects automobile customers, OEMs, dealers, banks, insurance companies and other stakeholders.

CarTrade’s platforms like CarWale and BikeWale are ranked number one on relative online search popularity when compared to their key competitors during FY21, while Shriram Automall is one of the leading used vehicle auction platforms based on a number of vehicles listed for auction for the year FY20. Among its key competitors, CarTrade is the only profitable automotive digital platform for the year FY20.

CareTrade offers a variety of solutions across the automotive transaction value chain for marketing, buying, selling and financing of new and pre-owned cars, two-wheelers as well as pre-owned commercial vehicles and farm and construction equipment.

IPO Details

  • QIB (Including Mutual Fund): 50%
  • Non-Institutional Investors: 15%
  • Retail: 35%
  • Post Issue Equity: Rs 45.83 crore
  • Issue Size: Rs 2,999 crore
  • Price Band: Rs 1,585 – Rs 1,618
  • Issue Date: Opened on August 9 and closes on August 11
  • Minimum Investment: Rs 14,562
  • Minimum bid: 9

Profit After Tax: FY 2021: Rs 101.07 crore, FY 2020: Rs 31.29 crore, FY 2019: Rs 25.91 crore.

Revenue streams of CarTrade (FY21)

  • Around 57% or Rs 142 crore revenue was generated from commission and fees from auction and remarketing services of used vehicles for retail customers, banks and other financial institutions, insurance companies, OEMs, leasing companies, and fleet and individual operators.
  • Car Trade derived 36% or Rs 88 crore via (i) online advertising solutions on CarWale, CarTrade and BikeWale; (ii) lead generation; and (iii) technology-based services; from OEMs, dealers and BFSI companies.
  • Inspection and valuation services for BFSI companies and OEMs formed rest of the 7% of revenue.

Investment Rationale

  • Strong growth in used vehicles industry to act as a tailwind.
  • Strong competitive positioning driven by superior customer experience, brand and powerful network effect.
  • CarTrade is the only profitable player among its key competitors.
  • CarTrade shall monetize value added services and untapped opportunities.

Valuation and Recommendation

Car Trade is the only profitable player in India and one of the few players internationally in the vehicle platform space. The company owns the No. 1 ranked platforms in their respective categories i.e. Carwale and Bikewale, which instils confidence in the sustainability of its growth which is powered by this network effect. Further, with a war-chest of Rs 668 crore on the balance sheet, CarTrade is well-positioned and plans to capture adjacent business opportunities such as insurance, financing, servicing of vehicles, accessories and refurbishment cum sale of cars. We believe the company offers an attractive opportunity to participate in a new age business with a leading vehicle platform company at Price to Book (P/B) of 4.2x & Market Cap/Sales of 27x.

(Source: Nirmal Bang)

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