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Nesco Ltd has a Exhibition and Convention centre by the name Bombay Exhibition Centre located at Goregaon, Western Express Highway in Mumbai.
In 9m FY11 Nesco has posted a PAT of Rs. 48 crores and since its business is a build and lease model, most of the earnings results in cash. Also its IT Bldg no.3 admeasuring 5 lac sq ft is nearing completion. The rentals from this addition will result in additional cash (net of expense ) of approx Rs.40 crores in FY 12.
Nesco holds 70 acres of land in Goregoan which is prime location. Out of this, on 11 acres stands the Bombay exhibition centre and IT park which will generate an annual cash flow of Rs. 90 crores. Borosil Plot in Andheri measuring 18 acres was sold last year at a price of Rs. 830 crores.
If one discounts this even by 50%, Nesco’s vacant land of 59 acres will be valued around Rs. 1360 crores. Plus cash and cash equivalents on balance sheet as on 30/09/2010 is Rs. 158 crores. I understand the company may have spent around Rs. 35 crores for construction of IT bldg no.3. Still on a conservative basis the company will have cash on balance sheet of around Rs. 150 crs FY 11 Y.E. Present market cap of the company Rs. 750 crs
I think this is a good value buy for below reasons: -
High entry barrier
More than 70% OPM
Market value of assets Rs. 1400 crs + Cash of Rs. 150 crs
Annual cash flow of Rs. 90 crs expected from FY 11 onwards
Due to availability of huge tracts of free hold and free cash, company can scale up operations easily
In case of slow down in economy, the company’s earnings can fluctuate as advertising and marketing budgets of clients gets cut down. However, the huge gap between market value of asset and market cap presents good margin of safety.