Nesco


(sivaprakasamp) #202

Thanks for sharing this Ketan.

That's a well written note and good to note that Reliance is not in competition. And my forecast too implies that the share of BEC to top line and bottom line is not more than c.30% in the long run (from the current c.40%), since the only upside for BEC is the FSI uptick whereas the IT park business will see new buildings. Hence this is more or less an annuity business.

Management's innovative use of BEC (new shows targeting youth and backward integration to kitchen) is a clear plus.

I really wish they turnaround their capgoods division since it has posted a loss despite healthy sales growth this quarter.

Another concern is how they will manage to raise internal accruals of Rs 1500 Cr, since that's the capex forecast for BEC upgrade and IT B4. Right now they have Rs 400 Cr as cash/equivalents. Looks like they will take a few years to manage the 1500 Cr spend, which puts pressure on project timelines. However, not taking debt is a positive IMO.


(Ayush Mittal) #203

Having been following this company for few years now, the most interesting part is to see the management commentary which comes along with the quarter results. Since last 2 quarters, the commentary is attached and seems to be pretty confident/bullish.

One interesting observation is that the company has scaled down some of the future numbers in Dec16 announcement vs Sept 16 announcement :slight_smile:

It will surely be very interesting to see how the exhibition business pans out in coming years given that massive capacity expansion is taking place in the city.

Disc: Invested


(Vivek Mashrani, CFA) #204

@ayushmit ...... look at the detailed model on expansion plan which I had posted some days earlier...

The next few years will be fantastic for the company. Particularly provides visibility and longevity.


#205

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(Venkatesh) #206

Even assuming 4QFY17 profits is same as 4QFY16 at Rs401mn FY17 EPS is likely to Rs127/share implying NESCO still trade at reasonable valuations of 17.7x P/E FY17

Disclosure: Invested since lower levels


(Gary) #207

The profitability of NESCO would get impacted with the capex being planned. I intended to do (but couldn't so far) an analysis of capex required vis-a-vis FCF to see how much would actually come from that irrespective of claims. If the projected 1500 Cr. is actually required over next 5 - 7 years, I doubt if they can manage it without debt .


(Vivek Mashrani, CFA) #208

You need to factor incremental cashflow that will come from Building 4 as well. Then the math will work out.


(Aejas Lakhani) #209

Regarding the capex of 1500crs is for the IT building 4 & the additional exhibition centre space. i think something you havent factored - IT Building 4: already 250crs has been invested. Add the CFI activities for the last 2 years. Add the FY16-17 numbers numbers when the AR comes through and 350crs would have been invested already. Even after that as on Dec 31, 2016 nesco has 400crs+ of liquid resources. And they continue to generate 150crs cfo every year. Hence the 1500crs is notional, the actual cash outflow from where we stand today is much lower


(barathmukhi) #210

Hi Vivek,

What is the source of this info?

Regards,
Barath.


(Vivek Mashrani, CFA) #211

Kindly see the presentation I posted few days back. Thx


(Mridul) #212

@vivek_mashrani - Regarding existing tariffs, where can i get the information (before April 2017)? On their website, under terms and conditions section the rates listed look obsolete "upto 2011-12"

What are the current rates. Saw your presentation (which is extremely helpful) in which contains that email from Nesco listing the new tariffs from April 2017.


(Vivek Mashrani, CFA) #213

You can contact same e-mail ID. I think its approx. 190.


(Anil.Bilawala) #214

For Constructing 12 lac sq ft @ approx. Rs 3000 per sq ft, amounts to only Rs 360 cr. This can easily be managed from their current FCF (~150 crs) and Investment (400 crs). As mentioned earlier, 250 cr is already spent.
Once this building is ready, it would add ~ 150 crs of FCF annually. (12 lacs x 125 x 12 months x 95% occupancy x 90% EBITA).


(hemtan100) #215
  1. Reliance is in the business of breaking down competition. It has the wherewithal to hold on to obscenely low prices for long periods.
  2. The upcoming metro line on W.E. highway has further clogged the service around Nesco. That's a turn off for most international clientele. BKC has much better connectivity to the airport.

My reasons for booking out of nesco 3 months back.


(sivaprakasamp) #216

NESCO can undercut as well and still remain profitable. And when the target clients are different, I doubt they will undercut each other.

Discl: invested


(Mridul) #217

On the contrary, NESCO is set to increase BEC tariffs for the next fiscal. Nesco mgmt must have considered DAIECE impact on their business before doing this.

Well, it is not about just "remaining profitable". If they have to reduce tariffs going fwd due to competition, it wouldn't be good for NESCO share price obviously.


(sivaprakasamp) #218

Agree Mridul. However the share of BEC revenues is 50% which I believe will reduced to 35% in the lon run due to the growth in their IT Business parks. Hence taking a 10% cut to tariffs will have a manageable impact on share price. And this can be offset by their hospitality business and other revenue modes which the company is exploring.


(Mridul) #219

Right! Though, if we look beyond 2020... new, larger and better exhibition center will start contributing gradually and would comprise the most significant share of PAT (much more than Building 4 or any other buildings or current exhibition center). If prospects of that get impacted due to DAIECE, then we have to reconsider this investment.


(Anil.Bilawala) #220

I am not sure if the BKC development of Reliance is focused on capturing market share in the exhibitions business which is the size of peanut in the overall scheme of things for Reliance. Yes Reliance can undercut and kill NESCO's exhibition revenues. But inspite of MMRDA grounds being around since quite sometime, it has hardly made a dent on NESCO's business .... the Ecosystem around Goregaon is better with a range of hotels (low price to 5 stars), commercial developments, retail & residential and infrastructure (train station, now metro, etc) .... BKC is dead after 7 pm.


(Anil.Bilawala) #221

Thanks for sharing the excel model.
Few Queries
- Will the revenue of New BEC completely add to revenues or will some of it eat into current BEC revenues. I dont think that they are running short of capacity. The number of exhibitions many remain the same. New BEC may just be better infrastructure and maybe better realizations but may not 100% add to NESCO revenues
- The Investment income may not continue as they will invest the cash in constructing the new BEC & IT buildings