Does anyone know if TCS have vacated IT Building #1?
The marginal decline in 4Q revenue at BEC could certainly be due to demonetization. However I am struggling in my analysis of opex. Please see below table. 4Q17 BEC opex at Rs. 12.4 crores is much higher sequentially and YoY. I wonder what explains this? This also gets reflected in 'total other expenses' which at Rs. 26.7 crores is much higher vs. prior periods.
The press release issued by NESCO indicates that they have started work on redeveloping the exhibition centre. The expenses could be because of the preliminary work on this. They were in the process of engaging an American consultant to plan for the integrated development of the NESCO complex. This too may have added to expenses.
But I have to confirm this at the next AGM before I can say for sure.
Current exhibition centre is 1mn sqft. New phase 1 will be 1.5mn sqft. This is could have likely pulled down 4Q margins in the exhibition centre segment. Stock at 20x trailing.
Nesco current quarter result other expenses has gone up to 26.66 cr.
Anyone is aware why this increase happened?
Also what other income of 11.27 cr comprises of?
Some news on Reliance convention centre front:
Any idea how will it going to Impact Nesco ? Also is there any confirmation
that TCS has left NESCO ? If so then who else is filling up?
Well said. IT building 4 will take much longer than expected going by their past record of building 3. Demand scenario is also not looking great. Exhibition center revenue will be affected during upgrades. DAICEC is another unknown. Overall, as you said revenue will be flattish and net profit will be volatile (even otherwise it is volatile) for next 2 years, and that is if everything works out as projected.
Two years is a long time to wait for the story to play out. There will be corrections along the way. I think current chapter of the story started when building 3 was completed and next chapter will start when building 4 completes. Until then I am not in a mood to ride along.
Franklin Templeton MF bought 1 lac shares yesterday.
Sumant Patel on NDTV today:
- Expect 15-20% overall net profit growth in FY18
- IT building 1,2,3 are fully occupied
- Expect revenues of 190-200 crores from Building 4 when it is ready.
- Exhibition center doing well and can clock 20% growth in 2018.
- Overall he sounded positive.
So in three years' time we can see topline and bottomline more than
Nesco latest annual report:
Any news on the split? I couldn't find any
Govt claiming Reliance owes a fine for delay in the convention center:
Since I am travelling, I won't be able to attend the NESCO AGM this year. I have a few questions that may be asked of the management. Others are welcome to improve on this:
update on IT building 4
redevelopment of exhibition centre. when will this happen? after
completion of IT building 4 or before that?
will any of the existing exhibition halls be demolished during
redevelopment? If so how much impact will be on the revenues.
Annual Report speaks of hotels being constructed? When is this
planned? Is there any government incentive like additional FSI for the
construction of a hotel here?
How much land will be given for the metro line? Will a station come up
in NESCO property? If so how will it affect/benefit the company?
what prospects do you see for the event management division? You had
organized a music concert last year? Any more events in the future?
How lucrative is the business of renting halls for weddings and events?
Will underlying story change once DAICEC opens in BKC? Will this increase in supply lead to lower margins or cost competition in any way?
I attended the AGM and have made some notes. Will update them before this weekend, as and when my schedule permits..
I attended Nesco’s AGM on Aug 14, 2017. Captured below is management’s commentary from the AGM. Part 1 of my notes include what was communicated to the shareholders by Mr. Sumant Patel in his address (which has subsequently been released to the bourses) and his answers to some of the queries thrown up by the shareholders at the AGM.
Part 2 of my notes includes my 30 minute conversation with Nesco’s CEO - Dibakar Chatterjee (Mr. Chatterjee was addressing multiple folks at the same time). Mr. Chatterjee was very forthcoming, open and very patient in answering queries addressed around the business. Overall, I feel grateful to him for having spent his time with us in answering our questions. He seemed to be a really sharp, approachable guy with a great sense of where their business is heading.
Lastly, there was a lot of information that I soaked in during my time there. So if I end up stating something incorrectly (including typos and grammatical errors) please excuse such lapses.
Part 1: AGM Notes & Replies to share holder queries:
- AGM was conducted at ‘The Grande, Hall No. 2’. This hall is a new hall that has been constructed by the company for marriages, functions, events, seminars, town halls etc. It is a fairly large hall that has been created for ‘non-exhibition’ (banquet) related opportunities. Further Mr. Sumant Patel was hopeful that next years AGM will be held in IT Bldng # 4.
Pointers on Exhibition Business:
- BEC growth in revenues 18%. 109 exhibitions conducted in FY17, 27 of these were new exhibitions.
- New Bombay Exhibition Centre (NBEC): Will have a total of 35 lakh sq.ft as usable/carpet area (for conferences, exhibitions etc.). The total built up area will be 70 lakh sq.ft (includes lifts, stair cases etc.)
- Total cost of NBEC will be Rs. 2400 crores. It will be built in phases.
- Phase 1 will incur a capex of Rs. 600 crores. Carpet area in Phase 1 will 7.5 lakh sq.ft. 15 lakh sq.ft to be the built up area.
- The NBEC will consist of a convention centre which will comprise of: an exhibition hall, auditorium (2000 seats), banquet hall and a hotel.
- No debt will be taken for creation of phase 1 of NBEC. Monies coming in from IT Bldng # 4 and other incoming monies from the biz will be used for funding phase 1 of NBEC.
- After phase 1 NBEC revenues start coming in they will proceed to the next phase of NBEC.
Pointers on IT Park:
- IT Bldng # 4 to be ready in Q1 of 2018 (May - June). For all practical purposes one can definitely expect the building to be ready by end of 2018. Total cost of creation Rs. 580 crores. Already spent Rs. 290 crores. Cost went up as govt of Maharashtra announced news policy for IT industry giving 2 FSI. They paid additional Rs. 140 crores to get 2 FSI.
- After IT Bldng # 4 is complete they will begin work on phase 1 of NBEC.
- World class kitchen setup and ready at a cost of Rs.15 crores. Expecting Rs. 20-25 crores of revenue from this business in FY18.
Share holder queries answered:
On exhibition business:
- Earlier approx costs for developing NBEC was given (Rs. 1500 crores I believe). Latest cost of Rs. 2400 crores is more accurate for developing NBEC. They have some Aussie architects working on creating the NBEC and they have already made multiple visits to take things forward.
- While creating the NBEC no existing exhibition halls will be taken down. Work for it will begin on the land where IT Bldng # 1 exists. TCS’ long term lease is ending in Dec 2017.
- While constructing the NBEC they will ensure revenues from the existing exhibition business is not impacted at any time. They will do their utmost to keep the revenues being generated from the exhibition business same or increase it but will never let it come down during the expansion of NBEC.
- Reliance convention centres biz model is different. Residential services part of their development and they will be doing a number of other things in that space.
- No. of exhibitions increasing each year. Income of companies that are participating in exhibitions is increasing. New exhibition organisers want to come to India, esp. the Chinese.
- They need time to work NBEC revenue projections as they are getting into something new - audi, hotel etc.
On IT park:
- They are already having discussion with existing tenants to pre-lease parts of IT bldng # 4 even before it is ready. Discussions have been very positive and encouraging.
- Slowdown in IT sector not affecting leasing of commercial space. Lot of interest by foreign investors in India and with India growing they are fairly confident of leasing out all of IT bldng # 4.
- Revenues from IT Bldng # 4 to be ~Rs. 200 crores
On other businesses:
- In Gujrat they have 15-17 acres of land available. Lots of space available for any future expansion including any new biz lines they decide to get into.
Other queries answered:
- As per new FSI norms, for every 1 lakh sq.ft they can create 3 lakh sq.ft for IT Bldngs (2 FSI for IT bldngs) and for every 1 lakh sq.ft they can create 4 lakh sq.ft for exhibition business (4 FSI for NBEC).
- GST rate of 18% applicable on the business.
- Any old structure demolished and replaced with a new structure will follow the new FSI rules.
- I’m not clear about THIS POINT: Total 20 lakh sq.ft of overall land available (~45 acres). Can build 40-50 or 60 lakh sq.ft on this land basis what is created - IT bldng (FSI 2) or Exhibition centre (FSI 4).
Chat with the CEO:
- They have a total land holding of 65 acres. This is area that is behind the Nesco walls. No part of the land has been lost due to metro work.
- They are slowly trying to change their image from being land lords / lessors to a more B2C oriented company. Nesco events is a step in that direction. They have also hired a marketing team and are also building out an events team in due course. Head count will increase for this purpose. New logo change is the start of this gradual transition (from B2B to B2C).
- Two nesco owned events / properties to happen this year - ‘Paddy Fields’ (http://paddyfields.in/index.php) and ‘Rangilo Re’ (http://www.rangilore.in). They take about 4-5 years to make their own events profitable. Rangilo Re (Dandiya) will also be played in AC halls which not many venues can offer (at such a large scale). In the long run they plan to have 20 such properties/events of their own.
- They may also sell space in newly created exhibition halls for award ceremonies going forward.
- Their aim is to fill out 220 exhibition days each year. They do bookings 4-6 quarters in advance for exhibitions in most cases (sometimes even sooner). More exhibitions expected going forward.
- Hotel aimed at catering to the folks/guests that come for the exhibition. Hotel will be a 4 star hotel and will be run by Nesco itself. They don’t want to outsource the operations and end up paying 15-20% of their earnings to use the name of a popular chain.
- Upcoming Reliance exhibition centre small compared to BEC. They don’t see them as a threat as their audiences are going to be different. Furthermore smaller size may not allow Reliance to do all types of exhibitions. They feel Reliance’s entry will help expand the nascent exhibition market in India further.
- Furthermore, they feel the location of BEC is excellent and its tough for competition to beat it. The only good exhibition space as per them is Pragati Maidan in Delhi. Bangalore’s exhibition centre is in some far flung space. Cidco’s new exhibition centre is hardly spoken about or heard off.
In case Reliance undercuts them, they will be aggressive too and ensure their sales team gets the business in.
Everything to the left of ‘Grande Hall (where the AGM took place) will be dedicated to BEC and right will be for IT park.
- IT Bldng # 2 will be vacated (by Intelenet) in the first 3-4 months of 2018.
- Work on IT Bldng # 4 had to be stopped due to some ban put in place by the Maharashtra govt. in getting stones from the quarries (quartz i believe, I could be wrong!). Work has now resumed. Floor 1 complete. Work on floor 2 ongoing.
- IT bldng # 4’s leasing will start in the first quarter of CY 2019.
- One can expect a total of 18 months to fill out IT Bldng # 4.
- 1200 crores of capex expected over the next 3 years: IT Bldg 4 + NBEC + Regular Capex / Upgradation work.
- Gap of 2-3 quarters after IT Bldng # 1 goes down and NBEC comes up. They will try and mitigate the risk by increasing their revenues from IT Bldng # 4, catering biz etc. They will do their utmost in smoothening out such transitions in a manner that revenues and profitability don’t get impacted much.
Oberoi, Nirlon and Nesco are looking to lease commercial space in the Goregaon area. As per him, all projects are going to come up in such a way that they don’t end up affecting each others business and inventories. Things are being planned at least by Nesco in such a way.
Kitchen can produce 15,000 meals in 1 shift and 30k in 2 shifts. They may look at selling food outside their captive area. Margins in the business quoted at 30-35%.
- In the next 3-6 months they will be opening a bar inside the campus. They will also be looking at comedy nights regularly at the bar as such events don’t happen in suburbs.
- They may even start leasing out their halls for new year events. One such event already took place last year.
- At all times they are going to try and maximise revenues by using the large amount of space available to them and increase the occupancy days / times. They are trying to open up multiple streams of revenues by leasing out halls for multiple purposes/activities.
Disc: Invested and biased
Thanks for this detailed report. Very significant development is the replacement of IT Building 1 with a new exhibition centre. Due to higher FSI of 4 for exhibition centre management seems to have opted for exhibition/convention centre instead of IT Building. Earlier they were planning to replace IT Buildings 1 and 2 with bigger buildings.
Management's announcement that revenues from the exhibition business would continue unhindered during the construction New Exhibition Centre is a big plus.
As usual, management seems to be quite optimistic about completing the New Exhibition Centre in 6-8 years. The first phase of the new exhibition centre will account for just 20 per cent of the targetted area. So unless the management increases the size of the subsequent phases it would take 10-12 years or more for the new exhibition centre to be completed.
Thanks Aman for sharing your notes.
I thought I could throw some light on your query
- "I’m not clear about THIS POINT: Total 20 lakh sq.ft of overall land
available (~45 acres). Can build 40-50 or 60 lakh sq.ft on this land basis
what is created - IT bldng (FSI 2) or Exhibition centre (FSI 4)."
Since the land area is 20 lacs, and they are planning a mix of development
between IT (more of IT) & Exhibition the blended FSI would be around 2.5-3
ie 50 lacs to 60 lacs. Hope this helps.
Thanks for the notes! Very thorough!
Few questions -
What happens to the existing exhibition center once they start operating the new center in phases? They have said that no existing exhibition halls will be demolished while constructing the new center. But what happens once the new center is complete?
Do we know how much is the IT Building 1 contributing to the revenue and PAT? As the lease for Building 1 will end in Dec 2017, probably they will not be leasing it out again as this building is going to be demolished for new exhibition center?
Did they mention the whereabouts of the Gujarat land bank? Value?
Cost for IT building 4 and NBEC was planned to be 430 cr + 1500 cr ~ 1900 cr. Now, it has been escalated to 580 cr + 2400 cr. ~ 3000 cr. They have said that IT building 4 and 1st phase of NBEC will be done through internal accruals. What beyond that? Are they open to taking debt for further expansion?
With Intelnet moving out around March 2018 from Building 2, what are the plans for this building? Will this be demolished for NBEC or would be leased out again?
Just trying to estimate the revenues for next 2 years due to new things coming in and existing sources going out. Revenue from IT Building 4 will start coming not before Aug-Sep 2018. On the other hand, building 1 wills top contributing from Jan 2018 and Building 2 from Apr 2018. So, looks like revenue will be more or less stagnant or decrease temporarily depending upon BEC growth.